On January 21, 2025, Taiwan Semiconductor Manufacturing Company (TSMC) experienced a 6.4 magnitude earthquake that shook the region and had significant repercussions on the semiconductor industry. As the world's leading chipmaker, TSMC's operations are crucial to the global supply chain. This blog explores the earthquake's impact on the market, factors affecting global chipset costing, and the challenges end-users may face.
Market Impact
The earthquake caused TSMC to temporarily halt operations and evacuate staff to ensure their safety. Although there was no structural damage to the fabs, a certain number of wafers in process were impacted and had to be scrapped. This disruption led to a revenue forecast adjustment for the first quarter of 2025, with anticipated revenue closer to the lower end of the guidance range of $25 billion to $25.8 billion.
Despite the setback, TSMC has assured investors that margins and profits for the quarter will remain unchanged, and full-year revenue projections are still on track. The company is making every effort to recover lost production and maintain its position as the world's most sophisticated chipmaker.
Factors Affecting Global Chipset Costing
Several factors influence the global costing of chipsets, and the TSMC earthquake adds another layer of complexity to an already intricate pricing landscape:
Global Chip Shortage: The ongoing global chip shortage has driven up prices due to high demand and supply chain disruptions. The TSMC earthquake exacerbates this issue by temporarily reducing the supply of wafers.
Increased Complexity in Design: As semiconductor designs become more complex, production costs rise. Advanced technologies and smaller technology nodes require significant investments in research and development (R&D), which ultimately affect chipset pricing.
Rising Investments in R&D: To stay competitive, semiconductor manufacturers invest heavily in R&D. While this fosters innovation, it also adds to the overall cost structure, influencing pricing.
Geopolitical Factors: Trade wars and export restrictions on key semiconductor materials can impact global chipset costs. For example, the US-imposed advanced semiconductor shipment ban on China has contributed to increased prices.
End-User Implications
The TSMC earthquake's impact on the semiconductor supply chain will likely have several consequences for end-users:
Higher Prices: The reduced supply of wafers and increased production costs may lead to higher prices for consumer electronics, including smartphones, computers, and household appliances.
Delayed Product Launches: Manufacturers relying on TSMC's chips may face delays in product launches due to the temporary disruption in production.
Limited Availability: The global chip shortage, compounded by the TSMC earthquake, may result in limited availability of certain electronic devices.
Potential Quality Issues: The recalibration of sensitive technical equipment within TSMC's fabs may lead to potential quality issues in the short term.
Lessons from Past GPU Shortages
During the 2020s, the semiconductor industry faced multiple phases of GPU shortages. While each phase had unique triggers and outcomes, they shared some common patterns:
Initial Shock: Similar to the early 2020s, the immediate aftermath of the TSMC earthquake caused a supply shock, disrupting the production and availability of high-end wafers. The initial period of uncertainty was marked by rapid price increases and supply chain disruptions.
Supply Chain Adaptation: In both instances, the industry had to adapt to the new reality. During the COVID-19 pandemic, companies restructured their supply chains and invested in additional manufacturing capacities. In the wake of the TSMC earthquake, similar adaptive measures are being taken to mitigate the impact.
Long-term Recovery: The long-term recovery phases from these disruptions require substantial efforts in restoring production capacities, recalibrating sensitive equipment, and ensuring quality control. Both phases emphasized the need for resilient supply chains and diversified manufacturing capabilities.
Conclusion
The TSMC earthquake serves as a stark reminder of the fragility of the global semiconductor supply chain. While TSMC is working diligently to recover lost production and maintain its market position, the ripple effects of the earthquake will be felt across the industry. Higher prices, delayed product launches, and limited availability are just a few of the challenges end-users may face in the coming months. As the world continues to rely on semiconductors for technological advancements, it is crucial to address these vulnerabilities and ensure a resilient supply chain.
References: wikipedia , techspot