An Opportunity For Korean Semiconductor Players?
The recent 7.4 magnitude earthquake that struck Taiwan seemed to have spelt an opportunity for Korea to catch up on the semiconductor race.
The world leader in semiconductor has a recorded 60% market share by Counterpoint Research. Its close rival Samsung trails behind by 13%. TSMC is known for serving Apple, Nvidia and Qualcomm for iphones, mobile chipsets respectively.
It is also the main supplier for Artificial Intelligence (AI) chips for Nvidia, and Advanced Micro Devices’ (AMD) processors. It even has clients in the Electric Vehicle (EV) sector, working with Tesla and Toyota.
The recent quake reportedly disrupted TSMC’s production as personnel had to evacuate and paused operations. Wall Street Journal quoted the company’s admitting the tremor did cause some machinery to be out of commission, and extreme ultraviolet lithography tools by ASML were unscathed. It added construction work resumed following inspection as at 4 April 2024.
Korea May Take the Spotlight
Bum Ki Son and Brian Tan, analysts at British investment bank Barclays, said in a report:
“We believe this could lead to supply disruptions in the tech supply chain. While we note some companies have reported limited damage and many of the semiconductor fabs should have been designed to withstand strong earthquakes, halts in some operations at high-tech semiconductor fabs could mean disruptions.”
“Some of the high-end chips need 24/7 seamless operations in a vacuum state for a few weeks. Operation halts in Taiwan’s northern industrial areas could mean some high-end chips in production may be spoiled,” they added.
Kim Dae-jong, Professor of Business Administration at Sejong University, cautioned that global chipmakers need to diversify the semiconductor supply chain concentrated in Taiwan to reduce risks. Professor Kim noted,
“Chip companies need to reduce their dependency on Taiwan and diversify their orders to other countries to lower the risk when facing a special crisis like this earthquake. Chip design companies should diversify their non-memory demand to Taiwan, Korea and the U.S. as a way to prepare for crises.”
The professor added the earthquake has also hiked the prices of memory semiconductors, indicating Samsung and SK hynix have reportedly halted memory chip price negotiations with clients because the supply of memory chips will decrease, leading to higher prices.
Another Group With Mixed Opinions
KB Securities advocated the importance of diversifying supply vendors. Kim Dong-won, KB’s analyst said,
“The production disruption in foundries caused by this earthquake is poised to serve as a pivotal moment, shedding light on the industry’s structure. With 69% of global foundry production concentrated in Taiwan, it underscores the risk associated with relying on a single supply chain.
TSMC’s Fab12 plant, where all production personnel evacuated following the earthquake, is encountering operational uncertainty due to damaged water pipes and system errors in certain front-end equipment. As a result, further inspections are necessary to assess the situation. The Korean semiconductor ecosystem is emerging as the optimal alternative for diversifying the memory and foundry supply chain, with long-term benefits expected.”
Lee Jong-hwan, Professor from Department of System Semiconductor Engineering at Sangmyung University commented is too quick to assume TSMC would suffer damage from Taiwan earthquake’s aftermaths. Professor Lee noted, the tremor is not likely to have a substantial impact on the foundry industry’s market share. This is because the foundry industry has long-term contracts with chip design companies, and it is difficult to suddenly change the order and design of the chips to be produced.
“The foundry business needs to supply products tailored to the design requirements of chip design companies. Stable supply is key in maintaining long-term cooperative relationships with customers, so it is difficult for TSMC to lose its customers just because of the earthquake damage,” said Professor Lee.
Nonetheless, he projected the memory semiconductor industry, Samsung and SK could benefit from the earthquake as the industry has a different structure.
“The memory semiconductor industry may be affected by the earthquake. As production facilities of Micron Technology and Nanya Technology were reported to have suffered damage, rival memory semiconductor companies, Samsung Electronics and SK hynix, are likely to benefit from the market where chip production and supply are more directly connected,” Professor Lee added.
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