Equities

Taiwan Earthquake Impacts Chip Production, Minimal Damage Reported

Magnitude 7.4 earthquake in Taiwan impacts chip production, but factories show resilience with TSMC at 70% capacity within 10 hours.

By Athena Xu

4/3, 13:12 EDT
Micron Technology, Inc.
Taiwan Semiconductor Manufacturing Company Ltd.
United Microelectronics Corporation
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Key Takeaway

  • A 7.4 magnitude earthquake in Taiwan, crucial to the global semiconductor supply, caused modest factory damage but highlighted industry fragility.
  • TSMC quickly resumed operations at 70%-80% capacity; Micron and UMC also reported swift recoveries with minimal financial impact expected.
  • Despite the quake, shares of Micron rose by 2.9%, Taiwan Semi by 1.1%, and UMC slightly higher, indicating resilient investor confidence in chipmakers' recovery capabilities.

Earthquake Impacts Chip Production

The semiconductor industry is currently assessing the impact of a magnitude 7.4 earthquake in Taiwan, the strongest the island has experienced in 25 years. The earthquake resulted in at least nine fatalities and over 900 injuries. Taiwan plays a crucial role in the global semiconductor supply chain, with U.S. manufacturers heavily reliant on Taiwanese chip factories. This dependency has led to legislative actions such as the CHIPS Act to support the construction of new chip-fabrication capacities in the U.S. Despite the significant tremor, early reports indicate that the damage to chip factories in Taiwan was modest. However, the event underscores the fragility of the global semiconductor industry, especially amid a rebound in memory demand and a severe shortage of capacity for high-end processors used in applications like generative artificial intelligence.

Industry Response and Recovery

Taiwan Semiconductor Manufacturing Co. (TSMC), a leading chipmaker, reported that its facilities returned to 70% of their operational capacity within 10 hours of the earthquake, with newer factories exceeding 80% capacity. TSMC noted minor damage to some tools but confirmed that critical equipment, including extreme ultraviolet lithography tools, remained unharmed. Micron Technology and United Microelectronics (UMC) also provided updates, with Micron ensuring the safety of its staff and evaluating operational impacts, and UMC reporting a swift resumption of operations and shipments with no significant financial or business impact expected. Industry research firm TrendForce found no reports of significant equipment damage at Taiwanese fabs, suggesting minimal impact on chip supply, particularly for Nvidia chips produced in TSMC's Southern Taiwan Science Park facility.

Financial and Market Implications

Analysts and industry observers are closely monitoring the situation for potential financial impacts. Citi analyst Laura Chen referenced a previous earthquake in 2016, which resulted in a revenue hit of about 1% for TSMC, to suggest that the financial impact of the current earthquake might be minor. Chen highlighted TSMC's comprehensive earthquake preparedness measures, which exceed legal requirements and include advanced earthquake resistance technologies. Following the earthquake, shares of Micron, Taiwan Semi, and UMC experienced movements, with Micron shares rising by 2.9%, Taiwan Semi by 1.1%, and UMC fractionally higher, reflecting investor reactions to the event and its immediate aftermath.

Street Views

  • Citi Analyst, Laura Chen (Neutral on Taiwan Semiconductor):

    "TSMC has implemented rigorous earthquake production measures that go beyond legal requirements. These initiatives include thorough inspections of building facilities, installation of dampers to enhance structural integrity, and the adoption of cutting-edge earthquake resistance technologies and methodologies to mitigate risks."

Management Quotes

  • Taiwan Semiconductor (TSMC) Statement:

    "The company said its fabs returned to 70% of prior levels within 10 hours of the quake, with newer fabs at more than 80%. TSMC said that 'a small number of tools were damaged at certain facilities, partially impacting their operations.' But the company added that there was no damage to its most critical equipment, including extreme ultraviolet lithography tools."

  • Micron Technology Statement:

    "All of its staff there have been accounted for and reported safe. Micron said it is 'evaluating impact to our operations and supply chain,' and will communicate changes in delivery commitments to customers after that process is completed."

  • United Microelectronics (UMC) Statement:

    "'Currently, operations and wafer shipments are resuming as normal, and there will be no meaningful impact on UMC’s finances and business,' UMC said."