Supply Chain Reaction

We went though a period of recalls because laptop batteries were bursting into flames, and now a fire at Matsushita Battery Industrial's (MBI) Osaka, Japan, plant has halted production of such batteries, further disrupting the power supply/battery supply chain. Big picture, though, it’s not just the battery supply chain that will take a hit this Q4 holiday season. What we have here is a true “supply chain reaction.”

According to analyst estimates, MBI's Osaka plant makes up 14 percent of global lithium-ion notebook battery demand, or about 4 million packs for the current quarter. The production stop, because of the fire that occurred on September 30, is expected by some industry sources to last up to three months (e-mails to Matsushita seeking confirmation were not returned by press time). Effectively, such a stoppage will reduce lithium-ion battery supply by 14 percent and could seriously damage notebook supply at MBI’s top customers (reportedly Toshiba and Dell, which already has a shaky electronics supply chain).

Notebook sales overall, as well of sales of notebook ICs and components, will be damaged by this fire. For example, if the laptop supply chain takes a hit in Q4 -- a good source of revenue from the holidays -- assume the already hurting DRAM market will face further challenges. LCD suppliers also could face challenges if notebook output decreases, although that panel capacity could be shifted somewhat to desktop monitors.

The only good news is for lithium-ion battery suppliers, other than MBI. Demand for safe, non-exploding lithium-ion batteries has been high since recalls of laptop batteries began in 2006. These continued through this summer  and were followed by cell phone battery recalls, with Matsushita announcing in August that its recalls of Nokia lithium-ion batteries could cost $172 million.

The MBI fire will likely serve to tighten the shortage situation in the notebook battery supply chain, driving ASPs of rechargeable notebook batteries up.

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