Seagate has offered $186 million, or about 4.05 euros per share, for 64.5 percent of the shares of LaCie controlled by Philippe Spruch, the company’s chief executive. The offer amounts to a premium of almost 30 percent.

Anecdotally, I can also say that LaCie’s drives are probably the most popular among people who own Apple Macs. I see its orange-encased ruggedized external drives everywhere Macs are used, and I own about a half-dozen of them myself. From a consumer retail perspective, Seagate has generally struggled to penetrate the Mac-owning market. And as we all know, the size of the Mac market is growing faster than the rest of the PC-owning world.

There’s also LaCie’s considerable retail and distribution footprint to consider. Under terms of the deal, Spruch would join Seagate.

Seagate is approaching the deal from a position of renewed strength. It weathered the flooding in Thailand, which hammered the hard drive industry’s supply chain and caused a shortage last year, better than rival Western Digital.

In the message, first published by 9to5Mac, Cook says Apple is not “ignoring the human cost” of its supply chain, and dismisses accusations that it is complicit in worker abuse as mendacious.

“We care about every worker in our worldwide supply chain. Any accident is deeply troubling, and any issue with working conditions is cause for concern,” Cook wrote. “Any suggestion that we don’t care is patently false and offensive to us. As you know better than anyone, accusations like these are contrary to our values. It’s not who we are.”

And for evidence of that, one need only look at Apple’s supplier-responsibility efforts. If there are problems at overseas suppliers, says Cook, no one is doing more than Apple to prevent them.

“Every year we inspect more factories, raising the bar for our partners and going deeper into the supply chain,” Cook explained. “As we reported earlier this month, we’ve made a great deal of progress and improved conditions for hundreds of thousands of workers. We know of no one in our industry doing as much as we are, in as many places, touching as many people.”

Which is probably true. Apple has been conducting supplier-responsibility audits and issuing reports on them for years now. And it recently became the first tech company to join the Fair Labor Association, which will serve as an independent auditor for its supply chain.

That said, there’s still a lot more to be done, and Apple could likely do it. With the $13 billion in profits it reported earlier this week, and that $97 billion in cash it’s sitting on, it’s hard to argue otherwise.

As a former Apple executive told the New York Times, “Suppliers would change everything tomorrow if Apple told them they didn’t have another choice.”

An overly simplistic argument, I suppose. The solutions to these issues are far more complex than threats over contracts. But again, more could be done. And not just by Apple. There are plenty of other big consumer electronics companies using offshore labor. And ultimately, the biggest driver of these issues isn’t Apple or HP, but our own buying habits.

The company’s profit climbed by nearly 6 percent in the quarter, despite persistent worries that demand for personal computers is down generally in the face of worldwide economic uncertainty, the popularity of tablet devices like Apple’s iPad, and smartphones in which Intel’s chips are not a significant factor.

Yet, as has been the case for the last several quarters, Intel knows the demand for its global markets — specifically Brazil, Russia, India, and China — far better than any industry analyst, and its executives, especially CEO Paul Otellini, have seemed to enjoy bursting the bubbles of the IDCs and Gartners of the world, who continue to preach a catechism of PC doom.

It’s important for the wider tech industry, because if Intel is healthy, it says a lot about the health of the rest of tech. If PCs are selling well, that means consumers and companies are buying them, either to replace new machines or buying a PC for the first time. And if PCs are selling well, then servers are selling well. Behind all that talk about cloud computing and cloud services are physical servers sitting in a data center somewhere, usually containing Intel chips.

The earnings conference call is about to start, so we’ll get some better indications about how and why Intel managed to surprise the Street once again.

2:35 pm: Ah, joining the conference call in progress. CEO Paul Otellini is speaking and, naturally, he’s crowing about Intel landing a chip in a Lenovo smartphone announced at CES last week.

“In the first quarter, we completed the acquisitions of McAfee and Intel Mobile Communications, formerly of Infineon. They will allow us to extend our strategies across computing.”

He’s recounting highlights of the past fiscal year. During Q4, Intel acquired Telap, which specializes in location-based technologies.

Now he’s talking about a smartphone reference design, basically a board around which a phone maker can build and customize. In the reference design is an Intel Medfield chip. Also, a strategic relationship with Motorola Mobility. “While the Lenovo and Motorola designs are first steps, we’re not done making announcements in the space.”

Now he’s talking about more chips for 2012. For example, 70 Ultrabooks are coming to market this year.

2:39 pm: CFO Stacy Smith is speaking. Nice gross margins of 65.5 percent, which were in the high end of the range. That’s Intel’s speciality — efficiency.

Smith: We saw a reduction of orders for microprocessors as a result of the Thailand flooding. The flooding didn’t affect sales directly, he says.

Smith: Q1 revenue will be down a little more from the average seasonal decline, as the flooding will continue to affect sales.

Smith: 2012 growth of revenue in the high end of single digits. Capital spending of $12.5 billion, in order to build a fancy new fab.

Smith: We continue to see strong results in emerging markets, as increased incomes allow more people to afford PCs.

Time for Q&A with the analysts.

First question from Citi: He’s asking about gross-margin projections and revenues. What is the PC forecast assumption that underlies that?

Smith: It will play out similar to this year. There will be some unit growth, and we’ll benefit from a rich product mix. The high single-digit number in perspective. Strip out some things from 2011, we expect it to come down, in part because of lower GDP growth, but we see the same kind of trends in 2012 that we saw in 2011.

Citi analyst asks if the unit costs per chip are coming down.

