On April 2, 2024, Taiwan suffered a devastating 7.7 magnitude earthquake, which caused not only immediate damage to people and infrastructure, but also exposed the vulnerabilities of the global technological supply chain located on the Pacific Ring of Fire. The incident once again brought to light the world's critical dependence on Taiwan's semiconductor industry.
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Natural events and global supply chains
April 2, 2024, Taiwan was hit by a powerful earthquake measuring 7.7 on the Richter scale, followed by seven strong aftershocks. The disaster, one of the deadliest in Taiwan's recent history, left more than five people dead and more than 70 injured, the Taiwan Fire Department confirmed.
The earthquake had far-reaching consequences, even beyond its immediate impact on lives and infrastructure, because it not only caused significant destruction in Taiwan's urban centers, but also made its shockwaves felt on the other side of the Pacific where the customers of its top companies are concentrated.
The earthquake affected the operations of key semiconductor plants, including Taiwan Semiconductor Manufacturing Corporation (TSMC) and United Microelectronics Corporation (UMC), jeopardizing the production of advanced chips critical to several industries.
TSMC, a key player in the semiconductor industry and primary supplier to tech giants such as Apple and Nvidia, has been forced to evacuate some sections of his factory. The company is currently assessing and addressing the damage caused by the earthquake.
Similarly. UMC had to stop operations of some plants in its Hsinchu and Tainan centers, exacerbating concerns about global semiconductor production.
The island is responsible for about 65% of the world's semiconductor production, with Taiwan Semiconductor Manufacturing Company (TSMC) alone producing over 50% of all semiconductors globally.
This concentration is even more pronounced in the advanced chip sector, where Taiwan accounts for about 90% of the production. The world's second largest producer, South Korea, led by giants such as Samsung, contributes significantly less to global semiconductor production.
Not numbers, but capabilities
The earthquake caused an immediate disruption in production and raised alarms about the fragility of relying so heavily on a geographically small and disaster-prone region for such a critical component of the global economy. The temporary closure of plants such as those at TSMC and UMC. could threaten disruptions in the supply of almost everything from smartphones to car electronics, from video games to medical devices.
La dependence on Taiwan for semiconductors is not only a matter of volume, but also of capacity. TSMC, for example, is at the forefront of producing the most advanced 5-nanometer (nm) chips for smartphones, computers and data centers. The goal is to reach 2 nanometers and Moore's Law race is touching the limits of physics.
The process of producing these chips is extraordinarily complex and capital intensive: a single manufacturing plant (fab) costs more than $10 billion and takes several years to become operational. Only a few companies in the world, including TSMC and Samsung, have the technological capability and infrastructure to produce these advanced semiconductors.
Exports and imports in billions of dollars of major IC manufacturing countries: production is an Asian monopoly
This is why the island is the true Silicon Valley, because it is distinguished by its Ability not only to design but also to produce technology, while much of the big Western names such as NVIDIA or AMD (which, however, often have Asian CEOs and staff), have specialized in the profitable design segment.
Taiwan's irreplaceability is also due to the Human factor: centers such as the city of Hsinchu are hubs for Asia's top science and engineering students and can find immediate job opportunities at FABs.
With the rise of AI as an enabling technology for a multitude of uses, lower-performing semiconductors are being relegated to the fringes of the market for less profitable applications driving demand for the highest-performing chips.
To make a comparison, Taiwan's importance in the technological world rivals that of the entire OPEC in the energy sector. Integrated circuits were the 3rd most commercialized product in the world
A few figures to understand: in 2022, the top exporters of integrated circuits were Chinese Taipei ($223 billion), China ($212 billion), South Korea ($121 billion), Singapore ($81.9 billion) and Malaysia ($78.9 billion).
In 2022, the top importers of integrated circuits were China ($232 billion), Hong Kong ($201 billion), Chinese Taipei ($80.9 billion), Singapore ($76 billion) and South Korea ($56.4 billion).
What do these Asian countries have in common? They are on the ring of fire.
Black swans and natural disasters
Taiwan's geographical location on two major fault lines makes it prone to frequent and severe earthquakes.
Natural disasters, such as earthquakes, typhoons, and floods, pose a significant risk for semiconductor manufacturing facilities (fabs) in Taiwan.
I natural disasters can cause significant structural damage to the production facilities themselves, including clean rooms and sensitive production equipment.
Semiconductor manufacturing requires continuous power to maintain cleanroom environments and operate precision equipment. Also Short interruptions can ruin batches of wafers in production.
Given the tight timeframe and global demand for semiconductors, even a short delay can have ripple effects, causing shortages and affecting industries around the world. In 2021, TSMC has estimated a Loss of about 2% of its quarterly sales due to a brief halt in production Due to a power outage.
Despite the severity of the earthquake and its immediate impact on TSMC's operations, including halting construction of new sites and suspending chip production as a precautionary measure, The geographical distance of the epicenter from major industrial parks on the island's west coast, including Shinjuku Science Park, suggests that greater harm to TSMC and other similar companies may be unlikely.
TSMC confirmed that all personnel are safe and that measures are in place to mitigate the effects of such natural disasters, emphasizing the Taiwan's technology industry resilience To seismic activities.
An event such as an earthquake has broader impacts, such as transportation disruptions and subsequent inability of employees to reach their workplaces.
However, Taiwan demonstrated an extraordinary ability to learn from its mistakes after the 1999 earthquake. Authorities have been working on a concerted effort to return to normalcy, without affecting flights and with the resumption of subway services in Taipei, demonstrating exceptional resilience.
The specter of the black swan, however, remains: a disruption in the production of critical raw materials, a sudden aggravation of the geopolitical conditions or an earthquake can bring the fragile architecture of technology industries to its knees.
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