Major Earthquake Hits Taiwan. How Will This Affect the Supply Chain?

Taiwan experienced its most severe earthquake in 25 years early Wednesday morning. The 7.4-magnitude earthquake struck 11 miles south of Hualien City. Despite the distance, strong tremors were felt in the capital city of Taipei, located over 60 miles away.

This event marks the most powerful earthquake to affect Taiwan in a quarter-century. The aftermath for residents of Hualien City includes dealing with collapsed buildings, obstructed roads, and disrupted train services, effectively isolating this remote area from the rest of the island.

By Wednesday afternoon, the death toll had risen to nine with hundreds more reportedly missing. Search and rescue efforts are currently underway. 

On the supply chain side, the impact is enormous. Taiwan is responsible for producing between 80% and 90% of the high-end semiconductor chips used in modern technologies, including smartphones and AI. The disruption has sparked significant concern over potential slowdowns in semiconductor production, which is vital for these technologies.

Taiwan Semiconductor Manufacturing Co. (TSMC), a key supplier for companies such as Apple and Nvidia, suspended part of their operations and evacuated staff in response to the tremor. United Microelectronics also halted activity at its hubs of Hsinchu and Tainan. As a result, TSMC shares fell by 1.3% while UMC was down nearly 1%.

The precision required in semiconductor manufacturing means that even the slightest disturbance can lead to substantial losses, as entire batches of chips can be rendered useless by a single jolt.

Fortunately, most chip manufacturing plants are situated away from the earthquake's epicenter. TSMC announced plans to resume operations following thorough inspections.

The impact of the earthquake on the semiconductor supply chain will be determined in the days to come.

“If the curtailment of Taiwan’s semiconductor production is limited, we believe there would be a small dent to Taiwan’s economy, but without significant disruptions to regional production or trade,” Barclays analysts Bum Ki Son and Brian Tan told Asia Financial. “But we expect some constraints on production, in both Taiwan and the region, that could result in upstream pricing pressure in the chip sector.”