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Chip supply chain resilience: after the Hualien earthquake, what are the damages for Taiwan's electronics industry?

80% of the foundry's market share is located in Asia, almost all of which is in Taiwan. The latter is home to the world's most advanced semiconductor manufacturer, Taiwan Semiconductor Manufacturing Company (TSMC), and 20% of global semiconductor manufacturing capacity. In summary, the global semiconductor value chain is transnational. It is based on a high division of labor between companies and regions and is defined by strong interdependencies and various choke points at the level of production steps, suppliers and chip types. More importantly, no one region can control all the manufacturing steps and supplies needed to produce cutting-edge semiconductors



According to Taiwanese media reports, after the strong earthquake in Hualien, Taiwan, on April 3, Taiwan's semiconductor and panel manufacturing industries were disrupted. In fact, many wafer and panel factories were closed due to the violent earthquake.


Taiwan's wafer factories are mainly located in Hsinchu, Taichung and other places, and were all hit by the earthquake, with hundreds of aftershocks. TSMC and other wafer production lines have suffered chip breakages and shutdowns, which have affected NVIDIA's AI chip production, and memory makers such as Samsung have suspended listings because of this.


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Market estimates put the value of wafers affected by the major earthquake in Taiwan's seven major wafer factories at more than NT$10 billion.


According to the disaster prevention regulations for semiconductor and panel factories, if a magnitude 4 earthquake occurs in the factory, the machines must automatically shut down and the clean room personnel must be evacuated.


After the earthquake, nearly all seven major wafer fabs in Taiwan, including TSMC, Advanced Micro Devices, UMC, Power Semiconductor Manufacturing Co., Ltd., Nanya, Winbond, and Macronix, suffered fragmentation and production line shutdowns.


In this regard, TSMC said that based on its experience and capabilities in earthquake response and disaster prevention and safety drills, the current recovery rate of wafer manufacturing equipment has exceeded 70%, and the recovery rate of the 18 factories exceeded 80%. Although a small number of equipment in some factories were damaged and affected the output of some production lines, the main machines, including all extreme ultraviolet (EUV) lithography equipment, were not damaged; resources are currently available to accelerate full recovery and continue to resume work halfway.


World Advanced said that as of midday on April 4, about 80% of the affected machines had returned to normal and production operations would gradually resume. The company informed affected customers as soon as the earthquake occurred and maintained close contact with them.


Power Semiconductor Manufacturing Co., Ltd. responded that no one was injured and that no production lines were stopped.


Winbond stressed that it evacuated its employees as soon as possible on the 3rd, and after some machines on the production line were shut down and it was confirmed that there were no problems, production resumed.


According to industry experts, the "yellow light zone" of factories is the most affected by earthquakes. After the strong earthquake on the 3rd, the technicians added, the yellow light areas of all the wafer factories were certainly affected and the equipment, such as oven tubes, could not escape the impact. Wafers on the production line must be scrapped and recycled. The extreme ultraviolet light used in advanced processes (EUV) is precision engineered and the production line must be suspended for maintenance. Furthermore, aftershocks will continue that will interfere with the restoration of the production line and affect the production of the wafer fab.


Judging from the statements released by various companies yesterday, it will take 4 to 5 days for each factory to take stock of the impact of the wafer foundry, and each large factory has also urgently sent more engineers on duty to deal with the problem.


The Taiwan earthquake has attracted the attention of foreign media and scholars, particularly due to its impact on wafer production.
The British Financial Times (FT) Lex article pointed out that the Taiwan earthquake was a reminder to the global wafer supply that it is exposed to significant earthquake risk. Bloomberg News reported that Taiwan is the largest producer of advanced wafers. If the wafer fab were in trouble, it would directly affect the global tech industry and wafer supply, affecting artificial intelligence, electric vehicles, etc.

Shihoko Goto, director of the Indo-Pacific Program at the Wilson Center, an American think tank, pointed out that the scale of the Taiwan earthquake could cause more serious disasters, but the surprising and promising news is that the extent of the earthquake's damage was relatively limited.


What impact will the earthquake have on Taiwan's panel factories?

After the earthquake, the production of Taiwanese panel factories such as AUO, Innolux and Caijing was simultaneously affected. TrendForce, a research organization, released a report on the evening of the 3rd, saying that the earthquake will affect the production capacity of Taiwanese panel factories for about 1 to 2 days. Recently, panel prices have risen steadily, and the impact on the production capacity of Taiwanese factories will make the panel price trend more volatile, support and favorable prices continue to rise.