Smith: That’s a normal phenomenon as we ramp factories to a new process, and then the cost comes down over the course of the year.

A question from Jefferies: As you get more success in the smartphone and tablet markets, I’m wondering if it’s your intention to get more chips up and down the stack, or is it different from PCs?

Otellini: Our intention is to participate broadly in all three of those markets. In tablets, we’ll be well-positioned for that. Who knows where the prices go over time, but we’d use the advanced silicon integration capabilities that we have to drive the costs down. We’re coming in at the top of the smartphone market; we’re aiming at best performance and very good battery life. And the Infineon acquisition has given us a very good position in basic phones. They shipped about 400 million modems.

Jefferies: Do they inherently carry more profitability than the PC processor business?

Otellini: The other guys have lower margins. But we’ll get paid twice. We’ll get paid as the foundry, but also for the architecture.

2:50 pm: Question from Bank of America: There were a lot of announcements on Ultrabooks from CES. Will they cannibalize notebook sales?

Otellini: I have not seen this level of excitement since before Centrino, which was in 2003. Initially, you will see this will be a replacement of existing notebook sales. People will trade up. As we move through 2012 and into 2013 as Windows 8 machines roll out, you have the possibility or even the probability of many of those machines incorporating touch. At that point, the machines incorporate the best of both the PC and the tablet. I don’t know how that plays out, but we’ll be well-positioned.

Question from JMP Securities: I know you don’t guide by segment, but what’s happening on the data center side of the business? And how does Romley change that? (Romley is a future server chip.)

Smith: Let me do a higher-level look. The data-center business can be pretty lumpy, but on a secular basis, we’re pretty confident in the growth trends.

Otellini: We’re seeing stronger growth for Romley than we saw for Nehalem at the same point in its lifespan, two years ago. Initially, it will not drive the same kind of replacement cycle that Nehalem did. It will drive replacement for high-capacity needs. I think this product is the most well-rounded in the genre so far.

Question from Deutsche Bank: Overall, as we look at flood impact, how should we see that snapping back, and against the backdrop of the seasonality?

Otellini: There are more moving pieces as I look out over the next 11 months. Our view is that the industry seems to be hitting the bottom of their output trough in Jan. and Feb. Everyone who seems to want to buy a PC has been able to. There are some stockouts in particular SKUs. You will see some compression of the supply chain. We think there is likely to be some refilling of the pipes in the second quarter, and into the third quarter. Or people will learn to live with leaner supply chains, which is always good for us.

3:00 pm: Question from Goldman Sachs: What’s the incremental growth in capacity? And what is the initial assumption on factory loadings?

Smith: Let’s talk about what’s driving the capital spending. $12.5 billion is a big number, but you have to take in the context of how our business has grown. Then it makes sense. I think my depreciation as a percent of revenue stays in a healthy range. In terms of the makeup of specific capital spending, it’s a two-year cycle as we’re building buildings. That part starts to come down in 2013. Buildings are depreciated over a longer period of time.

In terms of factory utilization, we’re running full-out today. We’re just in the beginning of the 22-nanometer cycle. We took advantage of the flooding by taking some older equipment offline sooner than we would have otherwise. We’re selling every 22-nanometer unit we can get out there.

3:06 pm: Totally missed the question from UBS. Sorry, UBS.

Question from Credit Suisse about Ultrabooks. Are there any sort of milestones you expect — perhaps, say, percentage of total notebooks?

Otellini: Starting with the mix. Core processors are about 70 percent of our mix, and that’s historically high for our premium brand. What we can’t yet predict is the mix between i3, i5 and i7. As we move toward the second half of the year, the mix comes down to i3. In terms of a target, our goal would be to exit the year with about 40 percent of consumer notebooks being Ultrabooks.

3:11 pm: J.P. Morgan asks if Intel is going to continue to spend like a drunken sailor on capital expenditures and R&D.

Smith says Intel is making some important investments this year, but they will come down from here.

A question from Nomura: Android tablet sales seemed like a disappointment in 2011. What was the issue, and is there a reason to be more optimistic this year?

Otellini: They were where I thought they would be, but I was below where others were. Until you get to Ice Cream Sandwich, you’re at a comparison with Apple’s iPad. The other part of that test is the Windows 8 tablets that are being queued up for production. I don’t think anything about the tablet market is settled yet. The jury is out on the long-term segmentation by form factor.

Ew. Questions from Barclays are being turned back. Smith just won’t go where he wants them to go. Too granular.

3:16 pm: Otellini: The data-center storage is not your grandmother’s data-center business of before. Back to lumpy data-center sales, when Facebook or Apple turns on a new data center. We’re seeing a change to the linearity to data-center sales. Expect more short-term lumpiness, but stick to the year-on-year growth.

One more question to go. And it’s from Caris & Co. He’s asking about capex again.

Smith: If you look at spending for capex in 2012, a historically large part of it is the four-factory model. From here, our capex will be a function of two things — the unit growth we see and the speed with which we bring our process technologies to the leading edge. We balance off those decisions as we go forward. With a big increase in units, we’ll spend the capex to support it.

Caris: You’ve taken on some debt in the quarter, as you look for flexibility to buy back more stock.

Smith: Our balance sheet supports taking on more debt, and we certainly have the capability of doing so. We’ve said in the past, our first priority is investing in the business. We bought McAfee and Infineon. We had a significant increase in dividends in 2011, and as a percent of free cash flow. We did take advantage of low interest rates and high-dividend yield to buy back a lot more stock.

And that is the end of the call. Good night!

