Typhoon Krathon to hit semicon supply chain from Taiwan

A powerful typhoon has wreaked havoc across Taiwan, causing widespread damage and raising concerns about disruptions to the global semiconductor industry. Taiwan is no stranger to natural disasters, it regularly faces earthquakes and floods, with typhoons typically striking the eastern coast, which faces the Pacific. However, Typhoon Krathon is an unusual and particularly concerning event, as it has made landfall on Taiwan's western coast—home to some of the world’s most critical semiconductor fabrication plants, including those operated by the industry leader, Taiwan Semiconductor Manufacturing Company (TSMC). Experts warn this typhoon could have significant short-term impact on the already fragile semiconductor supply chain, with ripple effects felt across industries worldwide.

“It is very critical to note that Typhoon Krathon is very unique. In fact, the global semiconductor industry or Taiwan semiconductor industry never experienced such an event till date. Typhoon Krathon is the first storm of category 4 or above that will make landfall on Western plains of the nation which are densely populated and home to TSMC’s leading edge (EUV based) manufacturing Facilities. In contrast, all previous storms have made landfall on the Eastern side of Taiwan and then been embraced by the Central mountain region before reaching Western cities with very low intensity,” says Danish Faruqui, CEO of Fab Economics, a US-based boutique semiconductor advisory firm.

The Western plains where Typhoon Krathon landed is the city of Tainan, which is home to TSMC’s Fab 14 (7nm and 5nm High Volume Manufacturing), Fab 18 (7nm and 5nm High Volume Manufacturing), and, R&D Fab (2nm Development and Ramp). Along with TSMC, Taiwan’s United Microelectronics Corporation (UMC) operates Fab 12A in Tainan, a facility that has been in volume production since 2002. This advanced fabrication plant currently manufactures semiconductor products down to the 14nm process node.

Overall, Taiwan houses around 64.8% of the foundry capacity across Logic and Memory chips and over 90% of capacity for world most advanced chips across 5, 4, 3nm technology nodes, per Fab Economics R&A. In addition to manufacturing chips, Taiwan IC Packaging and Testing output stands at around 56% of total global output by value, which once again houses outsized share of Advanced Packaging including CoWoS (Chip on Wafer on Substrate) packaging architecture facilities that are used for NVIDIA GPU’s , AMD AI Accelrators MI 300 and many other products responsible for Gen AI. As a result, even a minor disruption in the nation’s semiconductor ecosystem can be felt across the electronics ecosystem. “The ripples of any major or minor semiconductor ecosystem disruption in Taiwan will be felt across almost every end market industry from Datacenters, Consumer Electronics, Mobiles, Automotive, Aviation, Industrial, Networking, Gen AI ecosystem and a lot more,” adds Faruqui.

Considering semiconductor fabrication plants are capital incentive and even a smallest disruption could lead to losses in millions of dollars, semiconductor players are usually prepared and equipped for such disruption. Extreme weather events can severely disrupt semiconductor manufacturing, depending on their intensity and scale. “The industry relies heavily on ultrapure water, which may become scarce due to droughts or contaminated by floods. Power outages from typhoons can halt production lines, while flooding threatens sensitive equipment and cleanroom environments. Additionally, logistical disruptions can delay the delivery of raw materials, leading to increased costs and extended lead times,” says Prabhu Ram, VP - Industry Research Group (IRG), CyberMedia Research (CMR).

Emails sent to the TSMC and United Microelectronics Corporation (UMC) did not elicit any response at the time of publication. However, sources confirm that fabs in the region had already commenced their typhoon preparation procedures ahead of the arrival of Typhoon Krathon.

Ram of CMR believes given that Taiwan's semiconductor industry is upstream in the supply chain, disruptions could have devastating cascading effects on downstream players. As a result, TSMC and other manufacturers would have taken proactive measures to prepare for such events. He adds, the semiconductor industry has witnessed firsthand the devastating consequences of black swan events, highlighting the interconnectedness of global supply chains and their effects on various industries.

In April this year, Taiwan was struck by a 7.4 magnitude earthquake, one of the country’s strongest earthquakes in 25 years, which had impacted fabs of TSMC, Micron and others. However, given their ample experience and capabilities to natural disasters, including response and damage prevention, as well as regular disaster drills, the equipment in Taiwan fabs were fully recovered.

Diversify Supply Chain

Taiwan's dominance in this industry, particularly through companies like TSMC, has made it an essential player in the global technology ecosystem. However, its exposure to frequent natural disasters, such as typhoons and earthquakes, coupled with ongoing geopolitical tensions, particularly with China, makes it stand at a precarious intersection despite being the most critical and substantial link in the global semiconductor manufacturing and packaging supply chain. A disruption in Taiwan's semiconductor production—whether from a natural disaster or political conflict—could send shockwaves through multiple industries worldwide, from automotive to consumer electronics, given the pervasive use of chips in nearly every modern technology.

This fragility of the supply chain was acutely highlighted during the COVID-19 pandemic, when lockdowns and logistical disruptions led to global semiconductor shortages, causing production delays across a wide range of sectors. Experts believe that the semiconductor industry leadership should make semiconductor supply chain resilient by diversifying it from specific regions. In response to these challenges, many countries, including the USA, European Union, India, and Japan, have recognised the strategic importance of semiconductor production and are now racing to localise parts of the semiconductor fabrication process. By building domestic capabilities, these nations aim to reduce their dependence on Taiwan and China, and secure their own supplies of these critical components. The U.S., for example, has enacted the CHIPS Act to incentivise semiconductor manufacturing, while the European Union has launched its own initiatives to bolster its semiconductor ecosystem.

India is also looking beyond semiconductor R&D and aims to establish a chip manufacturing ecosystem within the country through its Semicon India Program, which has a financial outlay of ₹76,000 crore. Within two and a half years of announcing the scheme, India has received numerous proposals for semiconductor, analog, and compound fabs, as well as multiple projects for testing and packaging plants. Of these, the government has already approved Tata’s silicon fab, along with four testing and packaging plants from U.S. memory chip giant Micron, Tata Electronics, CG Power, and Kaynes. “Currently, India amongst various world regions is offering unparalleled subsidy, commitment from highest level in government and fastest pace of doing business for semiconductor manufacturing and packaging players – which is astutely befitting to leverage the current geopolitics and geoeconomics of semiconductors along with vulnerability of legacy supply chain moat points,” adds Faruqui.

As India’s Ministry of Electronics & IT progresses with the second phase of the Semicon India scheme, the industry is optimistic about attracting more fab projects to the country. The Indian government has been actively forging partnerships and signing Memorandums of Understanding (MoUs) with key global players, including the United States, Europe, Japan, and Singapore, to bolster its semiconductor manufacturing ecosystem. These collaborations will help India strengthen its position as an emerging hub for semiconductor production and reduce reliance on global supply chains.