The world’s biggest chipmaker, Taiwan Semiconductor Manufacturing Company (TSMC), is working to resume operations after a massive earthquake struck Taiwan, causing some damage to facilities but no major disruptions to critical tools. The earthquake, the strongest in 25 years, killed nine people and caused landslides and collapsed structures, highlighting the risks of concentrating crucial microchip manufacturing on an island prone to earthquakes and geopolitical tensions. Chipmakers and governments have invested billions in diversifying chip production, but experts worry the process is not happening fast enough.
TSMC produces about 90% of the world’s most advanced semiconductor chips, essential for many tech giants and industries, including artificial intelligence. The concentration of chipmaking in Taiwan poses an existential threat, as the entire world relies on semiconductor devices for daily activities, from driving cars to using cell phones and military defenses. Even a short-term shutdown of chip production can have far-reaching consequences, as high-end chips require seamless operations for weeks, and disruption can lead to spoilage of high-end chips, impacting earnings for companies like TSMC.
TSMC has enhanced its earthquake protections since Taiwan’s last major earthquake in 1999, with over 70% of tools in its fabs recovered within hours of the recent earthquake, setting the stage for production resumption throughout the night. The recovery process, however, could take weeks, potentially impacting high-end chip production and second quarter earnings. The broader ripple effects for the tech industry will depend on the areas of chip manufacturing affected, with tech companies watching closely for potential impacts on GPU chips that power AI applications, already facing shortages.
The earthquake serves as a reminder of the risks of relying heavily on one region for chip manufacturing, prompting efforts to grow capacity outside Taiwan. Disasters, trade tensions, and military aggression could further disrupt semiconductor production, causing chip shortages and price hikes for consumer goods. US President Joe Biden signed the CHIPS and Science Act to invest over $200 billion in semiconductor manufacturing, aiming to regain a leadership position. TSMC’s plans for new fabs in Japan, Germany, and the US show efforts to diversify, but delays in operationalizing new facilities highlight the challenges of moving away from Taiwan.
Analysts urge investors to consider the risks of concentrated foundry exposure and the importance of diversifying the chip supply chain to mitigate geopolitical risks. The industry faces a critical period in the next few years as new fabs in less geopolitically sensitive locations are needed to ensure stable semiconductor production. Companies and governments must invest billions in constructing facilities and developing a skilled workforce for advanced semiconductor manufacturing. The earthquake underscores the urgency of the industry’s need to expand chipmaking capacity beyond Taiwan to safeguard against future disruptions and ensure a stable supply chain.