This is, of course, bad news if you’re in the business of making the commodity Dynamic Random Access Memory chips that go into PCs, servers and smartphones. A state of oversupply coupled with weak demand means the chips command lower prices than they otherwise would. The situation can be good, however, if you’re buying computers, because memory upgrades get cheaper.

The problem, as related by the research firm IHS iSuppli, is a rise in inventories of chips that its analyst Mike Howard describes as “alarming.”

ISuppli measures how much unsold inventory the chipmakers themselves have in their warehouses — which include Micron Technology in the U.S., Elpida in Japan, and the South Korean pair of Samsung and Hynix. The higher the number is, the more intense the downward price pressure becomes.

The stockpile of DRAM chips as of the end of the third quarter of 2011 stood at 12.8 weeks, which is nearly a third higher than it had been three months earlier and double what it was in early 2010. It’s also a lot higher than the typical average of 9.2 weeks.

There are a lot of factors creating the glut. Tablets like the iPad and Kindle Fire are eating into notebook sales, and don’t require nearly as much DRAM as notebooks do. And new operating systems don’t require the incremental boost in onboard memory as had been typical.

Nor is the economic uncertainty caused by the sovereign debt crisis in Europe helping. Flooding in Thailand has also disrupted the supply of hard drives which has in turn affected the overall demand for PCs and servers. Computer makers who can’t get hard drives simply won’t build as many computers, and thus won’t be buying the DRAM they otherwise would be.

Something similar happened in 2008 when the global recession sapped computer demand and caused a pileup of DRAM chips that lasted nine quarters. This cycle could turn out to be worse, iSuppli says.

Overall, iSuppli reckons the market for DRAM chips was worth about $6 billion in the fourth quarter of 2011, down by 11 percent from the prior quarter, and it’s only heading further south. The worst, Howard says, is apparently yet to come.

If the economy turns upward, or even is perceived to be on the mend, the glut can work its way down pretty quickly. In 2009 the stockpile dropped by more than half over three quarters.

And if it seems obvious that these chip companies should just stop making DRAM and let demand catch up with supply, it’s actually not that easy. Chip factories, or fabs, contain billions of dollars worth of manufacturing equipment running processes that are difficult to stop and start. Also, it’s more expensive to have them sitting there doing nothing but depreciating than turning out a product that brings in revenue, even if it’s running at break-even or a slight loss.

Global sales of semiconductors were $25.1 billion in November, representing a decrease of 2.4 percent from October. On a year-to-date basis, global chip sales were up by 0.8 percent versus the same time in 2010.

Last month, Intel slashed its sales outlook by $1 billion on concerns that effects of floods in Thailand would impact demand for PCs, and thus for its microprocessors. The flooding has caused what’s being described as the most significant supply chain disruption to the PC and server industry in a generation.

SIA President Brian Toohey described the disruption as a near-term problem. “Supply chain disruptions resulting from the floods in Thailand have impacted semiconductor sales in the near term, however OEMs” — PC and other electronics manufacturers — “are expected to recover production losses over the course of the next few months,” he said in a statement.

“November sales were additionally affected by the continuing European financial crisis which is having a broad impact on other economies and global demand,” he said. The impact from Europe is especially clear in the 11.5 percent drop in sales to that region, which you can see in the chart below, a screen-grab from the SIA’s press release.

(Image credit: iStockphoto | V777999)

White’s checks with Apple’s top Taiwan-based suppliers show a massive spike in component orders for the month — well above anything previously charted.

Typically, Apple’s supply chain shows a 2 percent increase in sales from month to month. But this past November, sales rose 17 percent.

That’s a more than an 8x increase.

Which obviously suggests some pretty strong demand trends in the run-up to the holiday shopping season. And Apple is certainly well poised to exploit them. As White observes, “The company’s portfolio for the holiday season is the hottest we have ever seen with the new iPhone 4S, iPad 2 and MacBook Air.”

So Apple’s first quarter will likely be a big one. And it will likely set a new record. Which means 2011 will be much like 2010, and 2009 before it. The fourth quarter of the calendar year has always been Apple’s strongest. No reason to believe it will be any different this year.

The country is now beginning the arduous job of cleaning up from the floods that killed upwards of 600 people and dealt a body blow to its industrial and manufacturing base.

One industry hit especially hard is the computer business. The world relies on factories in Thailand to turn out critical components used to build hard drives, and factories there are out of commission for now. This is not a trivial problem — the factories in question are not easy to replace, retool and restart once they dry out. Nor is the answer simply for the hard drive manufacturers to build new factories somewhere outside the flood zone.

This is the kind of supply chain disruption that the computer industry hasn’t seen in many years. I had a chance to talk with Steve Luczo, the CEO of Seagate Technology, for his view of the situation. Seagate has been relatively lucky in that its factories haven’t been directly impacted like those of Western Digital and Toshiba. But many companies that supply Seagate with necessary components have been hit, and it will be some time before they’re back on their feet.

Luczo told me that the computer industry as a whole — including companies who make PCs, servers, workstations and any other device that contains a hard drive, whether a set-top box or an enterprise storage device — can expect acute supply-chain disruptions to last well into 2012, and that it will take until the end of 2013 for the industry to return to its pre-flood operating posture. You read that right: It will be two years before the supply of hard drives is anywhere near “back to normal,” and there are simply no easy solutions for getting it fixed.

An estimate by the market research firm IHS iSuppli pegs the available supply at 125 million units, which is about 29 percent short of demand of 175 million units. By its reckoning, more than one-quarter of the world’s hard drive manufacturing capacity has been disrupted in one way or another, including 45 percent of the capacity devoted to making hard drives for personal computers. I spoke with Luczo by phone yesterday, and tossed in an extra eighth question because of the importance of the subject.

