Earthquake Shakes Taiwan’s Semiconductor Heartland: Global Tech Supply Chain at Risk

In a significant development on April 3, 2024, Taiwan Semiconductor Manufacturing Co. (TSMC), the world’s leading contract chip manufacturer, was compelled to halt some of its chipmaking operations and evacuate its plants due to the most severe earthquake to hit Taiwan in the last 25 years. This natural disaster has sparked concerns over potential disruptions to the global technology supply chain, given TSMC’s critical role in producing semiconductors for major clients like Apple Inc. and Nvidia Corp. The quake, with a magnitude of 7.4, occurred off the east coast of Taiwan, prompting TSMC and other local tech firms, including United Microelectronics Corp. (UMC), to move staff from affected areas and begin assessing the damage. UMC also paused machinery at some of its facilities in Hsinchu and Tainan.

Taiwan’s pivotal position in the semiconductor industry cannot be overstated, as it manufactures and assembles the majority of semiconductors used worldwide in various devices, from smartphones to vehicles. The precision required in semiconductor manufacturing means that even the slightest disturbances, such as those caused by an earthquake, can result in significant losses. Despite the quake, TSMC’s shares in the U.S. remained relatively stable, while UMC experienced a minor drop. Analysts from Bloomberg Intelligence suggest that the strong demand for TSMC’s advanced node processes may mitigate any financial repercussions from the earthquake.

The earthquake’s aftermath has left the island’s tech sector in a state of assessment, with TSMC reporting that staff are gradually returning to the evacuated sites. However, the industry is bracing for potential impacts on production, particularly for high-end chips that require weeks of uninterrupted manufacturing in a vacuum. The halt in operations could spoil some of these chips, underscoring the vulnerability of Taiwan’s northern industrial areas to such natural disasters.

Taiwan’s geographical position makes it susceptible to earthquakes, as it is located near the juncture of two tectonic plates. Additionally, the island plays a crucial role in supplying between 80% to 90% of the world’s most advanced semiconductors, essential for cutting-edge applications in smartphones and AI. The concentration of semiconductor production in Taiwan has been a point of concern, especially given the island’s status as a potential geopolitical flashpoint and the risks posed by natural disasters. In response, American officials have urged both U.S. and Taiwanese companies, including TSMC, to diversify their manufacturing locations. While TSMC has initiated expansion projects in Japan and the U.S., it will take time for these operations to reach full capacity. Meanwhile, other companies like Micron Technology Inc. have assured the safety of their staff and are evaluating their operations and supply chains in light of the quake.