Strongest earthquake in Taiwan in 25 years kills 9, highlights chip vulnerabilities
Semafor Signals
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Insights from Nikkei Asia, Reuters, and The Wall Street Journal
The News
An earthquake off the shore of Taiwan has killed at least nine people and injured more than 960, forcing the world’s leading silicon chip maker to briefly shut some of its manufacturing facilities.
The 7.4 magnitude quake off the island’s east coast hit before 8:00 a.m. local time Wednesday morning. Authorities in the city of Hualien ordered schools closed, while the capital of Taipei temporarily suspended subway service.
“TSMC’s safety systems are operating normally. To ensure the safety of personnel, some fabs were evacuated according to company procedure,” the Taiwan Semiconductor Manufacturing Company, they key supplier to Apple, Nvidia, and other global giants, said in a statement. “We are currently confirming the details of the impact.”
White House national security spokesman John Kirby told Semafor that the U.S. government’s primary concern is the safety and security of the region and that officials are not focused on economic impacts. The concern is “lives and livelihoods,” he said.
SIGNALS
Semiconductor manufacturing is extremely delicate
TSMC said it produced more than 16 million 12-inch silicon wafers in 2023 at four plants, known as “fabs,” in Taiwan, and operates several other plants for smaller chips. The firm boasts 528 customers. But the fabs are ”vulnerable to even the slightest tremors,” and a passing vibration can wreck whole batches semiconductors. Sources at TSMC told Nikkei Asia that “some wafers were cracked” and that employees will be called in over coming tomb-sweeping holidays to make up for lost production. The company has invested heavily in minimizing the risks of earthquakes, and says its operating principals are “Zero casualty, short operation recovery time and least impact on customers.”
The quake highlights the risks of concentration
U.S., Asian, and European leaders have grown increasingly concerned about TSMC’s central role in the global electronics supply chain in recent years, and have pressed the company to invest in manufacturing capacity in their domestic markets. Public attention has focused in recent years on the disruption to the global supply chain in the case of a military conflict with China. But earthquakes have long represented a second risk. A 2022 tremor was “a reminder that global chip supply remains highly vulnerable to disruption.” A Credit Suisse analysis found that if Taiwan’s chip supply shut down, a wide array of manufacturing would be ”severely disrupted.”
The world had a warning of this risk after the 1999 quake, which “exacerbated the capacity crunch that was already building throughout the electronics supply chain.” Circuit-board makers at the time raised prices, sending “shock waves” through the PC industry. And advocates of reducing dependence on Taiwan immediately pointed to the brief disruption to make their case. “Glad we didn’t concentrate critical chip production in one geographic area,” remarked the research director of the American Economic Liberties Project, Matt Stoller, after the quake.
Building chip manufacturing outside Taiwan has hit obstacles
TSMC is investing in new chip plants in the United States, Germany, and Japan. The U.S. CHIPS Act was intended to ramp up the United States’ chip industry, and TSMC planned to open a plant in Arizona in 2024. But that opening has been delayed by at least a year already. The Taiwanese company complained that “local workers lacked expertise in installing some sophisticated equipment.” A second plant has also been delayed as “negotiations between the Biden administration and TSMC over subsidies have proven challenging,” the Wall Street Journal reported. But production is ramping up more quickly in Japan, which the Taiwanese company ”sees as a source of diligent workers with a government that is easy to deal with.”