AllThingsD: Steve, at a high level, I think everyone understands the problem. There’s been a terrible flood in Thailand, and a lot of factories that make crucial parts for hard drives are out of commission. To that end, I think people expect this to be a temporary problem that works itself out in a couple of months. But you say it’s a much more complex problem than most people realize. You’re tracking this situation day to day, and probably hour by hour. So, how bad is it, really? And what’s likely to happen?

Luczo: What’s surprising to us is that even with all the data out there — we’re six weeks into it — there are a lot of fairly sophisticated companies that haven’t fully come to grips with the depth of the problem and the duration that is likely to occur. What is going to happen in the next couple of weeks is that the real shortage begins to show up right about now. There was already a lot of built inventory and a lot of finished goods moving through the system. And now all that is gone, and I think customers are starting to see shelves of parts go empty, and realizing that they’re not going to be filled for anywhere from one to two months. So the concern is heightened.

We heard Meg Whitman talk about this on HP’s earnings call Monday. She said HP stepped in and started doing some strategic buying. She says HP is going to see effects at least through the first half of next year. Apple talked about it on its earnings conference call, too. Are you hearing from them?

Tim Cook at Apple was way in front of this. I saw Tim the first week it happened, and took him through the situation, and in 15 minutes he understood the magnitude of it. Meg was on the second week of her job as CEO when I went to see her, and she got it right away. HP’s procurement VP, Tony Prophet, was also early to understand this. Companies like that reached out to us early on, because they understood that this is going to be an extended problem. They started asking for longer supply agreements. Deals that would typically last about a year, they’re now asking for two years.

How bad is it really going to be? What’s your outlier worst-case scenario, and then what do you think is a little more realistic?

If you think pre-flood, a mix [of products] that the customers need, the industry had the capacity to ship about 190 million units a quarter. Pre-flood, we expected the demand to be pretty consistent at about 180 million a quarter, with a bump in September 2012 for Windows 8. We now believe the March quarter is going to much more difficult than the December quarter, and December is going to be about 120 million or so. We think the March quarter will be about 120 million, in the best-case scenario. And that’s with customers mixing down pretty aggressively; and by that, I mean companies like Western Digital, who don’t have access to the sliders [a critical component in a drive], are shipping one- and two-headed devices so they can ship more units. So instead of shipping a drive that contains two disks and four heads, which is what the market needs right now, they’ll be shipping a one-disk, one-head or one-desk, two-head product. They’ll be maximizing the units they can sell, rather than shipping the product the customer actually needs. … So we see something like 130 million for March on the optimistic side, and then 150 million for June, 170 for September and then 190 million for December. And so by the end of 2012 you’re back to being close to industry demand. But even then, you’ve not included the impact of that missed 100 million units. And that will take another year to absorb, because it’s not like the industry is building new factories to chase that demand. We can’t over-invest to meet some bubble and then get stuck with excess capacity.

I think, intuitively, people expected companies like Seagate to just build more factories outside of the flood zone, but it’s not that simple, is it? Would this not be a moment to add capacity?

There are some in the investment community who think that’s what is going to happen, and that there will end up being a supply glut after all this is over, but it’s not the case. For us, it’s more a function of how to recover the supply chain and then work with the customer to get a good read on what their needs are for the next several quarters. If we see a multiquarter shortage that goes beyond what I described before, then we would think about maybe putting some capital in place. But we’re not going to do that to solve a temporary problem, because we end up being stuck with the excess capacity. Now if it turns out there is no recovery, and then the industry is more constrained than I first described — and that, by June, the industry is still 30-40 million units short and looks like it will be for the next six quarters — we might revisit. But then we’d want longer-term commitments to make sure we’re not overinvesting. But we’re not to that point yet.

What is this doing to prices? And what does that mean to the person who wants to buy a computer or server this year or next year?

If you look at a 10-year moving average trend, the industry has in general seen prices come down about 2 to 3 percent a quarter, and that is for a particular product. In 2009, there was a little price erosion, and that was because the storage industry recovered quickly from the recession. And there had been massive capital cutbacks, so there were big shortfalls through all of 2009 and into 2010. Then, when the Greece crisis happened, that put a big flatline on a lot of growth, and the industry had put in a lot of capital because everyone expected there would be growth. So, since spring of 2010, the price erosion has been higher than normal, which would show that supply is greater than demand. And what this flood has done is drive the supply curve down, while the demand curve has stayed constant. For OEMs [original equipment manufacturers, or the PC and server manufacturers like Apple, HP and Dell, who buy directly from Seagate], you’re seeing an average increase of about 20 percent, and in the channel [resellers who sell parts to smaller PC and server vendors], probably much higher. So all the sensational quotes you see about pricing are about those that occur in the channel, where we have no control whatsoever.

The markups in the channel are much higher? Are the channel guys taking advantage of this?

Yes, they’re higher, but I don’t think they’re taking advantage. I’ve heard stories about drives that we sell to OEMs for $60 that show up in the channel at $105. Normally the channel price is within about 10 percent of the OEM price. It’s just the law of supply and demand. They can’t get supply. The channel is getting about a third, at most, of the supply they would typically get. The OEMs are the ones with the supply agreements, so everyone in the channel is way short. In some market segments, supply is about 70 percent below what the demand is. And so those shortages are very acute. The channel is selling the few drives that are out there to whoever needs them the most and is willing to pay for them.

