Coronavirus outbreak in Taiwan threatens to worsen global semiconductor shortage

In the midst of an ongoing semiconductor shortage, the spread of the Wuhan coronavirus (COVID-19) into Taiwan’s electronic factories is threatening to delay chip shipments even further.

The country, home to a number of the world’s largest semiconductor manufacturers, is suffering from its first large outbreak of COVID-19. This has come against a backdrop of escalating warnings about the depth of the semiconductor shortage that’s hit everything from consumer electronics to cars. (Related: Chip shortage cripples car production amid high demand.)

Taiwanese chip-making plants closing due to infections

The increase in cases in Taiwan is starting to hit companies involved in the semiconductor industry.

Chip testing and packaging company King Yuan Electronics (KYEC) said on Monday, June 7, that it expected an outbreak among its workers to reduce its output and revenue by up to 35 percent in June. Of the company’s 7,300 staff, 238 are confirmed to have caught COVID-19.

Meanwhile, outbreaks have also hit chip packager Greatek telecons gear manufacturer Accton and Foxsemicon, the latter a semiconductor equipment maker affiliated with Apple supplier Foxconn.

Both KYEC and Foxsemicon have closed one factory each for two days for disinfection. All four companies are testing their entire workforce, an undertaking that’s expected to identify even more infections.

“The supply market is already under huge pressure, we have already got four months lead time from order to delivery for Taiwan chips, so any further reduction in supply capacity is going to exacerbate the shortage as it stands,” said Olaf Schatteman, a supply chain expert at consultancy firm Bain.

Companies like KYEC and Greatektest and package chips produced by large contract manufacturers such as Taiwan Semiconductor Manufacturing Company. These are the last steps in the complex process of manufacturing chips, right before the latter are shipped to the companies that designed them.

According to analysts, there are few options for customers of KYEC and Greatek to shield themselves from delays as other testing and packaging companies, such as industry leader Advanced Semiconductor Engineering, are already running at full capacity.

For its part, KYEC believes that the disruption will only be for the short term. The company confirmed that it resumed operations at lower-than-normal production volumes on June 6 and will slowly ramping up over the next couple of weeks.

“Once migrant workers return to production lines in two weeks, the company will speed up production to make up for its loss,” said Aaron Chang, acting spokesperson for the company. “The company sees no major impact on annual finances and businesses.”

Industry’s vulnerability due to reliance on a handful of manufacturers highlighted

The closures of the chipmaking plants highlight the threat posed by the global technology supply chain’s reliance on a small number of key players. Taiwan’s semiconductor industry is a crucial supplier, and potential chokepoint, for companies across various sectors, from electronics to the automotive industry.

Taiwan initially saw little impact from the pandemic through last year and the first few months of 2021 as it managed to keep the virus out. It did so through a combination of strict border controls and quarantine measures. But the virus managed to gain a foothold in mid-April and has since spread around the nation.

Health authorities have reported more than 11,000 local cases and 260 deaths, most of which occurred in the last five weeks. The government has since imposed a soft lockdown in an effort to slow the spread, but they’ve so far been reluctant to implement stricter measures that could impact the export-focused manufacturing sector which drives their economy.

The ongoing semiconductor shortage has already slowed production and shuttered entire automobile factories. This has prompted the U.S. and China to explore ways to boost their own domestic production.

In late March, President Joe Biden called for a $50 billion boost for the American semiconductor industry as part of his expansive infrastructure proposal. The move has seen bipartisan support, including from Republican lawmakers who point out that China is also spending heavily to boost its own chip-making capacity.

“Spending on the semiconductor industry and digital and physical infrastructure must be closely linked if America is to remain competitive and prosperous,” said Al Thompson, vice president of U.S. government relations at chipmaker Intel, in a written statement.

Intel, one of the few chip vendors that produce its own chips, is already investing heavily to expand its U.S. manufacturing capacity. The company is spending $20 million on two new U.S. manufacturing plants. (Related: Intel CEO warns global chip shortage could persist for a couple more years.)

In addition, the company is also opening up its plants to other vendors looking for alternatives to Taiwanese chipmakers.

Follow Pandemic.news for more on how the Wuhan coronavirus pandemic is now starting to play a part in the global semiconductor shortage.

Sources include:

FT.com

Bloomberg.com

WSJ.com

Edition.CNN.com