Taiwan's panel factories are all located on the west coast of the island, from Hsinchu in the north to Tainan in the south. The anti-shock mechanism of the production line was activated immediately, causing the machines to stop. The three main manufacturers of Taiwanese panels, Innolux, AUO and Caijing, said on the 3rd that after the earthquake, they evacuated employees in accordance with regulations and that the personnel were safe; Some machines in the factory initiated automatic protective shutdowns and were conducting system inspections after the earthquake.


However, after an investigation by TrendForce, it was found that all AUO machines have been shut down for maintenance and are being restored one after another. Except for Innolux's Fab6 factory, which was slightly affected, other factories had large numbers of idle machines.


Considering that panel manufacturers have different factory conditions, TrendForce estimates that the earthquake will affect the production of all panel factories in Taiwan for at least 1 to 2 days. If calculated over 2 days, it is estimated that it will affect approximately 1.2% of production. Almost all areas of the factories have been affected and it is estimated that production of all applications may be affected to some extent.


TrendForce pointed out that due to the strong demand for TV panel storage at this stage, the overall capacity utilization rates of AUO and Innolux are expected to increase to 85% and 83% respectively in April. However, due to the earthquake, the possibility of further reductions in capacity utilization, resulting in a further reduction in production, cannot be ruled out.


TrendForce analyzes that panel factories that mainly produce TV panels are currently operating at full capacity and it is estimated that due to the impact of the earthquake, some shipments of TV panels may be affected.


TrendForce initially expected TV panel prices to trend upward in April, but demand for small and medium-sized TV panels has slowed. After yesterday morning's earthquake, TrendForce says it will be necessary to pay attention to the possibility that the growing momentum in prices of small and medium-sized TVs could continue into May.


TrendForce believes that the current influence of Taiwanese panel factories on TV panel prices has decreased, therefore, unless the impact of the earthquake on the production line shutdown lasts more than a week, the impact on the development trend TV panel prices will be limited.


Focus: the transnational semiconductor industry

Semiconductor chips are a central element of the digital economy.

They enable the operation of many products: from smartphones and mobile cars to applications and critical infrastructures in the healthcare sectors, of energy, communications and automation, up to the majority of other industrial sectors. Chips are also essential to technologies of the future, such as artificial intelligence (AI) and 5G/6G communications.

Without chips, “digital” does not exist.

Their production relies on specialized supply chains and complex, globally distributed processes involving many stages of manufacturing, including specialized materials, production equipment, design and related software, manufacturing, testing and packaging.

In some stages of production, labor costs are important; in others, capital costs are significant because a state-of-the-art manufacturing facility, or fab (digital manufacturing), can cost more than $12 billion. Taiwan, South Korea, the United States, Japan, Singapore and China are the main chip producing nations. There are also important structures (often branches of a leading manufacturer) in Europe, Southeast Asia, South America and Israel.


Many supply chain segments are highly concentrated, with one or a few suppliers dominating a particular process or area of interest. One of the most visible sectors is found in photolithography equipment, where only the Dutch ASML supplies EUV equipment and the top three suppliers (ASML, Nikon, Canon) account for virtually all of the overall market share. The United States leads the world in fabless semiconductor design, which introduces the additional supply constraint of outsourced production services.


80% of the foundry's market share is located in Asia, almost all of which is in Taiwan. The latter is home to the world's most advanced semiconductor manufacturer, Taiwan Semiconductor Manufacturing Company (TSMC), and 20% of global semiconductor manufacturing capacity.

TSMC's leadership in advanced semiconductor manufacturing is attributable to the company's decision to pioneer the of “pure-play” foundry for production. It is a foundry that focuses exclusively on the manufacture of semiconductor devices, leaving chip design to other companies.


Taiwan's semiconductor foundries rely on a series of complex global supply lines using advanced manufacturing equipment developed in the United States and Japan, specialized lithography equipment produced exclusively in the Netherlands, and silicon ingots refined in a multi-stage process conducted in Japan and South Korea which uses silicon dioxide extracted in the USA.


In summary, the global semiconductor value chain is transnational.

It is based on a high division of labor between companies and regions and is defined by strong interdependencies and various choke points at the level of production steps, suppliers and chip types. More importantly, no one region can control all the manufacturing steps and supplies needed to produce cutting-edge semiconductors.


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