The Taiwan earthquake is a stark reminder of the risks to the region’s chip manufacturing industry

The Taiwan earthquake is a stark reminder of the risks to the region’s chip manufacturing industry

The world’s biggest chipmaker is scrambling to resume operations following a massive earthquake that hit Taiwan Wednesday — a welcome sign for makers of products ranging from iPhones and computers to cars and washing machines that rely on advanced semiconductors.

A 7.4-magnitude earthquake hit the island’s east coast Wednesday morning, the strongest in 25 years, killing nine and causing landslides and collapsed structures.

Taiwan Semiconductor Manufacturing Company, a leading chipmaker also known as TSMC, operates largely on the other side of the island, although the company said its facilities experienced some tremors. TSMC temporarily evacuated several manufacturing plants following the quake but said Wednesday that employees were safe and had returned to their jobs.

“A small number of equipment has broken down at certain facilities, partially affecting their operations. However, there was no damage to our critical equipment,” TSMC said in a statement late Wednesday. While Wednesday’s earthquake does not appear to have any long-term implications for the semiconductor supply chain, it does provide a stark reminder of the risks of stockpiling critical microchips. manufacturing on earthquake-prone islands and hotspots for geopolitical tensions. Chipmakers and governments, including the US government, in recent years have invested billions in efforts to diversify chip production, but many experts fear the process is not happening fast enough.

TSMC produces an estimated 90% of the world’s most advanced semiconductor chips, which power many of the devices that consumers rely on every day. Its chips are used by tech giants including Apple, Qualcomm, Nvidia and AMD — and they’re vital to the burgeoning artificial intelligence industry, where chip supplies are already tight.

“I believe it’s an existential threat,” said David Bader, professor and director of the Data Science Institute at the New Jersey Institute of Technology, about the concentration of chip manufacturing in Taiwan.

“The whole world now runs on semiconductor devices that power everything we do, whether we drive in our cars, whether we talk on our cell phones, even our military defense or weapon systems, airlines, all use chips,” said Bader. “If production were to stop … this would be devastating.”

Recovery efforts are underway
TSMC strengthened its earthquake protection in the years following the last major earthquake in Taiwan in 1999.

As of late Wednesday, the company said that more than 70% of tools in its fabs had been restored within 10 hours of the earthquake, with recovery levels higher at some newer facilities. TSMC said affected facilities were expected to resume production overnight Wednesday.

As of Thursday, TSMC said it expected operations at all its facilities to be fully restored by the end of the day. However, it noted that “certain production lines in areas experiencing greater seismic impact are expected to require more time for adjustment and calibration before returning to fully automated production.”

Even a one-hour production shutdown of a particular chip can take weeks to recover from.

“Some high-end chips require smooth 24/7 operation in a vacuum for several weeks,” Barclays analysts said in an investor note Wednesday, adding that the shutdown could mean “some high-end chips in production may be damaged.” They noted that TSMC could see an impact $60 million to second-quarter earnings from the disruption.

The potential broader ripple effect for the technology industry will also depend on the types of chipmakers affected, something that was not clear Wednesday, according to Gartner analyst Joe Unsworth. Tech companies that rely on GPU chips that help power AI applications, which are already in short supply, will likely be watching closely for the potential impact on those areas of production.

Nvidia, a leading GPU designer, said in a statement Wednesday that “after consulting with our manufacturing partners, we do not expect any impact on our supply from the Taiwan earthquake.”

Several other semiconductor and technology manufacturers – including smaller chipmaker United Microelectronics Corporation, memory and storage chipmaker Micron and Apple supplier Foxconn – said on Wednesday they were also assessing the potential impact of the earthquake on their Taiwan facilities but indicated they expected a little fall.

Race to diversify chip manufacturing
Wednesday’s earthquake is likely to only add pressure to years of efforts to expand chip-making capacity outside Taiwan.

Other disasters, including the Covid-19 pandemic and drought, have previously affected semiconductor production in the region and caused chip shortages that have pushed up the price of consumer goods. Supply chain experts and US officials are also concerned that US-China trade tensions and a military incursion from China on the island could have consequences for the industry. exposure comes from one region,” CFRA Research analyst Angelo Zino said in an investor note today.

In 2022, US President Joe Biden signed into law the CHIPS and Science Act, which allocates more than $200 billion in investment over the next five years to help the United States regain its leading position in semiconductor manufacturing.

And in recent years, TSMC has announced plans for new semiconductor fabs in Japan, Germany and the United States. But plans for a second plant in Arizona – announced in 2022 and originally expected to be operational this year – have been repeatedly delayed.

Experts say it is a sign that the diversification of the chip supply chain is not moving fast enough to account for the risk of remaining concentrated in Taiwan. A location for a new fab must have a company or government willing and able to invest billions to build the facility, as well as a large workforce with the skills to make advanced semiconductor manufacturing.

“I think we’re in a critical period for the next few years, until there’s a location for a major fab like TSMC that’s in a less geopolitical hot zone than Taiwan,” Bader said. “We’re really working in a challenging arena for a few more years while we wait for that to happen.”