So what does all this mean for Seagate, specifically?

For us it’s a different story, because we’re going to be driving more volume than our competitors, because we’re not as directly affected, and we’re going to be making some  technology transitions. When we do that, it lets us take cost out of our product, so we can offer more capacity for the same or fewer parts. That helps us drive down pricing. Our goal is to recapture some of the more aggressive pricing of the last eight quarters, in order to sort of get our business back in balance. Our long-term business model calls for gross margins of 22 to 26 percent. And we use our manufacturing expertise to drive down our costs and then pass that on to our customers. This quarter, end users really won’t see it, because product has been built and has been on the shelves. As the shortages just started occurring, you’re starting to see prices increase in the channel. And then at the OEM there will be shortages in some high-value areas like enterprise storage or cloud computing. You’re going to have to see price increases, because there’s such big shortages.

One thing that occurred to me when I first wrote about this a month or so ago is that it represents an opportunity for the flash memory chip companies to make some inroads against hard-drive guys like you, mainly on notebooks. Is there a threat that flash could pick up some of the demand?

Some of it, but not very much. I think to the extent that there is a high value purchaser who can afford to pay $200 for 100 gigabytes, then that market will expand from 1-2 percent to 3-4 percent. Of the 35 to 40 percent shortage that exists, could you see a little of that get absorbed by silicon? The answer is yes. But there’s a cap. There’s just not enough of a raw supply of silicon to meet all the demand. Our industry will ship 400 exabytes this year. We would have shipped 450, were it not for the floods. Of that, 180 exabytes is notebooks. Reduce that by 30 percent, and you get about 55 or 60 exabytes. If you were to take all of the capacity from Samsung’s newest state-of-the-art flash factory, and dedicated it just to notebooks, it would only put out 7 exabytes a year. Plus, there are already other markets demanding flash, like  tablets and cellphones and other things. So it’s not like you can steal from those other markets. You’re not going to take a $32 product and replace it with a $350 product. Can you do it at the edges of the market? Sure. But the threat is capped by the amount of silicon available and the price point for flash storage, which is still an order of magnitude higher.

Western Digital CEO John Coyne warned yesterday on a conference call with analysts that the company expects significant impact to its hard-drive manufacturing operations in that country. It is one of several tech companies that has suspended operations in Thailand amid the worst flooding there in a half century.

Seagate, which reported earnings yesterday, also has operations in Thailand and said those are running at full capacity, but that some of its component suppliers have been affected by the floods.

“Given the severity of the situation and the extensive supply constraints caused by the disruption … the effects on our industry are likely to be substantial and will extend over multiple quarters,” Seagate said in a statement.

With the prospect of an industrywide shortage of hard drives affecting one vendor but not the other, shares of Seagate today shot up by $3.36, or more than 27 percent, to $15.42; Western Digital fell nearly 10 percent yesterday, but recovered today.

I checked in with Fang Zhang, who tracks storage for IHS iSuppli, the research firm that covers the electronics supply chain. While it’s too early yet to know the full impact, her initial estimate says that the worldwide production of hard drives will drop by about 30 percent, from 176 million units projected pre-flood to 125 million drives in the fourth quarter.

Apple CEO Tim Cook addressed the potential for a shortage on Apple’s earnings call with analysts on Tuesday because, naturally, it will affect his ability to turn out Macs this quarter and probably into next year. “I’m virtually certain there will be an overall industry shortage of disk drives as a result of the disaster,” he said.

One question I have is whether this could turn out to be an opportunity for the solid-state storage companies — the main supplier that comes to mind here is Samsung — that are popularizing flash-memory based storage drives in PCs like the MacBook Air and other machines. Will they boost production to fill that gap?

(Image via Consumer Queen.)

Supply chain sources tell the Commercial Times that Pegatron Technology has received orders to build another five million iPhone 4S handsets; this is in addition to the 10 million it has already been contracted to produce.

Pegatron is the smaller of Apple’s two iPhone 4S OEM partners — the larger being Foxconn. It had initially been tapped to handle about 15 percent of the device’s production load, with deliveries not scheduled to begin until early 2012.

But supply chain insiders now claim Apple is looking to take delivery of a few million of them before the end of the year. Which may mean that demand for this latest iteration of the iPhone is greater than even Apple expected. Add to this record first-day sales of one million and it’s pretty clear that consumers are as enamored of the 4S as they were of each version of the device that preceded it.

As Brian White of Ticonderoga Securities observed earlier this week, “While the unveiling of the iPhone 4S received a muted response, both from the market and tech blogs, the customers have the final word, in our view, and they have spoken with resounding enthusiasm for the iPhone 4S.”

MF Global FXA Securities analyst David Rubenstein says the company is considering a $1 billion investment in a Sharp LCD plant. “We think it is highly possible that Apple will make an investment in Sharp’s Kameyama plant to the tune of around US$1 billion in order to secure a stable supply of screens for iPhones and iPads,” Rubenstein wrote in a note to clients today.

Though unconfirmed at this point, such a move would make perfect sense for Apple, which must surely be looking to diversify its component suppliers as a hedge against supply chain disruptions, whether they be caused by industrial accidents, natural disasters or ongoing patent disputes with key suppliers like Samsung.

But according to IHS iSuppli, that’s a best-case scenario. The research outfit offers a decidely less optimistic view of the incident, suggesting that the disruption at Foxconn could cost Apple as many as half a million iPads.

“Total iPad 2 production capacity at the Chengdu site amounts to about 500,000 units per month,” iSuppli reports. “If the explosion results in a production shutdown until the end of June—which may or may not happen, depending on the outcome of the still-pending investigation—a production stoppage of half a million units could result.”

