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Taiwan quake to hit some chip output, disrupt supply chain, analysts say

Published 04/03/2024, 08:30 AM
Updated 04/03/2024, 10:00 PM
© Reuters. FILE PHOTO: A logo of taiwanese chip giant TSMC is seen at southern Taiwan science park in Tainan, Taiwan December 29, 2022.REUTERS/Ann Wang/File Photo

By Liam Mo and Brenda Goh

BEIJING (Reuters) -Taiwan's biggest earthquake in at least 25 years is likely to tighten supply of tech components such as display panels and semiconductors, analysts said, as manufacturers in the global tech powerhouse restore operations at affected facilities.

The powerful 7.2-magnitude earthquake struck Taiwan's eastern coast near Hualien County on Wednesday morning, killing nine people and injuring more than 1,000.

The island plays an outsized role in the global chip supply chain as it is home to the world's largest chipmaker, Taiwan Semiconductor Manufacturing Co, which supplies chips to Apple (NASDAQ:AAPL) and Nvidia (NASDAQ:NVDA).

The country also houses smaller chipmakers, including UMC, Vanguard International Semiconductor, and Powerchip Semiconductor Manufacturing.

Manufacturers in Taiwan have been hardening their factories against earthquakes for decades and many use automatic shutdown systems to minimise damage to their production and tools, analysts said.

"For a lot of the tools that go into automatic shutdown, it can take you no more than 36 or 48 hours to bring them back up and re-qualify them," said Dan Hutcheson, vice chair at Canadian research firm TechInsights.

"When you look at the business side of it - will this affect quarterly revenues? - the odds are it won't. But it's going to be a real headache for everyone involved to get this stuff back up and running."

While most of their facilities are not close to the earthquake's epicenter, many of the firms said they had evacuated some of their manufacturing plants and shut down some facilities for inspections.

TSMC said on Wednesday work at its construction sites, which has been halted, will resume after inspections, while impacted facilities are expected to restart production throughout the night.

It said overall tool recovery of its chip fabrication facilities reached more than 70% within 10 hours of the earthquake, with new fabs reaching more than 80%.

Nvidia, whose popular AI chips are manufactured by TSMC, said it had consulted with its manufacturing partners and the firm does not expect supply chain disruptions from the earthquake.

TSMC, whose facilities in Hsinchu, Tainan and Taichung have experienced varying degrees of disruptions, may have to delay some shipments and increase wafer input to compensate for this, consultancy Isaiah Research said in a note.

"Mitigating the impacts of the earthquake necessitates careful measures and time to restore production and uphold quality standards, presenting additional implications and obstacles," they said.

TSMC's Tainan operations for advanced process nodes, such as 4/5nm and 3nm, were temporarily suspended, they said. In addition, the extreme ultraviolet (EUV) lithography equipment crucial for these advanced nodes was halted at the site for a period of 8-to-15 hours.

Barclays analysts said some highly sophisticated semiconductor fabs need to operate seamlessly 24/7 in a vacuum state for several weeks and the halts would disrupt the process, pushing up pricing pressure in the sector.

This could spillover to cause a "short-term hiccup" to electronics manufacturing in economies focused on upstream products, such as Japan and Korea, as well as economies focused on downstream products, such as China and Vietnam, they said.

The report noted that lower inventory levels among customers could allow Taiwanese and Korean chipmakers to raise prices.

© Reuters. FILE PHOTO: A logo of taiwanese chip giant TSMC is seen at southern Taiwan science park in Tainan, Taiwan December 29, 2022.REUTERS/Ann Wang/File Photo

Research firm TrendForce expected shipments of television panels would also be affected, as manufacturers have already been operating at near full capacity globally to meet solid demand, and as the earthquake was likely to tighten supplies.

It said TV panel prices were projected to continue rising into April, but the longer-term effect of the earthquake would be limited, unless Taiwanese panel makers are forced to suspend operations for more than a week.

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