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BriefCASE: Taiwan earthquake puts the spotlight back on chip supply chain diversification
The automotive industry faced one of its worst crises during the years following the Covid-19 pandemic in 2020 when the semiconductor shortage caused disruptions and delays in light vehicle production globally on an unprecedented scale. So, on April 3, 2024, when an earthquake of magnitude 7.4 hit Taiwan, the strongest in 25 years, there was a sense of trepidation in the industry. Taiwan dominates advanced logic chip production, manufacturing over 90% of leading-edge semiconductors globally. With almost all complex automotive chips relying on Taiwanese foundries like Taiwan Semiconductor Manufacturing Co (TSMC), Taiwan is an irreplaceable player in the automotive electronics supply chain. While the geographic concentration of production in Taiwan allows impressive economies of scale, it also poses supply continuity risks. Natural disasters or geopolitical tensions involving Taiwan could quickly ripple through the automotive industry. Impact of earthquake on semiconductor production Semiconductor production is a delicate process, highly susceptible to even the slightest vibrations. A single tremor can potentially ruin entire batches of precision-made chips, posing significant challenges for firms located in quake-prone regions like Taiwan. The industry highly depends on companies like TSMC, one of the largest contract chipmakers, for 7nm and lower leading-edge process nodes. Any disruption in TSMC's supply of these advanced nodes could ripple across multiple sectors, disrupting production schedules and delaying product launches. The good news for the supply chain is that most semiconductor firms have reported no significant damage and have begun resuming operations. TSMC was among those affected. The firm immediately halted some chipmaking machinery and evacuated staff from certain areas. TSMC said in a statement, "Overall tool recovery of our fabs reached more than 70% within 10 hours of the April 3 earthquake, with new fabs such as the Fab 18 facility reaching more than 80%. Apart from certain production lines in areas that experienced a greater seismic impact, equipment in Taiwan fabs have largely been fully recovered as of April 5 thanks to the collaborative efforts of TSMC colleagues and our supplier partners." Several semiconductor and technology manufacturers, such as UMC; Micron, a company specializing in memory and storage chips; and Foxconn, a key supplier for Apple, stated they were assessing the potential effects of the earthquake on their facilities in Taiwan. However, they expressed optimism, suggesting that any consequences would be minimal. Specialty memory IC company Windbound said in a press release that the seismic event triggered self-protection mechanisms in certain machinery at Winbond's CTSP Fab and Kaohsiung Fab facilities, but there were no significant disruptions to its operations. Nvidia, which relies heavily on TSMC for sourcing many of its chips, announced that it anticipated no disruptions to its supply chain. "After consulting with our manufacturing partners, we don't expect any impact on our supply from the Taiwan earthquake," Nvidia said in a statement. Heavy reliance on Taiwan foundries The recent earthquake further highlights the electronics industry's vulnerability to regionally concentrated parts of the semiconductor supply chain. In recent years, chipmakers and governments, including the US government, have announced substantial investments aimed at diversifying chip production. However, the reliance on Taiwan will not diminish anytime
soon. While the sector has escaped repercussions this time thanks to well-established disaster recovery and risk mitigation the quake served as a timely reminder of the fragility of semiconductor supply. A few minds will no doubt be refocused on dispersing semiconductor supply chain risk following the events of April 3. Author: |
This article was published by S&P Global Mobility and not by S&P Global Ratings, which is a separately managed division of S&P Global.