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    Blog Image

    Why the Taiwan Earthquake Won’t Disrupt Chips Supply Chain

    • The April 3 earthquake forced many semiconductor fab plants to temporarily shut down operations.
    • However, it is unlikely to have near- or medium-term supply implications, says GEP’s high-tech industry expert Mike Jette.
    • The earthquake may prompt companies to diversify their chip suppliers to reduce risks.

    April 10, 2024 | Risk Management

    The massive earthquake in Taiwan on April 3 has created worries over the disruption to the semiconductor supply chain as the island nation is the world’s biggest chips supplier.

    Some of the top global chipmakers, such as Taiwan Semiconductor Manufacturing Co. (TSMC), which supplies chips to Apple and Nvidia, had to shut down their fabrication plants and evacuate workers when the 7.2 magnitude earthquake struck the eastern coast of the island.

    Chipmakers UMC, Vanguard International Semiconductor and Powerchip Semiconductor Manufacturing also operate from Taiwan.

    However, the chip factories have already resumed operations, demonstrating the kind of resilience companies expect from their sole suppliers.

    Supplier’s Resilience

    The chipmakers have made sure that the earthquake does not become a supply chain issue, says Mike Jette, vice president of consulting at GEP who leads the TMT vertical. “TSMC was prepared for such incidents and the response to the tremors was a like a fire drill.”

    There are no near-term or medium-term supply implications, he says. This is because high-tech product manufacturers in Taiwan, which has always been a hotspot for seismic activity, have factored in damage and disruption that tremors can cause. Industrial plants deploy automatic shutdowns to limit the damage to the production process and to sensitive fabrication tools.

    Though not supply snarls, there is likely to be some impact on the prices of products that Taiwanese manufacturers ship to upstream and downstream electronic manufacturing hubs in Japan, South Korea, China and Vietnam, analysts at Barclays and TrendForce said in notes to investors.

    Taiwan makes 80%-90% of high-end chips that have no substitutes, including processors for the latest iPhones and Nvidia graphics chips that train ChatGPT.

    Chipmakers could raise prices because of low inventory among customers, analysts said. TV panel prices coming from Taiwan could rise in April.

    The Perception About Risk

    The incident could, however, prompt a long-term change in the perception of electronics companies about their high dependence on Taiwan for their needs. There could be policy shifts, too.

    “The images of the earthquake, such as buildings leaning over sideways, are powerful. They will provide credence for companies and politicians pressing for further government supports like the CHIPS and Science Act in the U.S.,” Jette says. The law is designed to spur private sector investments to boost domestic semiconductor research, development, and production.

    Electronics and automotive companies are already uncomfortable with the concentration of the chips supply chain in Taiwan, particularly after the global chips shortage of 2021 triggered by the post-pandemic surge in consumer demand.

    “The Taiwan earthquake could bring the focus back on the need for supply chain resilience and supplier diversification and speed up the U.S. and European drive to create more advanced chip fabrication facilities on their continents,” Jette says.

     

    Tags: supply chain , risk management

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