Taiwan earthquake forces TSMC to evacuate factory, chip supply likely to be disrupted, prices soar

Mobiles phones, PCs and practically all other electronic devices are likely to get more expensive for the next few months because of the massive, 7.4 magnitude earthquake that hit Taiwan earlier today.

In the wake of the largest earthquake to strike Taiwan in a quarter-century, both Taiwan Semiconductor Manufacturing Co. (TSMC) and its competitor, United Microelectronics Corp. (UMC), have evacuated massive sections of their factories, creating uncertainty around chip production at the world’s leading manufacturer of advanced chips.

TSMC, which serves as the primary contract chipmaker for tech giants like Apple and NVIDIA were forced to relocate their staff from specific areas. The chipmaker has stated that it is evaluating the impact of the 7.4-magnitude earthquake off the island’s east coast. Similarly, UMC ceased operations at certain plants and evacuated facilities in its Hsinchu and Tainan hubs.

Taiwanese firms, including TSMC and ASE Technology Holding Co., dominate the global semiconductor market, supplying chips for various devices from iPhones to automobiles. It is estimated that about 80-90% of all silicon chips that power smartphones and AI-running supercomputers, come out of Taiwan, either in the form of finished SoCs, or silicon wafers.

Geographically, Taiwan is located near a major fault line, were two tectonic plates meet. This makes it prone to frequent and sometimes extremely violent earthquakes.

Because Taiwan is prone to earthquakes, and Taiwanese factories are susceptible to minor seismic activity regularly, a single major tremor is capable of ruining entire batches of precision-made semiconductors.

“TSMC’s safety systems are functioning normally. As per company protocol, certain fabs were evacuated to ensure personnel safety,” stated the company in a press release. “We are currently in the process of assessing the extent of the impact.”

Relying too much on Taiwan for semiconductor manufacturing has raised major concerns for industry leaders and government officials for years now.

The COVID-19 pandemic exacerbated a global shortage of semiconductors and highlighted the faultlines that exist in the global supply chains when it comes to silicon chips. Not only did industries across the world face a major chip shortage, the chips that were available were being sold at 3-4x the official price.

NVIDIA’s GPUs for example, used in gaming and video editing PCs, crypto mining, and now AI applications were being bought by scalpers looking to make a quick buck and were resold for anywhere between 50 per cent and 250 per cent premium.

In response to these concerns, government officials all over the world have been urging Taiwanese companies, including TSMC, to diversify their manufacturing locations geographically, mindful of the potential threats to Taiwan’s stability. Apart from being prone to earthquakes and tsunamis, Taiwan has also been forced to deal with an erratic and problematic China.