Semiconductor Industry Vulnerability Exposed After Taiwan Earthquake


Taiwan's Semiconductor Industry Recovers from Earthquake, Highlighting Supply Chain's Fragility and Resilience

By Athena Xu

4/3, 22:18 EDT
Apple Inc.
NVIDIA Corporation
Taiwan Semiconductor Manufacturing Company Ltd.
United Microelectronics Corporation

Key Takeaway

  • TSMC quickly resumed 70%-80% production after Taiwan's severe earthquake, highlighting the semiconductor industry's resilience.
  • The quake underscores the global tech market's vulnerability due to heavy reliance on Taiwan for 80%-90% of advanced chips.
  • Despite initial concerns, analysts from Citigroup and Jefferies view the long-term impact on chip supply as "manageable" and "limited."

Earthquake Shakes Semiconductor Heartland

Taiwan, a linchpin in the global semiconductor supply chain, is grappling with the aftermath of its most severe earthquake in a quarter-century. The tremor, which struck the island's east coast with a magnitude of 7.4, has prompted a swift response from leading chip manufacturers, including Taiwan Semiconductor Manufacturing Co. (TSMC), the world's premier producer of advanced chips for giants like Apple Inc. and Nvidia Corp. Despite assurances of a rapid recovery, the incident casts a shadow over an industry critical to the modern digital economy.

Production Halted

In the immediate wake of the disaster, TSMC was forced to evacuate staff and suspend operations, a move mirrored by other key players in the sector. Although TSMC reported no damage to its most critical chip-making equipment and claimed to have resumed 70% to 80% of production within hours, the event underscores the fragility of a supply chain heavily concentrated in a region prone to seismic activity. The smaller United Microelectronics Corp. (UMC) also paused some machinery, highlighting the widespread disruption caused by the quake.

Potential for Disruption

The earthquake's timing is particularly concerning, given the global economy's increasing reliance on semiconductors for everything from artificial intelligence and smartphones to electric vehicles. Taiwan's semiconductor industry, led by TSMC, is responsible for producing an estimated 80% to 90% of the world's most advanced chips. Any significant interruption in production could have far-reaching implications, not just for the island's economy but for global technology markets as well.

Analysts from Barclays had initially warned of the potential for production processes, which often require weeks of uninterrupted operation in a vacuum, to be severely impacted. "Operation halts in Taiwan’s northern industrial areas could mean some high-end chips in production may be spoiled," noted analysts Bum Ki Son and Brian Tan. Although subsequent reports from Citigroup and Jefferies Financial Group have downplayed the long-term impact, suggesting it should be "manageable" and "limited," the incident serves as a stark reminder of the risks inherent in the current global semiconductor supply chain.

Building Resilience

The earthquake has also highlighted the importance of Taiwan's technological advancements and stringent building codes in mitigating damage and casualties. Following a devastating temblor in 1999, the government overhauled regulations, a move that appears to have paid dividends in the latest quake. Professor Wu Yih-min of National Taiwan University emphasized the role of a sophisticated disaster response system developed over the last three to five years in minimizing harm.