The longer the production suspension lasts, the greater the impact on inventory. And at present Foxconn has closed all facilities like those at which the explosion occurred pending further inspections.

Upstream component suppliers tell occasionally reliable Taiwanese trade mag Digitimes that labor and material shortages at Foxconn’s Chinese plants could undermine Apple’s aggressive iPad 2 shipment goals in the current quarter. Evidently the catastrophe in Japan has caused a shortage of both power amplifiers and memory for the tablet. That, combined with a lack of manpower at Foxconn’s Chengdu facility, is making it difficult for the manufacturer to satisfy Apple’s orders for 2.5 million to 3 million iPad 2s each month in the second quarter. Which is not to say that the company will fail to meet them–Foxconn says it’s doing all that it can to satisfy its clients’ needs–just that it’s more of a struggle than it might have been otherwise.

So the situation at Apple’s overseas manufacturing partners continues to be uncertain, just as the company said it would be during its last earnings call. “I am confident we’re going to produce a very large number for the quarter,” COO Tim Cook said. “Whether that will be enough to meet demand, I don’t know.”

Meanwhile, iPad ship times at Apple’s online store remain at 1 to 2 weeks.

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• Apple Supply Chain on Solid Ground Despite Japan Quake
• Apple “Aggressively Attacking” Supply Chain Situation in Japan
• Three Key iPad 2 Parts Available Only From Japan
• Apple’s Component Deals Should Help It Weather Japan Crisis

According to its latest 10-Q filing, Apple’s purchase commitments rose to $11 billion in the first quarter of 2011, up from $7.9 billion in the fourth quarter of 2010.

That’s a 39 percent increase and a record for the March quarter. Why the sudden uptick? Two reasons, most likely: the tight supply environment caused by recent calamities in Japan and the expected increases in iPad shipments.

Recall that during its last quarter, Apple sold every iPad 2 it could make and would have sold more had it been able to build them fast enough. The $11 billion in purchase commitments the company just made will likely make that possible. As COO Tim Cook said last week, “The iPad has the mother of all backlogs, but we’re working very hard to get [it] out to customers as quickly as we can.”

And according to COO Tim Cook, they’re not likely to disrupt them in the third quarter, either.

“We source hundreds, literally hundreds of items from Japan, and they range from components such as LCDs, optical drives, NAND flash and DRAM, to base materials such as resins, coatings, and foil that are part of the production process of several layers back in the supply chain,” Cook said during the company’s earnings call Wednesday. “The earthquake and subsequent tsunami and the associated nuclear crisis caused disruption for many of these suppliers. And many unaffected suppliers have been impacted by power interruptions.”

“But since the disaster, Apple employees have literally been working around the clock with our supplier partners in Japan and have been able to implement a number of contingency plans. Our preference from the beginning of this tragedy has been to remain with our long-term partners in Japan, and I have to say they have displayed an incredible resilience that I’ve personally never seen before in the aftermath of this disaster.”

That said, Cook cautioned that the situation in Japan remains volatile. “We know of no issue today that we view as unsolvable,” he said. “But the situation is still uncertain and there’s obviously no guarantees.”

The real impact of the disaster in Japan, then, will be on Apple’s revenue. To that end, Cook said he expects third quarter revenues to take a $200 million hit, which the company has already factored into its guidance. “[But that] economic impact pales in comparison to the human impact.”

PREVIOUSLY:

• Apple “Aggressively Attacking” Supply Chain Situation in Japan
• Three Key iPad 2 Parts Available Only From Japan
• Apple’s Component Deals Should Help It Weather Japan Crisis

Ticonderoga Securities analyst Brian White says Apple has been working hard to eliminate Japan-related constraints, proactively securing components from overseas suppliers.

“Our checks are indicating that Apple is aggressively attacking the situation in Japan and immediately sent executives to suppliers to ensure adequate supply of components, while also offering upfront cash payments,” White wrote in a research bulletin. “Additionally, our contacts indicate that Apple has been in Taiwan securing component capacity with a “3 Cover” guarantee (e.g., capacity, stock and price) that could block out competitors, providing the company with further market share gain opportunities.”

White’s report lends further credence to market chatter that had Apple seeking out new vendors in Taiwan to ensure access to key components. The company was recently rumored to have tapped AU Optronics as a secondary source of iPad displays, agreeing to pay a rumored 300 percent to 400 percent premium to guarantee a steady supply. Sources said that the deal would require about half of the capacity of AU’s fifth-generation plant in central Taiwan, which could end up producing 100,000 displays daily for Apple.

Add to this Apple’s long-term strategic supply chain investments and the tendency of its customers to wait for its products rather than buying a commodity substitute and the company would appear to be on solid footing. We’ll find out for certain of April 20th, when Apple reports earnings.

Japan in 2010 accounted for 35 percent–or $11 billion worth–of the $31.5 billion global market for automotive infotainment electronics, iSuppli says. On top of that, Japan is responsible for about one-third–$7.3 billion–of the $23 billion market for chips used in cars overall. Aside from chips, Japanese companies produce LCD panels and optical sensors used to make in-car systems.

ISuppli says Renesas Electronics, Texas Instruments, Freescale Semiconductor and Fujitsu, all of which supply components to the auto industry, have all been affected by shipping problems and difficulty in obtaining raw materials. The problems could last weeks or months.

