By Eric J. Savitz
The chip industry is sorting through the production fallout from Tuesday's magnitude 7.4 earthquake in Taiwan, the island's strongest temblor in 25 years. At least nine people were killed by the quake, while more than 900 were injured.
U.S. semiconductor manufacturers remain highly reliant on Taiwan-based chip factories. That spurred Congress to pass the CHIPS Act, which provides government support for the construction of new U.S. chip-fabrication capacity by Intel and others.
Early indications suggest the damage to Taiwan-based chip factories from the earthquake were modest. But the quake comes at a time when a rebound in memory demand and a severe shortage of capacity for producing the high-end processors used in generative artificial intelligence applications have highlighted the global fragility of the semiconductor industry.
Taiwan Semiconductor, the world's largest contract semiconductor manufacturer, with a dominant position in cutting-edge microprocessor production for Apple, Nvidia, and others, said in a statement that all of its workers are safe and have returned to the company's sites. It said it is "currently evaluating the impact" from the quake.
The company said its fabs returned to 70% of prior levels within 10 hours of the quake, with newer fabs at more than 80%. TSMC said that "a small number of tools were damaged at certain facilities, partially impacting their operations." But the company added that there was no damage to its most critical equipment, including extreme ultraviolet lithography tools.
The memory-chip producer Micron Technology, which has multiple fabs in Taiwan, said in a statement that all of its staff there have been accounted for and reported safe. Micron said it is "evaluating impact to our operations and supply chain," and will communicate changes in delivery commitments to customers after that process is completed.
United Microelectronics, another Taiwan-based contract chip company generally known as UMC, said the quake had "no material impact" on its operations, though it noted that "some wafers" on the production line were affected when safety measures were triggered.
"Currently, operations and wafer shipments are resuming as normal, and there will be no meaningful impact on UMC's finances and business," UMC said.
The chip-industry research firm TrendForce said that so far, it has found no reports of significant equipment damage at Taiwanese fabs. The research firm noted that Nvidia chips are produced in TSMC's fab in the Southern Taiwan Science Park, where personnel weren't evacuated. While there were short shutdowns for equipment inspection, TrendForce said, the impact on Nvidia's chip supply should be minimal.
Citi analyst Peter Lee said in a research note that Taiwan accounts for about 15% of global DRAM capacity. He thinks disruptions tied to the quake could shift leverage in current contract price negotiations "from the clients to memory makers." He thinks prices for DRAM in the quarter could result in double-digit price increases from their first-quarter levels.
TrendForce said that Micron, Samsung, and SK Hynix, have all halted discussions regarding pricing for DRAM to reassess following the earthquake.
Citi's Laura Chen said that in 2016, a quake of magnitude 6.6 resulted in a hit to revenue of about 1% for Taiwan Semiconductor, with a gross margin impact of 2% to 3%. She thinks the impact will be minor this time.
"TSMC has implemented rigorous earthquake production measures that go beyond legal requirements," Chen wrote. "These initiatives include thorough inspections of building facilities, installation of dampers to enhance structural integrity, and the adoption of cutting-edge earthquake resistance technologies and methodologies to mitigate risks."
In Wednesday's trading, Micron shares were 2.9% higher, Taiwan Semi rose 1.1%, and UMC was fractionally higher.
Write to Eric J. Savitz at eric.savitz@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
April 03, 2024 13:02 ET (17:02 GMT)
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