Taiwan quake endangers chip supply

Taiwanese chip manufacturers are expected to lose up to two weeks production as a result of the powerful earthquake that rocked the island early Tuesday morning local time. Communications and graphics chips supplies are more exposed than others, according to a bulletin report from Merrill Lynch & Co's global semiconductor analyst team.

"We also want to emphasise that difficulties associated with transportation and labour availability could result in additional lost production," Merrill Lynch analysts wrote in the report.

The earthquake reportedly did not cause any significant structural damages to the fabrication facilities at Taiwan Semiconductor Manufacturing Co (TSMC) and United Microelectronics Corp (UMC), the two major foundry semiconductor manufacturers in Taiwan. Foundries are chip makers that produce integrated circuits for third-party companies. The report concluded, however, that between one-and-a-half and two weeks of production will still either be lost or scrapped.

"First, work in process lost as a result of the shutdown should amount to anywhere between a half-week and a week of production. Second, the sudden loss of power will require fab managers to recalibrate and safety-check their lines before restarting production," the report said.

The analysis was, however, based on the assumptions that no more serious damages resulted to the plants than what has been reported so far, and that power is restored shortly to the Hsinchu Science-based Industrial Park where most of Taiwan's chip manufacturers are located, the report said.

Although Taiwan is estimated to account for only 10 per cent of finished-product semiconductor production in value terms globally during 1999, Merrill Lynch noted that certain portions of the chip market are more exposed than others.

"In particular, the communications, graphics and programmable logic device semiconductor companies outsource production heavily, and Taiwan is the primary source of production for many of those companies," the report said.

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