Taiwan Earthquake Prompts Chip Supply Concerns

Taiwan has been hit with the biggest earthquake in 25 years, prompting fears about its impact on the semiconductor supply chain.

Reuters reported that the powerful 7.4-magnitude earthquake struck Taiwan’s eastern coast near Hualien County on Wednesday morning, killing nine people and injuring more than 1,000.

Other media reports on Thursday put the death toll at 10 people confirmed dead.

The powerful earthquake immediately raised concerns about its impact on the semiconductor supply chain. The importance of Taiwan in the chip industry came to light during the Covid-19 pandemic, after many industries across the world suffered a prolonged chip shortage.

Taiwan’s importance

Taiwan plays host to a number of chip manufacturers, mostly notably the world’s largest contract chip manufacturer, Taiwan Semiconductor Manufacturing Company or TSMC, which supplies chips to firms such as Apple and Nvidia.

Taiwan thus plays an outsized role in the global chip supply chain, and many of the most advanced processors are made there.

There are also smaller chipmakers on Taiwan including the likes of UMC, Vanguard International Semiconductor, and Powerchip Semiconductor Manufacturing.

TSMC in 2022 bluntly warned that chip production factories in Taiwan would be rendered “not operable, if China conducted military action against the island.

Droughts, earthquakes

Reuters, citing analysts, reported that manufacturers in Taiwan have been hardening their factories against earthquakes for decades and many use automatic shutdown systems to minimise damage to their production and tools.

One of the biggest issues Taiwan faced in recent years has been a drought – when in 2021 the island suffered its worst water shortage since 1964.

Chip manufacturing is a water-intensive process.

Now analysts are concerned that Taiwan’s earthquake could likely to tighten supply of tech components such as display panels and semiconductors.

“For a lot of the tools that go into automatic shutdown, it can take you no more than 36 or 48 hours to bring them back up and re-qualify them,” Dan Hutcheson, vice chair at Canadian research firm TechInsights was quoted by Reuters as saying.

“When you look at the business side of it – will this affect quarterly revenues? – the odds are it won’t. But it’s going to be a real headache for everyone involved to get this stuff back up and running,” he added.

The good news it seems is that most of the chip manufacturing plants are not close to the earthquake’s epicentre.

Factory inspections

Reuters reported that many of the firms said they had evacuated some of their manufacturing plants and shut down some facilities for inspections.

TSMC reportedly said on Wednesday work at its construction sites, which has been halted, will resume after inspections, while impacted facilities are expected to restart production throughout the night.

Overall tool recovery of its chip fabrication facilities reached more than 70 percent within 10 hours of the earthquake, with new fabs reaching more than 80 percent, Reuters reported.

Nvidia reportedly said it had consulted with its manufacturing partners (i.e. TSMC) and the firm does not expect supply chain disruptions from the earthquake.