[Why&Next] The World Asked About TSMC's Well-being... Voices for Supply Chain Diversification

Semiconductor Ecosystem Concentrated in Taiwan
If Impact Severe, Semiconductor Crisis Inevitable
Calls for Diversifying Semiconductor Supply Chain
Domestic Companies Anticipated to Gain Orders>

"Taiwan has been put to the test to gauge whether it is ready as a global semiconductor production hub." (The Wall Street Journal)

"The Taiwan earthquake starkly reminds us how risky it is to concentrate critical semiconductor manufacturing in Taiwan, a region prone to earthquakes and concentrated geopolitical risks." (CNN)

A building severely tilted by the earthquake in Hualien, Taiwan.
[Image source=Yonhap News]

When a magnitude 7.3 earthquake struck Taiwan on the 3rd, global attention focused on whether Taiwan's TSMC was affected. Because Taiwan houses the production facilities of TSMC, the world's largest foundry (semiconductor contract manufacturing) company, concerns arose about disruptions to the global semiconductor supply chain due to the earthquake.

TSMC restored more than 70% of its factory equipment within 10 hours of the earthquake, seemingly stabilizing faster than during the 1999 earthquake when factory operations were halted for about a week. However, it appears more time will be needed before TSMC's production lines return to normal. On the 4th, Bloomberg reported, "TSMC is still assessing the impact of the earthquake."

In particular, this strong earthquake has once again highlighted Taiwan's geopolitical risks. Bloomberg diagnosed that "the diversification of semiconductor production bases must be accelerated." Some predict that domestic semiconductor companies such as Samsung Electronics may see expanded order opportunities.

‘Foundry Paradise’ Taiwan Accounts for Half of Global Production

[Image source=Reuters Yonhap News]

On the 4th, TSMC stated, "The recovery rate of the entire factory equipment has reached 80%, and there is no damage to major manufacturing equipment, including all extreme ultraviolet (EUV) lithography tools," adding, "Also, all TSMC employees are safe." However, they added, "Certain production lines have been significantly affected by the earthquake and will require more time to return to normal."

The scenario where the global semiconductor supply chain could be paralyzed due to the Taiwan earthquake arises from the significant division of labor between design and production in the 21st-century semiconductor industry. This structure was created by TSMC. Traditionally, all companies performed design, production, and testing themselves. In 1987, TSMC was established with the goal of 'manufacturing semiconductors on behalf of others,' breaking this mold. Traditional companies rejoiced as they no longer had to pour massive costs into semiconductor factories and equipment to keep up with rapidly changing advanced technologies, instead receiving timely semiconductor deliveries from TSMC.

This led to the emergence of fabless companies (specializing only in semiconductor design) succeeding due to TSMC's business model. TSMC's largest customers, Apple and Nvidia, are representative examples. Apple began its relationship with TSMC in 2013 by commissioning next-generation iPhone and other mobile device core application processor (AP) chips. Nvidia entrusts TSMC with the entire production of high-performance graphics processing units (GPUs), essential in the generative AI competitive era.

TSMC's status in the foundry sector continues to rise. According to Taiwanese market research firm TrendForce, TSMC's market share in the fourth quarter of last year rose to 61.2% from 57.9% in the previous quarter. Samsung Electronics, ranked second, saw its share shrink from 12.4% to 11.3% during the same period. Taiwan, led by TSMC, is home to United Microelectronics Corporation (UMC), Vanguard International Semiconductor Group (VIS), Powerchip, and others, earning it the nickname ‘Foundry Paradise.’ This is why Taiwan accounted for 46% of global foundry production last year.

Geopolitical Risks Exist... Global Economic Losses of $10 Trillion if War Breaks Out

The problem is that concerns are growing about the global foundry production ecosystem being overly dependent on Taiwan. CNN stated, "It shows how dangerous it is to concentrate semiconductor manufacturing facilities in an earthquake-prone area." Bloomberg evaluated, "The geopolitical instability of the Taiwan-centric supply chain ecosystem, which was triggered by the post-COVID-19 shortage of automotive semiconductors, has surfaced once again."

Taiwan is also a frontline in the US-China semiconductor war. With the pro-US Democratic Progressive Party's Lai Ching-te winning the Taiwan election this year, it is expected that Taiwan will continue its stance on sanctions against China, amid rumors of a possible military invasion by the Chinese Communist Party. In this case, the negative impact on the global semiconductor chain would be unprecedented. Bloomberg Economics estimates the economic loss to the world economy from a Taiwan war at about $10 trillion. Bloomberg stated, "The risk of concentrating global advanced semiconductor production on an island (Taiwan) considered a potential military flashpoint is increasing."

"Supply Chain Diversification is Essential"... Potential Benefits for Korean Semiconductor Companies like Samsung Electronics

Major foreign media pointed out that "to avoid geopolitical risks, diversification of the Taiwan-concentrated supply chain is necessary." Last month, TSMC announced plans to build 10 new semiconductor fabrication plants in Taiwan this year, which will be key to AI semiconductor production. Jan-Peter Kleinhans, director at the German think tank Stiftung Neue Verantwortung (SNV), noted, "Taiwan is potentially the most critical single point in the semiconductor industry."

There are also evaluations that the expansion projects of TSMC production facilities underway in the United States, Japan, and Germany are progressing slowly. CNN explained this by saying, "It is because not only companies and governments capable of investing billions of dollars in new production facilities are needed, but also a large workforce skilled in semiconductor manufacturing technology." David Beyer, a professor at the New Jersey Institute of Technology, said, "The world is in a critical period for the next few years until major fabs like TSMC are established outside Taiwan."

If semiconductor supply chain diversification becomes a reality, Samsung Electronics is expected to benefit indirectly. Advanced foundry processes such as 3nm (1nm = one billionth of a meter) are currently only possible at Samsung Electronics and TSMC. The market expects that, in the long term, big tech companies may consider Samsung Electronics' foundry as an alternative option.

This content was produced with the assistance of AI translation services.