The world’s largest chipmaker, Taiwan Semiconductor Manufacturing Company (TSMC), is working to resume operations following a massive earthquake that struck Taiwan, causing landslides, collapsed structures, and nine fatalities. While TSMC’s facilities experienced some shaking, they were largely unaffected, with only a small number of tools and operations impacted. However, the event highlighted the risks of concentrating semiconductor manufacturing in Taiwan, a region prone to earthquakes and geopolitical tensions.
TSMC produces 90% of the world’s most advanced semiconductor chips, essential for numerous tech devices used daily, including those from Apple, Qualcomm, Nvidia, and AMD. The concentration of chip production in Taiwan poses an existential threat, as any disruption in production could have devastating consequences across various industries. Efforts to diversify chip production outside of Taiwan have been ongoing, but progress has been slow, raising concerns about the industry’s resilience to potential disruptions.
TSMC has invested in enhancing its earthquake protections following Taiwan’s last major earthquake in 1999, with a quick recovery of tools in its fabs after the recent event. Even short disruptions in chip production can have long-lasting impacts, particularly on high-end chips that require continuous operation in a vacuum state. The broader ripple effects on the tech industry will depend on the type of chip manufacturing affected, with potential financial implications for TSMC’s second-quarter earnings.
The earthquake serves as a reminder of the risks associated with heavy reliance on one region for chip manufacturing, prompting calls for increased efforts to grow chipmaking capacity outside of Taiwan. Various disasters and geopolitical tensions, including the Covid-19 pandemic, droughts, and US-China trade tensions, have previously affected semiconductor production and led to shortages. US initiatives, such as the CHIPS and Science Act, are aimed at boosting semiconductor manufacturing within the country and reducing dependence on foreign sources.
Efforts to diversify chip manufacturing include TSMC’s plans for new fabs in Japan, Germany, and the US, but delays have hindered progress. Building new fabs requires substantial investments in facilities and skilled workforces, posing challenges for rapid diversification away from Taiwan. The industry is facing a critical period in the next few years as it navigates geopolitical risks and works towards establishing chip manufacturing facilities in less vulnerable locations.
The semiconductor industry faces challenges in ensuring supply chain resilience amidst natural disasters, geopolitical tensions, and technological advancements. The recent earthquake in Taiwan has underscored the importance of diversifying chip production and reducing reliance on a single region. Continued efforts to expand chip manufacturing capacity worldwide will be crucial in mitigating risks and ensuring ongoing supply for the global tech industry.
