Taiwan Earthquake Sparks Semiconductor Supply Chain Concerns

On April 3, 2024, Taiwan was struck by a magnitude 7.2 earthquake, with 10 reported fatalities and hundreds injured. This event has prompted concerns regarding its impact on the semiconductor industry, key to Taiwan's economy and global technology supply chains. 

The semiconductor industry accounts for 13-15% of Taiwan's gross domestic product (GDP) in recent years as it hosts leading semiconductor firms such as Taiwan Semiconductor Manufacturing Company (TSMC), United Microelectronics Corporation (UMC), and MediaTek Incorporated, helping to establish the country as a global hub for advanced chip manufacturing. Semiconductors are Taiwan’s top traded merchandise and China is Taiwan’s largest trading partner. With approximately 70% of chips under 7nm produced in Taiwan and ongoing research into even smaller nodes, Taiwan stands at the forefront of semiconductor innovation. 

At the same time, Taiwan is home to the world’s largest foundry (63.8% of global market) and packaging and testing sectors (58.6% of global market), and second largest IC design sector (20.1% of global market).

The semiconductor industry is one of the most globally integrated industries, spanning dozens of nations with thousands of suppliers. As a result, semiconductors are the fourth-most traded good with nearly US$1.5 trillion in annual trade flows, reports the Semiconductor Industry Association (SIA). At the same time, the global semiconductor industry, according to McKinsey, was valued at US$574.1 billion in 2022, poised for exponential growth, and projected to reach a US$1 trillion valuation by 2030. Driving this growth are megatrends such as automation, 5G, artificial intelligence, and electric vehicles, with the automotive, computation, data storage, and wireless sectors expected to account for 70% of industry expansion. 

Semiconductors expand into several industries and everyday activities, fueling new services and innovations. They serve as the central processing units of contemporary electronic devices, ranging from smartphones and electric vehicles to satellites and national defense systems. However, about 70% of the semiconductor industry’s growth is predicted to be driven by just three industries: automotive, computation and data storage, and wireless technology.

“The semiconductor industry is the foundation for not just Taiwan’s but the world’s future. A semiconductor supply chain disruption involving Taiwan will be devastating to not only Taiwan but the rest of the world. As a result, countries committed to economic growth and technological innovation have an enormous stake in the resilience of the global semiconductor supply chain, as well as in the stability and peace across the Taiwan Strait,” states a report made by the Taipei Representative Office in Singapore. Immediate response efforts have already been mobilized by the Taiwan government to attend the disaster, including activation of the Central Emergency Operations Center and collaboration with local authorities and the armed forces to ensure public safety and mitigate damages.

Taiwanese companies, particularly TSMC, play a pivotal role in this landscape. TSMC, the world's largest chipmaker, serves as a primary supplier for tech giants like Apple Inc. and Nvidia Corp. Due to its importance and the aftermath of the earthquake, concerns were raised as to whether the operations of the leading company would be affected. 

“TSMC is currently evaluating the situation's impact. Initial inspections revealed no abnormalities at construction sites, although work was suspended on April 3, only to resume on April 4 after thorough reassessment. Leveraging its extensive expertise and preparedness through disaster drills, TSMC swiftly achieved over 70% tool recovery within 10 hours, rising to over 80% by April 4, with full recovery expected later tonight, notably at the Fab 18 facility. Although some tools sustained damage, critical assets like EUV lithography tools remained unscathed. Certain production lines, particularly in harder-hit areas, may necessitate additional time for recalibration before resuming full automation,” shared TSMC with MBN.

These eventualities have raised questions and pressure towards making efforts to grow chipmaking capacity outside of Taiwan. The United States recognized that Taiwan’s semiconductor industry faces multiple vulnerabilities given its location and geology, making it prone to natural disasters, leading it to enact the CHIPS and Science Act of 2022, to enhance the semiconductor supply chain and boost domestic semiconductor production capacity. As a result, Mexico and the United States recently signed a partnership recognizing the critical importance of semiconductor supply chains. This collaboration aims to create a more robust, secure, and sustainable global semiconductor value chain where key stakeholders, including state governments, educational institutions, research centers, and corporations, will join forces with Mexico’s Ministry of Economy to conduct a comprehensive analysis of the current state of the semiconductor industry. Insights gleaned from this assessment will serve as the basis for potential joint initiatives aimed at fortifying and expanding Mexico's semiconductor sector.