Taiwan tremors, chip disruption won’t move electronics prices in India, says industry

Barclays analysts said some highly sophisticated semiconductor fabs need to operate seamlessly 24/7 in a vacuum state for several weeks and the halts would disrupt the process

An earthquake in Taiwan that has disrupted semiconductor manufacturing in the Southeast Asian island nation is not likely to cause any impact on prices of cars, smartphones and other electronics in India on account of strong chip inventories, according to industry experts.

“The earthquake has not hampered anything. There won't be any impact on phone and electronics prices,” said Pankaj Mohindroo, Chairman of the India Cellular & Electronics Association (ICEA).

Industry insiders said that chip orders are placed with suppliers at least one or two quarters ahead of their use by a device or auto manufacturer, whereas the disruption caused in Taiwan’s semiconductor factories lasted for only 6-10 hours.

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“While major foundries like TSMC (Taiwan Semiconductor Manufacturing Company) haven't reported widespread disruptions, the TSMC N3 fab in Tainan is the most affected area so far. EUV (extreme ultraviolet lithography) operations at this fab have been halted. TSMC's Hsinchu fab is expected to resume partial production lines within 6 hours. TSMC is currently undergoing inspections to assess the overall impact on its facilities,” said Tarun Pathak, research director at electronics market consulting firm Counterpoint.

Navkendar Singh, Associate Vice President at IDC India, said that disruptions in plants getting up since it takes time to switch everything back on, but if it is contained to that incident and there is no probability of aftershocks or follow-up incidents, then we will not see any immediate impact on manufacturing volume or price implications.

According to experts, Taiwanese factories were made earthquake resistant for up to a magnitude of 8 on the Richter scale, while the tremors measured 7.2, according to Taiwan’s earthquake monitoring agency, while the US Geological Survey put it at 7.4. It damaged several buildings in Hualien but caused only minor losses in the capital Taipei despite being strongly felt there.

“Most of the foundries are up and back running. There won’t be any impact on prices of TV or mobile. The only impact perhaps was in share prices of some companies but even that is stabilizing,” said a senior India executive of a US-headquartered electronics company.

The island plays an outsized role in the global chip supply chain as it is home to the world's largest chipmaker, TSMC, which supplies chips to Apple, opens new tab and Nvidia. The country also houses smaller chipmakers, including UMC, Vanguard International Semiconductor and Powerchip Semiconductor Manufacturing.

Manufacturers in Taiwan have been hardening their factories against earthquakes for decades and many use automatic shutdown systems to minimise damage to their production and tools.

However, the earthquake has once again raised fears about the concentration of chip supply in Taiwan as the nation’s fabs cater to more than 60 percent of global demand. This could provide a fillip to countries like India, Vietnam, Japan, Germany and the US who are trying to attract chipmakers to their shores with large subsidy grants.

“Taiwan has long been a stalwart in the semiconductor industry, overcoming geographical (Pacific Ring of Fire) and geopolitical challenges with remarkable determination to produce the best quality semiconductors with efficient operations and remarkable turnaround times,” Sagar Sharma, chief of staff of the India Semiconductor Mission, posted on LinkedIn.

“However, today’s earthquake, the strongest (7.4 magnitude) in the past 25 years, underscores the urgent need for leaders worldwide to intervene and ensure the resilience and trustworthiness of the semiconductor supply chain. It's time to share the load of Taiwan semiconductor industry. We need more hubs around the world for semiconductor manufacturing,” he added.

While most of their facilities are not close to the earthquake's epicenter, many of the firms said they had evacuated some of their manufacturing plants and shut down some facilities for inspections.

"For a lot of the tools that go into automatic shutdown, it can take you no more than 36 or 48 hours to bring them back up and re-qualify them," said Dan Hutcheson, vice chair at Canadian research firm TechInsights, told news agency Reuters.

"When you look at the business side of it - will this affect quarterly revenues? - the odds are it won't. But it's going to be a real headache for everyone involved to get this stuff back up and running."

However, Barclays analysts said some highly sophisticated semiconductor fabs need to operate seamlessly 24/7 in a vacuum state for several weeks and the halts would disrupt the process, pushing up pricing pressure in the sector.

This could cause a "short-term hiccup" to electronics manufacturing in economies focused on upstream products, such as Japan and Korea, as well as economies focused on downstream products, such as China and Vietnam, they said.

TSMC said on Wednesday work at its construction sites, which has been halted, will resume after inspections, while impacted facilities are expected to restart production throughout the night.

It said overall tool recovery of its chip fabrication facilities reached more than 70% within 10 hours of the earthquake, with new fabs reaching more than 80%.

Taiwan and its surrounding waters have registered about 2,000 earthquakes with a magnitude of 4.0 or greater since 1980, and more than 100 earthquakes with a magnitude above 5.5, according to the USGS.

The island’s worst quake in recent years struck on Sept. 21, 1999, with a magnitude of 7.7. It caused 2,400 deaths, injured around 100,000 and destroyed thousands of buildings.

(With inputs from agencies)