Semiconductor Supply Chain Fears: Counting The Cost Of Taiwan's Earthquake

When so much critical infrastructure is based in one place, the dangers of disruption to supply chains can run high. The market reaction to Taiwan’s powerful earthquake on Wednesday showed how companies in the semiconductor supply chain have been ready for this moment for years.

The 7.4 magnitude earthquake struck at around 8 a.m. local time, with the epicenter nearly 100 miles away from the capital, Taipei. Around a dozen people were reported to have been killed in the quake.

Most of the casualties were in Hualien, the closest city to the epicenter, with reports of many trapped and injured and widespread damage.

Chip Producers Unfazed

The market reaction was muted, with the main Taiwan Weighted index finishing just 0.6% lower.

The impact could have been much worse, however, if critical semiconductor manufacturing infrastructure had been damaged.

The country’s leading producer of chips is Taiwan Semiconductor Manufacturing TSM. Its shares were up 1.6% after the company said its safety operations had functioned normally.

It issued a statement: “TSMC’s safety systems are operating normally. To ensure the safety of personnel, some fabs were evacuated according to company procedure. We are currently confirming the details of the impact.”

Micron Technology Inc MU, which operates four production facilities in Taiwan, was up 3.1% at $126.53.

Micron said in a statement: “We are evaluating impact to our operations and supply chain. We will communicate changes to delivery commitments to our customers after this evaluation is completed.”

It’s expected, though, that both companies will restart at least some production in the coming days. Modern buildings, particularly those situated in regions that are prone to such natural disasters, are designed to withstand higher magnitudes of shock than those experienced on Wednesday.

Some Disruption Likely?

However, some were less optimistic. “Tech enthusiast” Fabrizio said on X: “Some of TSMC’s high-end chips, such as the 3nm A17 Pro in the iPhone 15 Pro and ‌iPhone 15 Pro‌ Max, require round-the-clock operations and a stable vacuum environment for several weeks. As a result, some high-end chips already in production are likely to have been spoiled.

Spencer Hakimian, founder of Toulou Capital Management, said on X: “The world is 4.5x more dependent on Taiwan for advanced semiconductors than Europe was on Russia energy imports before the war in Ukraine.

“Any disruption to TSMC's production due to the earthquake in Taiwan will have immediate effects on prices, GDP, supply chains, etc. on the rest of the world.”

More Market Reaction

Investors in the U.S. appeared unperturbed by the possible supply chain disruptions. The VanEck Semiconductor ETF SMH, which includes holdings in TSMC, rose 0.7%.

And what about TSMC’s customers? Apple Inc AAPL, which TSMC in its earnings filings calls “Customer number one,” gained 1% to $170.28, while “Customer number two,” which most people take to be Nvidia Corporation NVDA was down 0.2%.

Now Read: TSMC Suspends Chip Production After Taiwan Rocked By Strongest Tremor In 25 Years

Image generated using artificial intelligence via Midjourney.