TSMC halts chip manufacturing as Taiwan assesses earthquake fallout

Taiwan Semiconductor Manufacturing (TSMC) halted operations and evacuated some of its chip factories after the biggest earthquake in 25 years hit the island, raising concerns about disruptions to the global technology supply chain.

TSMC, the main chipmaker contracted by Apple and Nvidia, has reassigned employees from some areas and said it is assessing the impact of the 7.4-magnitude quake off Taiwan’s east coast. Its local rival, United Microelectronics, also halted machines at some factories and evacuated facilities at its centers in Hsinchu and Tainan, the company said in a statement.

Taiwanese companies such as TSMC and ASE manufacture and assemble the vast majority of semiconductors used in devices, from iPhones to automobiles, in factories vulnerable to even the slightest tremors. A single tremor can destroy entire batches of precision-made semiconductors. TSMC shares traded in the US were little changed this Wednesday morning (3) in New York, while UMC fell less than 1%.

“Robust demand for the company’s advanced processes will cushion any financial effects” from the earthquake, analysts at Bloomberg Intelligencereflecting general expectations among analysts of limited potential impact.

The island’s technology companies are still assessing the damage caused by the earthquake, which destroyed dozens of buildings on the eastern side and killed at least four people. On Wednesday, TSMC said staff were beginning to return to evacuated locations, although it emphasized that it was still examining the impact. Still, any disruption to production threatens to disrupt a process that can require around-the-clock vacuum insulation for weeks on end — especially for sophisticated semiconductors — the Barclays analysts wrote.

“Some of the high-end chips need continuous 24/7 operations in a vacuum state for a few weeks,” said analysts Bum Ki Son and Brian Tan. “The disruption of operations in Taiwan’s northern industrial areas could mean that some high-quality chips in production could be spoiled.”

Taiwan is prone to earthquakes because it is near the convergence of two tectonic plates. However, it is also the source of around 80% to 90% of the next-generation chips needed for advanced applications such as smartphones and AI.

Industry executives and government officials have long warned of the dangers of centralizing the world’s production of advanced semiconductors on an island that, in addition to natural shocks, is considered a potential military flashpoint. This has become particularly evident during the Covid pandemic, which has exacerbated global shortages of vital components.

American officials, aware of the threat to Taiwan from a mainland Chinese government that considers the island a rebel province, have pressured U.S. and Taiwanese companies — including TSMC — to diversify geographically.

But TSMC’s ongoing expansion projects in Japan and the U.S. will take time to reach full capacity, and U.S. companies like Micron still maintain large operations on the island. Micron said it is evaluating its operations and supply chain but that all employees are safe.

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