Domestic, global economies set to be rattled by Japan's Renesas adding to severe chip crunch

TOKYO, April 2 (Xinhua) -- Japanese chipmaker Renesas Electronics Corp. has said it could take up to four months for production at its fire-hit plant to return to normal levels, with the longer-than-expected recovery set to severely impact global automakers' production and rattle both domestic and global economies.

The damage caused by the fire at the Naka plant in Ibaraki Prefecture, northeast of Tokyo, on March 19, was worse than initially thought.

Renesas President and CEO Hidetoshi Shibata first said that partial production would resume in late April, with full output expected within two months. But later, it updated that the fire damaged more than double of its initial estimate of machines used for chip production.

The Japanese chipmaker produces roughly a third of the global market share for micro-controller chips used in automobiles and is the world's second largest manufacturer of automotive chips.

According to the firm, the machines damaged in the fire aren't immediately replaceable as new ones are likely not to be ready until June at the earliest, and used machines from other plants and manufacturers aren't immediately available.

Therefore, Shibata said that the plant's recovery to pre-fire levels is now expected to take at least around 100 days and possible 120 days from the incident. Furthermore, while partial resumption of production may resume in late April, shipping of extremely limited volumes won't begin until late May at the earliest.

The delay in the plant's production is set to severely impact global automakers' production as makers are already struggling with a dire worldwide shortage of microchips.

Renesas said that owing to its output cuts, its supplies of chips to automakers around the world would dry up by the end of this month.

Shibata said global automakers, including the likes of Toyota, Hyundai, GM and Ford, should expect to feel the adverse effects of the shortfall in chip supply for a month-and-a-half to two months after all its existing stocks are shipped.

Global automakers had been challenged by a severe chip shortage and forced to slash production, in part due to a massive surge in demand for semiconductors used in consumer electronics and digital products as more people stay at home during the novel coronavirus pandemic.

On the domestic front, Japanese automakers, including Toyota Motor Corp., Honda Motor Co. and Nissan Motor Co., have also drastically lowered their output at plants at home and abroad due to the chip supply shortage.

Mitsubishi UFJ Morgan Stanley Securities Co. said it expects Japanese automakers would henceforth have to reduce output by as much as 1.1 million vehicles in fiscal 2021, the equivalent of 5 percent of the total forecast.

Toyota Motor said that the extremely difficult situation after the Renesas accident left the carmaker no choice but to plan some sort of production cut.

Such production cutbacks could take a serious toll on Japan's already fragile economy as automobiles account for 18 percent of Japan's exports and 15 percent of the country's entire manufacturing output.

Renesas, a global heavyweight in the chip market, has now majorly contributed to the global chip supply crunch with some industry insiders saying that not only will the already recession-hit Japanese economy take a severe hit, but the global economy could also be rattled.

Nomura Securities has estimated that the ripple effect from the difficult recovery of Renesas could result in global vehicle production plummeting by as many as 1.6 million vehicles in the April-June quarter, which is 7 percent of the planned output, with makers across the United States and Europe likely to be seriously impacted.

Domestic and global economic concerns have prompted the Japanese government to intervene. Japanese Trade Minister Hiroshi Kajiyama said the ministry has been in talks with chipmakers in other countries to help make up for the Japanese chipmaker's shortfall.

"We are in communication with several manufacturing equipment makers to speed up procurement. The ministry will also work together for a swift recovery by using all possible means," Kajiyama said.

Adding to the chip supply chain's present woes, industry insiders voiced their skepticism, suggesting that Renesas' recovery to full production could take significantly longer than four months, thus dealing a far harder blow to the domestic and global economy.

"Bringing production back completely in three or four months will be extremely difficult, and companies should consider the possibility that effects will last for at least about six months," Sanshiro Fukao, senior research fellow at Itochu Research Institute, was quoted as saying.