Apple and Nvidia may see supply chain disruptions from Taiwan earthquake

Taiwan was struck by its biggest earthquake in 25 years this week and the country's semiconductor industry may face some disruptions as it restores operations.

The biggest earthquake to hit Taiwan in at least 25 years will likely cause a temporary disruption of the supply chain for semiconductors and related tech products as manufacturers restore normal operations in the wake of the quake.

The 7.2-magnitude earthquake followed by aftershocks struck Taiwan's eastern coast on Wednesday morning, killing 10 people and injuring more than 1,000. The country plays a critical role in the global supply chain for semiconductors and is home to Taiwan Semiconductor Manufacturing Co. (TSMC), which is the world's largest chipmaker and supplies chips to Apple and artificial intelligence (AI) giant Nvidia.

Chipmakers in Taiwan have systems in place to protect the most delicate technologies used in the manufacturing process from sustaining damage in the event of an earthquake by automatically shutting down systems when the quake begins. 

Despite those systems, Barclays analysts said that some of the most sophisticated semiconductor plans have to operate continuously for several weeks in a vacuum state and that pauses could disrupt the process and impact inventory levels and prices, according to a Reuters report.

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TSMC told FOX Business that it's deploying all available assets for the full recovery of its production systems and is coordinating with customers as appropriate. It also offered an update on how its chip manufacturing facilities, known as fabs, were impacted by the quake and how its recovery had progressed as of Thursday.

"Safety systems at TSMC's Taiwan fabs operated normally. Preventative measures to ensure employee safety and wellbeing were initiated at that time according to procedure, and some fabs were evacuated. All personnel are safe and returned to their workplace shortly after the incident," the company said in a statement. It also noted the earthquakes' magnitude peaked at 5 at three of its facilities and reached magnitude 4 at two others.

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TSMC cited its "ample experience and capabilities in earthquake response and damage prevention" as well as regular safety drills as enabling it to restore operations shortly after the incident. The company said that "overall tool recovery of our fabs reached more than 70% within 10 hours of the earthquake, with new fabs such as the Fab 18 facility more than 80%."

"As of April 4, overall tool recovery reached more than 80%, with new fabs such as the Fab 18 facilities expected to reach full recovery later tonight," TSMC added. "A small number of tools were damaged at certain facilities, partially impacting their operations."

"However, there is no damage to our critical tools including all of our extreme ultraviolet (EUV) lithography tools. Certain production lines in areas which experienced greater seismic impact are expected to require more time for adjustment and calibration before returning to fully automated production," TSMC explained.

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Nvidia, which designs advanced AI chips that power generative AI tools and the large language models used to train them, contracts with TSMC for the production of some of its chips.

A Nvidia spokesperson told FOX Business, "After consulting with our manufacturing partners, we don't expect any impact on our supply from the Taiwan earthquake."

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The earthquake also underscored the significant role Taiwan plays in the chip supply chain and the importance of redundancies for such a critical technology in the world economy.

Nazak Nikakhtar, a partner at Wiley Rein LLP who previously worked for the Commerce Department's national security practice, told FOX Business, "While a short-term impact to Taiwan's semiconductor operations is anticipated, the disruption can and will likely be remedied quickly."

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"At a broader level, this should be a stark reminder to the rest of the world that we need redundancies in our supply chains. Looking to one company, one country, or one region for output is a recipe for disaster," she added.  

Reuters contributed to this report.