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Semiconductor Industry Faces Problems After Resin Plant Explosion

August 4, 1993 GMT

TOKYO (AP) _ It’s an obscure ingredient that accounts for only about 1 percent of the cost of a typical semiconductor.

But epoxy resin has been the talk of the computer chip business for the past month after an explosion destroyed a Japanese factory that made 60 percent of the world’s supply.

Prices for memory chips on the U.S. spot market, where small makers of personal computers buy parts, spiked after the incident on fears that a shortage will soon occur.

A set of chips that hold 1 megabyte of memory went from $33 to $70 two weeks ago and was selling for $58 Wednesday.

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″That’s speculators preying on the fear in this situation,″ said Keith Kolerus, president of National Semiconductor Japan.

But the speculation continues because uncertainties abound after the July 3 explosion at Sumitomo Chemical Co.’s plant in Niihama, in southwestern Japan. The company says it won’t know until later this month how long it will take to rebuild.

Industry analysts, however, say they expect the factory will remain closed for about a year.

″It’s still a muddy picture. But it’s clear that we face a period of shortage,″ Steven Myers, electronics analyst in Tokyo for Jardine Fleming Securities, said Wednesday.

Resin is used in the casing around the fragile silicon circuits of a semiconductor. It must have exactly the right consistency, purity and heat properties.

Large PC and semiconductor makers have long-term contracts with suppliers and haven’t seen an immediate rise in prices.

But the incident raised an awareness of the industry’s vulnerability to disruptions in material supplies.

″It exposes how fragile the industry is,″ NEC Corp. spokesman Mark Pearce said.

″We’re discovering that other suppliers also control vast shares of key raw materials. It’s really an enormous risk,″ he said.

Industry sources say, for example, that 70 to 80 percent of an ingredient of epoxy resins, cresol, is controlled by a single company.

Several large U.S. chipmakers have formed task forces to monitor the resin problem. And a delegation from the U.S. Semiconductor Industry Association met with Sumitomo executives in Japan earlier this week.

″The question now is whether anyone else is going to be willing to make epoxy resin,″ said Peter Rawle, an analyst in Japan for Smith New Court Securities. ″If things stay as they are, the situation will get rather acute in the autumn.″

Sumitomo has two months of epoxy resin in storage and has made arrangements with companies in Japan and Taiwan to supply 50 percent to 60 percent of its usual production, spokesman Tomoyuki Hirayama said.

Sumitomo asked Dow Chemical Co. to resume production of epoxy resin, a market the U.S. company left in 1991.

Dow estimated it would cost $5 million to restart its production and asked Sumitomo to pledge to purchase its output for five years. Otherwise, Dow spokesman Ken Hawthorne said, the company feared spending a lot of money for a short-term opportunity.

″We would be in exactly the same position we were in 1991, in a market we were not happy with from a return standpoint,″ Hawthorne said.

Sumitomo did not agree to those terms.