Problems like this aren’t just hitting infotainment systems. As The Wall Street Journal reported today, shortages of a single electronic part made by Hitachi Automotive that measures airflow in car engines have forced companies like General Motors, Toyota and PSA Peugeot-Citroën to cut their output at auto plants in the U.S. and Europe. The plant that makes the component is located to the north of Tokyo and has been shut down. Hitachi makes about 60 percent of the world’s supply for this type of part. The Journal said Toyota on Wednesday warned employees to expect a production halt at some plants in the U.S. and Canada.

Meanwhile, Japanese automakers have stopped production at several plants in order to conserve electricity following the loss of generating power from the troubled Fukushima Daiichi nuclear plant. There has been a 10 percent reduction in electrical capacity, iSuppli says. Additionally, companies like BMW, Volkswagen, Continental and Bosch have removed their expatriate employees from Japan.

Separately, Dow Jones reported yesterday that ZTE Corp., a Chinese maker of networking gear, is suffering quake-related supply problems. A company exec said it expects the problems to last as long as six months.

The latest iPad 2 teardown from IHS iSuppli suggests the device’s screen may be sourced exclusively in Japan. The research outfit’s tests found it to be quite a bit more flexible and durable than the glass used in the iPad 1, possibly indicating that it’s made from Dragontrail Glass–a material manufactured by Asahi Glass of Japan. At least two of the company’s facilities suffered damage in last week’s quake.

Also manufactured in Japan: the iPad 2′s battery and its electronic compass. The former appears to be made by Apple Japan, the latter by AKM Semiconductor. Both escaped the quake relatively unscathed, but are likely to be plagued by the shipping and logistical issues that inevitably follow catastrophic events like these.

“Suppliers are expected to encounter difficulties in getting raw materials supplied and distributed as well as in shipping out products,” IHS iSuppli’s analysts wrote. “They also are facing difficulties with employee absences because of problems with the transportation system. The various challenges are being compounded by interruptions in the electricity supply, which can have a major impact on delicate processes, such as semiconductor lithography.”

And while it might seem like a simple matter to locate alternative sources for these components, it’s not. If the iPad 2′s glass overlay is indeed Dragontrail, it’s proprietary to a Japanese supplier. The battery and compass also pose problems: Because of its very thin profile, the iPad 2′s battery almost certainly requires the advanced battery cell manufacturing tech for which Japan is known. Securing a new source for the device’s compass would be easier, but tweaking that source’s fabs to duplicate the calibration of the iPad 2’s compass, which works in close coordination with the tablet’s accelerometer and gyroscope, would be significantly more difficult. “It’s impossible to simply replace one manufacturer’s compass with another,” said iSuppli.

For these three components, then, Apple could face temporary supply issues not easily resolved by the company’s savvy supply chain management. And iPad 2 shortages could follow.

Which could be a bit troubling for investors, I suppose. That said, none of these things will impact consumer demand, which as best I can tell remains “amazing.“

As Piper Jaffray’s Gene Munster reminds us in a research note today, the company often invests massive sums of money to secure component supplies and capacity. Indeed, it spent $3.9 billion earlier this year to do just that. This doesn’t mean it won’t suffer component delays that may limit supplies of some of its products. But it likely means they’ll be mitigated by those long-term supply deals.

“Currently and in the past, Apple buys key components with large pre-payments that guarantee supply and pricing,” Munster writes. “This strategy has proven to be an effective way for Apple to leverage its balance sheet and its position as one of the largest buyers of many of the components it uses; moreover, this strategy may prove particularly helpful if supply is limited and pricing increases. Finally, we believe Apple buys futures on important components, which will help offset near-term pricing swings. Our conclusion is that Apple is well positioned to suffer proportionally less than its competitors.”

Pacific Crest analyst Andy Hargreaves took a similar view in a note of his own. “Supply-chain investments, cash balance and tier-1 status should help Apple retain access to key components,” he said today. “Apple will be adversely affected if damage to facilities and rolling blackouts impair supply of key components for an extended time. However, we believe Apple’s investments in the supply chain, its status as a tier-1 vendor, and its ability to pay in cash will help it retain preferential access to components in the near term.”

Sony Ericsson

Wireless handset maker Sony-Ericsson just issued a statement on the extent of disruptions it expects.

“Although the full impact of the current situation on our business will take additional time to assess, Sony Ericsson anticipates disruption to its supply chain operations,” the company said in a statement. “As part of our business continuity plan, we are in contact with all our key suppliers in the region and we are identifying the possible relocation of certain component manufacturing, and looking at secondary sources of supply.”

Intel and Qualcomm

Some analysts had speculated that plant shutdowns by Mitsubishi Gas would slow chip production by cutting supplies of certain chemicals used in the chip making process. Both Intel and Qualcomm told Bloomberg News that they’re careful to avoid situations where important supplies come from only one source.

Texas Instruments

Wireless chipmaker Texas Instruments said on Monday that a plant in Miho, about 40 miles northeast of Tokyo, had suffered “substantial damage” and that it may be July before the plant is back up to full production. The plant is responsible for about 10 percent of TI’s overall production, and about a third of its capacity is devoted to its Digital Light Processor, and the rest to analog components. Shares of Diodes, Inc., a TI rival, jumped when analyst John Vinh of Collins Stewart said the company stood to benefit from TI’s troubles.

Oracle

Analyst Derrick Wood of Susquehanna Financial said in a note to clients that fears about Oracle’s exposure to the Japanese market, which has driven the shares down in recent days, are probably overblown. Even though Japan accounts for about five percent of Oracle’s revenue, he said, fears are “likely overdone.” Most of Oracle’s revenue from Japan comes from recurring maintenance fees, so the risk of a serious hit to sales is minimal.

