Earthquake Threatens Global Supply Chains (HIT, LNVGY)

Damages from Japan's earthquake are threatening global supply chains.

Toshiba Corp must close one of its LCD plants in Japan for a month to repair earthquake-related damages. The plant supplies the displays for navigation systems and mobile phone displays. The two Japan-based plants account for approximately 5% of the global market for small LCD displays.

Damian Thong, an analyst at Macquire Capital Securities says, "Given that car production in Japan is down anyway, a one-month stop in production may not be as problematic as it might seem." However, the makers of smartphones may see a supply problem from the pause in LCD screen production out of Japan.

Hitachi Ltd. HIT is also reporting damages and power outages from the earthquake causing it to temporarily halt LCD production at one of its plants near Tokyo.

Lenovo LNVGY has also experienced a production disruption and anticipates the effect it will have on its profits. Lenovo's Chief Executive Yang Yuanqing stated, "In the short term there won't be much impact. We are more worried about the impact in the next quarter."

Toshiba, Hitachi and Lenovo are only the latest in a string of announcements regarding temporary breaks in production by Japan-based factories, following Sony and Sanyo recently. Long-term breaks will inevitably hurt corporate profits. If any regionally produced items are on pause for a lengthy break, it could damage global supply, possibly even affecting global economic growth.

Concern for the effect of paused production on the global economy has already been displayed, as global share prices have fallen since the earthquake. Shares of Toshiba were down 30% this week.

To counteract this, Taiwan is considering cutting tariffs, as its economy depends greatly on the high-tech market.

Lien Ching-chang, deputy director general of the Industrial Development Bureau of the economics ministry says, "The impact from the earthquake has been limited as most companies have inventories at hands. But we're closely watching the power disruption situation in Japan. If necessary we'll consider lowering import tariffs on components."