AuthorLiam Ripberger, RUSCA Blog Committee A supply chain is like a real chain; every link is connected to the next, and when something happens in one link, it sends a ripple effect that is felt throughout the entire supply chain. On Wednesday, April 3rd, 2024, an earthquake in Taiwan had a major ripple effect that was felt throughout the entire chip industry. This 7.4 magnitude earthquake was the strongest magnitude earthquake Taiwan has seen in 25 years. Taiwan is used to having many minor earthquakes, and much of the country’s infrastructure is built to withstand earthquakes to a certain degree because of that. Even with these built in defenses, the sheer magnitude of the earthquake caused major damage to the east coast of the country, injuring over 1,000 citizens and destroying buildings in the process.
The Taiwan Semiconductor Manufacturing Company, who is the world's largest manufacturer of advanced microchips, was not able to avoid being damaged. The manufacturer was forced to pause production and evacuate during the seismic incident, and experienced damage to some of their facilities. Against all odds, TSMC told reporters that 80% of tools used by the company were recovered by April 4th, the day after the earthquake (Revell). Furthermore, employees were able to return to work within 24 hours of the earthquake to resume production. In total, this production delay and damages to their facilities cost the company an estimated $62 million dollars in damage (Tyson). Although the production delay was relatively minimal for such a catastrophic event, Taiwan is responsible for approximately 92% of the most advanced chip production in the world (Magill), and supplies major technology companies like Apple and Nvidia. In fact, Chris Miller, author of Chip War: The Fight for the World’s Most Critical Technology, stated that, “the effects of a catastrophic event knocking out TSMC would be akin to the Great Depression” (Bennett). Therefore, even a single, smaller delay in manufacturing is being felt across major companies’ supply chains throughout the world. This situation has also shed light on the possible risks of Taiwan’s current dominance in the microchip industry. This almost monopolistic control over such a crucial global industry is worrying many businesses and nations alike due to the possible risks. Nazak Nikakhtar, who works in national security, summarized the impact of such market control, telling Fox News, “this should be a stark reminder to the rest of the world that we need redundancies in our supply chains. Looking to one company, one country, or one region for output is a recipe for disaster” (Revell). Knowing of the damage and delays that the earthquake had on the well-prepared Taiwanese manufacturer, it makes major investors in the industry uneasy about relying so heavily on one entity, and one country for that sake. Diversification of manufacturing in the microchip industry is a potential solution that can be considered in order to combat this risk. In recent years, countries like the United States have begun to invest in local manufacturing of the highly demanded technology. For example, The Biden Administration has begun to fund Intel Corporation, a manufacturer in the US, with billions of dollars for research and expansion. According to Drake Bennett from Bloomberg, the White House claims that by 2030, they will go from accounting for less than 10% of global microchip production, to producing about 20% of the world’s most advanced chips (Bennett). Even with such major efforts, Taiwan has held a competitive advantage in the industry since the 1970s, when the United States began offshore production in Taiwan, and will still continue to have dominance in the market for the foreseeable future. Due to the global significance of the Taiwan Semiconductor Manufacturing Company, the ripple effects of Taiwan’s strongest earthquake in 25 years were felt all over the world. Although actual damages to TSMC and delays in production were small, their monopolistic dominance in the microchip market was enough to make major companies and other nations uneasy. Overall, this occurrence was an example to us all of the importance of supplier diversification, and sheds light on how fragile supply chains can be. Sources: “Taiwan earthquake’s impact on chip industry likely to be ‘moderate,’ experts say” https://www.supplychaindive.com/news/taiwan-earthquake-impact-semiconductor-supply-chain-tsmc-micron/712388/ “Taiwan quake to hit some chip output, disrupt supply chain, analysts say” https://www.reuters.com/markets/asia/taiwan-quake-hit-some-chip-output-cause-asia-supply-chain-disruptions-analysts-2024-04-03/ “Apple and Nvidia may see supply chain disruptions from Taiwan earthquake” https://www.foxbusiness.com/technology/apple-nvidia-may-see-supply-chain-disruptions-taiwan-earthquake “Taiwan Earthquake Raises Stakes for Solution to Chip Dominance” https://www.bloomberg.com/news/newsletters/2024-04-05/taiwan-earthquake-raises-stakes-on-effort-to-build-chips-in-us-europe “Taiwan earthquake causes estimated $62 million in damage and disruptions for TSMC” https://www.tomshardware.com/tech-industry/semiconductors/taiwan-earthquake-causes-estimated-dollar62-million-damage-and-disruption-for-tsmc-euv-equipment-reported-to-be-safe-and-sound-report#:~:text=The%20quake%20and%20its%20aftershocks,cost%20TSMC%20approximately%20%2462%20million. Comments are closed.
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