Powerful earthquake in Taiwan should raise concerns for Apple, Qualcomm, MediaTek and others
This morning, the U.S. woke up to the news that a powerful 7.4 magnitude earthquake had hit Taiwan, the strongest earthquake in the region over the last 25 years. After worrying about the human toll of this tragedy and how expensive and time-consuming it will be to rebuild, the next thought many had was whether the world's leading contract chip foundry, TSMC, suffered serious damage and what the effect might be to its top customers such as Apple, MediaTek, AMD, and Qualcomm.
CNN reports that the quake killed nine people while buildings collapsed and landslides were spotted. TSMC is located on the opposite side of the island from where the center of the earthquake hit allowing it to escape without sustaining more serious damages. Shaking was felt in the company's offices and fabs. Some of those production facilities did shake so much that workers had to be evacuated. Later in the day on Wednesday, TSMC allowed workers to return to the assembly lines after announcing that everyone was safe.
While the news was good for TSMC and its customers, the world's largest foundry did report some damage to some of its chip-making equipment. "A small number of tools were damaged at certain facilities, partially impacting their operations. However, there is no damage to our critical tools," TSMC said late Wednesday. More than 70% of TSMC's tools inside its fabs were recovered within 10 hours of the earthquake. In newer fabs, recovery levels were higher.
TSMC managed to survive the earthquake in Taiwan with minimal damage
In an investor note Wednesday, Barclays analysts pointed out that it might take TSMC weeks to recover from a shutdown that lasted a few hours. "Some of the high-end chips need 24/7 seamless operations in vacuum state for a few weeks," Barclays analysts said. With TSMC having to halt some of its operations, Barclays says that "some high-end chips in production may be spoiled." Overall impact to the foundry could be a $60 million reduction in second quarter earnings.
So this time, Apple, Qualcomm and others counting on TSMC can breathe a sigh of relief. But what happens next time a major earthquake hits Taiwan? And more worrisome is the large communist elephant in the room, the Chinese Communist Party (CCP). CNN says that TSMC is responsible for the production of a whopping 90% of the world's most advanced chips. That makes the foundry a tempting target for a country practically begging to be self-sufficient when it comes to semiconductors.
So there is an uneasy feeling bordering on fear when talk turns to the importance of TSMC in the tech world. David Bader, professor and director of the Institute for Data Science at New Jersey Institute of Technology says, "I believe it’s an existential threat. The entire world now works on semiconductor devices powering everything that we do, whether we’re driving in our cars, whether we are talking on our cell phones, even our military defenses or weapons systems, airlines, everything uses chips. If production were to halt … this would be devastating."
Angelo Zino, CFRA research analyst said on Wednesday, "We think the earthquake should serve as a reminder to investors of the risks associated with having so much foundry exposure coming from one region." The tech industry needs to come up with a solution.
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