The semiconductor industry, which is heavily reliant on Taiwan, might face a significant setback due to the country’s ongoing energy crisis. This could lead to a slowdown in chip production and a rise in global semiconductor prices.
What Happened: Taiwan, a key player in the global semiconductor market, is grappling with a severe energy crunch, reported CNBC. The country’s power shortage could have serious implications for chipmakers, as the energy-intensive process of chip manufacturing is at risk.
"Concerns over potential power shortages and the deterioration of power quality and reliability could pose operational risks for the semiconductor industry," Chen Jong-Shun, an assistant research fellow at Chung-Hua Institution for Economic Research, said, according to the report.
Despite Taiwan’s status as a semiconductor powerhouse, the government is struggling to meet the island’s energy demands. This has led to concerns over potential power shortages and the reliability of the power supply, posing operational risks for the semiconductor industry.
Joseph Webster, a senior fellow at the Atlantic Council’s Global Energy Center, highlighted the impact of Taiwan’s energy crisis on the semiconductor industry. "Taiwan has both an energy crunch and, even more importantly, an electricity crunch," he said.
He noted according to the report that the country’s semiconductor firms, which account for over 55% of its electricity consumption, require constant and reliable access to electricity. Any energy disruption could slow down chip production and drive up global semiconductor prices.
Michelle Brophy from AlphaSense highlighted the financial struggles of Taiwan Power Company (Taipower), which reported a $6.3 billion pre-tax loss in 2023. Rising electricity costs for semiconductor firms like Taiwan Semiconductor Manufacturing Company TSM will likely be passed on to consumers, potentially increasing global chip prices.
TSMC, which accounts for about 60% of global foundry revenue, is crucial for tech giants such as Apple Inc. AAPL and NVIDIA Corp. NVDA. Any energy disruptions could slow down chip production and impact the global semiconductor market.
Why It Matters: The energy crisis in Taiwan comes at a time when the semiconductor industry is experiencing significant growth. Recently, TSMC reported a 30% increase in May sales, reaching $7.1 billion, driven by high demand for AI and recovering consumer electronics.
Moreover, the semiconductor industry has reached a combined market capitalization of $5.5 trillion, making it the world’s third-largest economy, as noted in a recent report. Nvidia alone commands more than half of this market value, amounting to approximately $3 trillion.
Additionally, TSMC and other key industry players are guiding global supply chain shifts. TSMC has expanded to automotive hubs like Dresden, Germany, attracting co-investors such as Bosch and Infineon. This expansion is crucial for maintaining supply chain stability amid political and business changes.
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This story was generated using Benzinga Neuro and edited by Kaustubh Bagalkote
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