Raw Materials

The Wall Street Journal notes that Japan supplies about 90 percent of the world’s bismaleimide triazine, an important material used in making printed circuit boards for wireless phones. Japan also supplies much of the world’s silicon wafers that are used to make chips.

(Map via Wikimedia Commons)

Take for example the attention today on lithium ion batteries used in notebook PCs. Demand right now is not terribly high–it’s a time of the year when consumers are buying fewer PCs–but consider what happens if the crisis persists. As Taiwan’s Digitimes observes, a good bit of the world’s production ecosystem for lithium ion batteries used in notebooks are not only located in Japan, but many are in areas affected by the quake or within the evacuation radius of the troubled nuclear power plant there.

Sony, which makes notebook batteries, and Hitachi, which makes a key battery part called an anode, both operate plants in the disaster area, and both have been shut down for the time being, according to a research report from Pranab Kumar Sarmah at Daiwa Securities in Hong Kong. Numerous other companies that make battery parts also operate in the disaster area, and most of them are affected.

What about the iPad? I just heard from Wayne Lam, an analyst at iSuppli, the research firm that tore down the iPad 2 the other day. He tells me markings on the iPad 2′s three-cell battery pack include a label that reads “assembled in China.” However, he says that applies only to the finished battery pack. A closer look at the markings reveal a reference to “Apple Japan.” He thinks that’s sufficient proof the battery cells came from Japan. “Typically, battery cells are made at the site of assembly but since this Li-Ion Polymer battery is unusually thin, it may be the case that it requires battery cell manufacturing technologies that Japan has.”

Then there’s the LCD display market. LCD manufacturing is an extremely precise process, one that doesn’t take kindly to the power shortages and rolling blackouts caused by the loss of generating capacity at the crippled Fukushima Daiichi power plant. Typically, Japan derives about a third of its power capacity from nuclear power, and this plant constituted a big portion of that. Again, it’s Sony and Hitachi plants located in areas affected by the disaster. Between them, the two companies produce 90 percent of the world’s supply of Anisotropic Conductive Film, an interconnect material that’s widely used in LCD panels.

Another key part in LCD displays–a color polarizer–is made by Fuji Film. Dale Ford, another iSuppli analyst, said earlier this week there have been indications that supplies of these have been impacted, which will drive prices up, which will in turn be reflected in the final price consumers pay for their TVs and monitors. Something tells me the lingering effects of this disaster are going to trouble the tech economy for some time to come, especially if the state of Japan’s power grid remains uncertain.

But the most intriguing part of Berger’s note is his report that Asian sources indicate a compound called “Bismaleimide Triazine Resin,” which is used in the packaging of many chips, could be constrained given that most of the supply comes from Japan’s Mitsubishi Gas Chemical. A shortage of BT resin would hurt Xilinx, which is “50 percent exposed,” he writes, Altera, which has 40 percent exposure, and Qualcomm which has 30 percent exposure.

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According to Taiwanese trade mag DigiTimes, Apple has locked up nearly 60 percent of the world’s touch-panel capacity, leaving behind a very tight supply for its rivals to scrap over.

“Touch panels are currently suffering the most serious shortage due to Apple holding control over the capacity of major touch panel makers such as Wintek and TPK, and with US-based RIM, Motorola and Hewlett-Packard also competing for related components,” says DigiTimes. “Second-tier players are already out of the game.”

So Apple ends up with a double advantage–not only has it secured supply enough for its own needs, but it has also caused scarcity in the market and disadvantaged its rivals. It’s impossible to say definitively, but my guess is this is the result of that mysterious $3.9 billion component supply investment COO Tim Cook mentioned during Apple’s first-quarter earnings call.

“We’ve historically entered into certain agreements with different people to secure supply and other benefits. And the largest one in the recent past has been we signed a deal with several flash suppliers back at the end of 2005 that totaled over $1 billion because we anticipated that flash would become increasingly important across our entire product line and increasingly important to the industry. And so we wanted to secure supply for the company, and we think that, that was an absolutely fantastic use of Apple’s cash. And we constantly look for more of these. And so in the past several quarters we’ve identified another area and come to some recent agreements that [CFO Peter Oppenheimer] talked about in his opening comments, in that these payments consist of prepayments and capital for process equipment and tooling. And similar to the flash agreements, they’re focused in that area we feel is very strategic.”

Indeed. Funny how Apple now controls–largely—both the demand and supply sides of the touch panel business.

Supply chain sources tell China’s Economic Daily News that Apple has lined up four new component suppliers for the iPhone 5, which they claim is scheduled for a summer launch. Meanwhile, Taiwanese trade pub DigiTimes is reporting that Apple recently bolstered its printed circuit board (PCB) supply chain in preparation for the next iteration of the iPad. Where the company once used just three PCB suppliers for the device, it’s now using seven. Not a surprise, really, given the 14.8 million iPads Apple sold in 2010. DigiTimes’ sources claim they’re scheduled to begin small-volume shipments next month, before going all out in April. Which jibes nicely with that annual refresh cycle I mentioned earlier and rumors of a spring launch.

As I’ve noted here before, the iPad 2 is expected to be thinner than its predecessor and manufactured with the same unibody approach Apple’s been using for the MacBook. It’s also expected to feature an LCD backlit display, a front-facing camera and Facetime video chat support. Finally, some reports suggest it is powered by one of Qualcomm’s multimode chips and will run on both GSM and CDMA-based networks around the world.