Taiwan earthquake could throw global smartphone industry into chaos as world’s largest chipmaker, responsible for 90% of supply, suspends operations

A Taiwanese chipmaker responsible for 90 percent of the world’s most advanced computer processors halted production on Wednesday due to a historic earthquake.

Taiwan Semiconductor Manufacturing (TSMC) produces high-quality microchips used in smartphones, cars, cloud server farms and AI-powered technology – and its factories must keep running constantly to meet demand.

A TSMC spokesperson told reporters that some equipment was damaged and employees were evacuated from several of the company’s key locations while facilities were inspected for damage and future safety.

The magnitude 7.2 earthquake, which released the energy equivalent of an atomic bomb, has raised alarm about the vulnerability of Taiwan’s semiconductor sector as tensions over the island’s sovereignty between China and the United States rise.

The magnitude 7.2 earthquake, which killed at least nine people and injured more than 900, prompted the island’s largest chipmaker – Taiwan Semiconductor Manufacturing (TSMC) – to evacuate its production facilities and suspend operations at the to suspend construction sites that expanded its activities.

Barclays analysts said some highly advanced semiconductor factories may need to operate in a vacuum state 24/7 for several weeks. The shutdowns would disrupt the process and increase price pressure in the sector.

This could spill over and cause a “short-term hiccup” in electronics production in economies that focus on upstream products, such as Japan and Korea, as well as in economies that focus on downstream products, such as China and Vietnam, they said .

TSMC also took a minor hit on the Taiwan Stock Exchange, where TSMC shares fell 1.3 percent at close on Wednesday.

But the earthquake, which killed at least nine people and injured more than 900, not only led to the island’s largest chipmaker evacuating its production facilities. It has also suspended work on construction sites that are expanding TSMC operations.

But the company said the strong earthquake had largely spared production operations.

TSMC noted that Wednesday’s strong earthquake had largely spared the company’s manufacturing operations. “There is no damage to our critical tools, including all of our extreme ultraviolet lithography instruments,” the company said in a statement, according to Bloomberg.

“There is no damage to our critical tools, including all of our extreme ultraviolet lithography instruments,” the company said in a statement. Bloomberg.

The chipmaker noted that a modest amount of equipment was damaged at some facilities, but TSMC representatives said they expected a full and speedy recovery.

TSMC, based in the Taiwanese city of Hsinchu, also announced this Business insider that some of its chip factories were evacuated only as a precaution.

“The company is currently confirming the details of the impact,” the TSMC spokesperson said, but noted that initial inspections of the company’s construction sites revealed “normal” conditions without serious damage to their future factories.

Located about 100 miles off the coast of mainland China, Taiwan is also home to smaller chip makers, in addition to megalith industry leader TSMC.

One of the company’s small local rivals, United Microelectronics Corp. (UMC), also halted production at some factories and evacuated facilities in Hsinchu and Tainan on Wednesday to assess earthquake damage.

These abrupt work stoppages are likely to have a real but temporary impact on the delicate production of intricate etched microchip fabrication.

“Some of the high-end chips will need to be able to operate seamlessly in a vacuum state 24/7 for a few weeks,” said Barclays analysts Bum Ki Son and Brian Tan.

“Ceasing operations in Taiwan’s northern industrial areas,” the analysts said, “could mean losing some high-quality chips in production.”

At the height of the coronavirus pandemic, lockdowns in the summer of 2021 caused a drop in Taiwanese chip production, leading to global shortages and price increases of between 10 and 20 percent.

China hawks in the US national security sector have long warned that the US economy could take a hit of as much as 6.7 percent of GDP in the first year of a potentially hot conflict between the two superpowers, if war were to break out over Taiwan’s disputed status as its own sovereign nation.

In March, Taiwan’s defense minister appeared to accidentally relent US Special Forces are on the island to train the Taiwanese army off the coast of China – a move that could trigger a surprising escalation of hostilities in the region.

A Chinese invasion of Taiwan could lead to more than 500,000 deaths and devastation to the technology sector that powers the global economy, while increasing Beijing’s growing influence, at least according to a January report from the Henry Jackson Society.

An analysis by Bloomberg Economics estimated that a Chinese blockade of the island could reduce U.S. GDP by 3.3 percent in the first year.

TSMC, for its part, told reporters that it has already been hard at work diversifying the geographic spread of its operations with new factories in Arizona, Japan and Germany to limit future disruptions.

The Biden administration has also taken steps to boost chip production domestically, promising to turn the “Rust Belt” into a “Silicon Heartland” with the passage of the $52 billion CHIPS Act in 2022.

CHIPS will provide subsidies for production, research and workforce development in the production of technical hardware, but especially for semiconductor microchips.

Despite fearful reactions in Taiwan, the earthquake had no impact on TSMC’s share price on the US-traded market, where shares rose 1.6 percent in New York on Wednesday morning.

And the share of the competitor, UMC, hardly changed.

“Robust demand for the company’s advanced node processes will mitigate the financial impact,” Bloomberg Intelligence analysts said of the quake.