Taiwan's earthquake economic fallout to be minimal, say analysts

Taiwan's biggest earthquake in the last 25 years is not likely to affect the global semiconductor supply chain in a major way in the near term. However, prices of electronic devices like smartphones and personal computers may see a momentary spike, according to analysts.

The 7.2-magnitude earthquake struck Taiwan's eastern coast near Hualien County on Wednesday morning, reportedly killing nine people and injuring more than 1,000.

According to analysts, the semiconductor supply chain is not expected to witness a major impact in the near term.

“It looks like the economic impact will be minimal. The earthquake was centred in Hualien County on Taiwan’s east coast. It is known more as a centre of tourism rather than a centre of business or commerce. If the quake had been centred in Taipei or on the west coast where much of the semiconductor industry is located, the economic impact would be much greater,” said Steve Cochrane, Chief APAC Economist at Moody’s Analytics.

Much of the impact, Cochrane said, depends upon whether the semiconductor fabs find any damage in their equipment that would cause production delays.

“Fabs are reported to have been closed for a half-day or the entire day, but not longer. Thus, barring the discovery of damage to manufacturing equipment, production delays will be minimal,” he said.

The island nation plays a huge role in the global chip supply chain as it is home to the world's largest chipmaker, Taiwan Semiconductor Manufacturing Co, which supplies chips to the likes of Apple and Nvidia.

Said Pankaj Mohindroo, Chairman of India Cellular and Electronics Association (ICEA): “Taiwan is an extremely resilient nation. We do not foresee any adverse impact on the supply chain of mobiles and electronics.”

Original equipment manufacturers (OEMs) are, likewise, not anticipating major disruptions in chip procurement.

“It is too soon to tell but the impact should be minimal, unless semiconductor fabs are damaged. Then we might see some impact but we do keep reserve inventory in case of such emergencies, so we don’t anticipate any hindrances,” said an executive at a large PC manufacturer under the condition of anonymity.

Queries sent to Vivo, Realme, and Xiaomi did not elicit an immediate response.

Regardless, analysts do expect a momentary spike in the prices of electronic devices as a result of the operational disruptions.

“Whenever there has been a natural calamity in Taiwan in the past, it has affected the supply chain, especially memory and other such components which has led to prices skyrocketing. So, I am expecting some interruption,” said Faisal Kawoosa, co-founder and chief analyst at research firm Techarc, adding, “It’s not just about the facility being affected. It is also about the workers and how they have been impacted, which remains to be seen.”

Kawoosa added that, unless there is extreme infrastructure damage, there might be some minor fluctuations in pricing of electronic prices. However, these spikes will be momentary.

The development has, however, opened up conversations about reducing reliance on Taiwan and diversifying the semiconductor supply chain.

“While my thoughts are with our friends in Taiwan, today's earthquake serves as a stark reminder of the fragility of the semiconductor supply chain. We must address this precarious situation by prioritising efforts to diversify and fortify the semiconductor supply chain,” said Sagar Sharma, Chief of Staff at India Semiconductor Mission.

The incident, he said, underscores the urgent need for leaders worldwide to intervene and ensure resilience and trustworthiness of the semiconductor supply chain.

“It's time to share the load of the Taiwan semiconductor industry. We need more hubs around the world for semiconductor manufacturing,” Sharma added.