Taiwan's Earthquake Puts The World's Semiconductor Supply Chain To The Test

Reuters reported that Taiwan’s biggest earthquake since 1999 that took place on Wednesday morning is likely to disrupt Asia’s semiconductor supply chain. Chipmakers, including Taiwan Semiconductor Manufacturing Company Limited TSM and United Microelectronics Corporation UMC halted some operations in order to inspect their facilities, as well as to reallocate employees. The $625 billion worth TSMC is indispensable for the global tech industry. The tech titan and AI chip leader, Nvidia Corporation NVDA is among those who would have an entirely different existence without its support. Quite likely, Nvidia wouldn’t have made it to become the world’s third most valuable company without TSMC.

The earthquake will undoubtedly test the readiness of the world’s chip making hub

Although an island, Taiwan is central to the global chip supply chain. It is home to TSMC whose chips are used by tech titans, including Nvidia and Apple Inc AAPL. Apple is one of those tech giants that saves billions from not having to make its own factories as it gets to outsource manufacturing of microprocessors, an area where TSMC enjoys a monopoly. But AI breakthroughs demand even more processing power and manufacturers are pressured to come up with innovative methods and materials to support this technological development.

Being based in Taiwan has many risks. 

TSMC has been prepared considering that Taiwan is one of the world’s most earthquake-prone areas. Additionally, it had also learned from Japan’s 2011 disaster.  After an estimated 7.4-magnitude earthquake struck eastern Taiwan, TSMC briefly evacuated and suspended work at some of its facilities. TSMC has stated all of its workers are safe and that it expects to resume production overnight at the interrupted facilities, although it is still evaluating the consequences of the impact. But the strongest earthquake in 25 years has also triggered tsunami warnings. Although it seems that TSMC got out damage-free, the world’s most advanced chips are still at risk. 

But besides the risk of a natural disaster, having most of its factories and employees in Taiwan brings another set of geopolitical risks. Considering that China considers the democratically governed Taiwan its own territory, a Chinese invasion would shake Taiwanese economy and trigger sanctions from the U.S. and its allies, potentially cutting the world off from chips supply. With the US-China tensions, TSMC started expanding its global footprint but it already has painful memories of venturing out overseas. Undoubtedly, all the above circumstances his will undoubtedly impact not only the industry but also of the world’s biggest economies.

One could say that TSMC’s most complex challenge and biggest risk is the engineering of its own operational structure. 

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