A recent development has shaken Taiwan’s dominating semiconductor industry. Taiwan Semiconductor Manufacturing Co. (TSMC), recognized as the world’s largest producer of advanced chips, had to halt some of its operations and evacuate staff following the largest earthquake to hit Taiwan in the past 25 years. TSMC is the primary contract chipmaker for tech giants like Apple Inc. and Nvidia Corp.
Impact on the Semiconductor Industry
The aftermath of the earthquake measuring at 7.4 on the Richter scale has affected not only TSMC but also other Taiwanese companies. The smaller local competitor, United Microelectronics Corp. (UMC), also stopped machinery at some factories and evacuated certain facilities at its hubs in Hsinchu and Tainan. The shares of TSMC dipped around 1.5% in early trade, while UMC experienced a less than 1% decrease.
Taiwan’s semiconductor industry, including companies like TSMC and ASE Technology Holding Co., is responsible for manufacturing and assembling a large majority of the semiconductors used globally. These precision-made semiconductors are incorporated into a wide range of devices, from iPhones to cars. However, their production process is sensitive to even the slightest vibrations, and a single tremor can ruin entire batches.
Response to the Earthquake
According to a statement from TSMC, “TSMC’s safety systems are operating normally. To ensure the safety of personnel, some fabs were evacuated following company procedure. We are currently confirming the details of the impact.”
The geographical location of Taiwan makes it susceptible to earthquakes. It lies near the convergence of two tectonic plates, which leads to frequent seismic activities. Despite these natural hazards, Taiwan is the source of an estimated 80% to 90% of the highest-end chips required for advanced applications such as smartphones and AI.
Risks and Challenges
- Industry executives and government officials have long raised concerns about the risks associated with concentrating the world’s advanced semiconductor production on an island prone to natural disasters and potential military conflicts. The Covid era amplified these concerns as it intensified a global shortage of crucial components.
- American officials, aware of the threat from mainland China, which considers Taiwan a renegade province, have urged U.S. and Taiwanese companies, including TSMC, to diversify geographically.
- However, TSMC’s expansion projects in Japan and the U.S. will take significant time to reach full capacity. In the meantime, American companies like Micron Technology Inc. maintain major operations on the island.
As the situation unfolds, it’s crucial to monitor the lasting impacts on Taiwan’s semiconductor industry and the global tech sector that relies heavily on it. The incident underscores the inherent risks in the current global supply chain and highlights the need for geographic diversification in the production of these essential components.
