TAIPEI – Taiwan’s biggest earthquake in 25 years has disrupted production at the island’s semiconductor companies, raising the possibility of fallout for the technology industry and perhaps the global economy. The potential repercussions are significant because of the critical role Taiwan plays in the manufacture of advanced chips, the foundation of technologies from artificial intelligence (AI) and smartphones to electric vehicles.
What happened in Taiwan?
The 7.4-magnitude earthquake led to the collapse of over 25 buildings, at least seven deaths and the injury of more than 700 people across Taiwan, with much of the fallout still unknown. Taiwan Semiconductor Manufacturing Co (TSMC), the world’s largest maker of advanced chips for customers like Apple and Nvidia, halted some chipmaking machinery and evacuated staff. Local rival United Microelectronics Corp also stopped machinery at some plants and evacuated certain facilities at its hubs in Hsinchu and Tainan.
Why is that important for technology?
Taiwan is the leading producer of the most advanced semiconductors in the world, including the processors at the heart of the latest iPhones and the Nvidia graphics chips that train AI models like OpenAI’s ChatGPT. TSMC has become the tech linchpin because it is the most advanced in producing complex chips. Taiwan is the source of an estimated 80 percent to 90 percent of the highest-end chips – there is effectively no substitute. Mr Jan-Peter Kleinhans, director of the technology and geopolitics project at Berlin-based think-tank Stiftung Neue Verantwortung, has called Taiwan “potentially the most critical single point of failure” in the semiconductor industry.
What are the implications for AI?
AI is the hottest sector in tech at the moment, and leaders from OpenAI’s Sam Altman to Nvidia’s Jensen Huang have warned about shortages in the chips needed for training new AI services. All of Nvidia’s AI orders now go to TSMC so even brief disruptions to the company’s high-end output are likely to have repercussions. A lot will depend on which plants the company has evacuated and how quickly it can resume normal operations. Any impact on Taiwan’s logistics and power infrastructure would also affect deliveries of the latest chips. TSMC and other chipmakers have not yet detailed what the earthquake’s impact will be.
Why is production so concentrated?
Making chips is extremely complicated and, for decades, TSMC opted to concentrate its manufacturing facilities on the island, so engineers could work together to fine-tune machines and share their expertise. The company was so successful that it raced ahead of rivals such as Intel and Samsung Electronics. Yet, with rising national security concerns and Covid-induced supply chain disruptions, governments in the United States, Europe and Japan urged TSMC to diversify geographically. As a result, TSMC is now building chip plants in Japan and the US, but those production lines will not be for the most advanced chips.
Is Taiwan vulnerable to disruption?
Taiwan is prone to earthquakes because it is near the convergence of two tectonic plates. It is also a political flashpoint. Beijing considers Taiwan as its territory to eventually be reunified. The island of about 23.5 million people is among Asia’s most vibrant democracies and voters this year backed a candidate from the ruling Democratic Progressive Party who ran on maintaining the status quo. The Biden administration has also warned Beijing about trying to take control of Taiwan by force.
Are the risks of a military clash significant?
Bloomberg Economics estimated in 2024 that the price tag of a war over Taiwan would be around US$10 trillion (S$13.5 trillion). That is about 10 percent of global gross domestic product and would dwarf the blows from the Covid-19 pandemic and the 2007-2008 global financial crisis. BLOOMBERG
