Covid-19 outbreak at Taiwan chip-testing factory may worsen semiconductor shortage

King Yuan Electronics Co shut down its main plant in Miaoli County over the weekend and reported 182 confirmed cases as of June 5
Taiwan’s outbreak highlights the threat posed by the global technology supply chain’s reliance on a small number of key players

Semiconductors

Bloomberg

Published: 7:51pm, 7 Jun 2021

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A cluster of Covid-19 infections at a factory in central Taiwan temporarily stopped operations at one of the world’s largest chip-testing companies, the latest sign of potential disruption to a technology supply chain already struggling from semiconductor shortages.

King Yuan Electronics Co (KYEC) shut down its main plant in Miaoli County over the weekend and reported 182 confirmed cases as of June 5, according to Taiwan’s Centres for Disease Control. Most of those cases were among its foreign workers, including factory floor employees.

The government placed all 2,000 of KYEC’s overseas workers, around 30 per cent of its workforce, into 14-day quarantine, and the company has turned to temporary local workers to get its production lines running again.

KYEC resumed operations last night at lower-than-normal production volumes, said Aaron Chang, acting spokesman of the company. Its shares gained 1.9 per cent on Monday.

The facade of King Yuan Electronics Co’s main chip-testing facility in Miaoli County in western Taiwan. Photo: Handout

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

Production capacity and revenue are expected to drop by 30 per cent to 35 per cent in June, KYEC said in a statement to the local stock exchange.

Taiwan’s outbreak highlights the threat posed by the global technology supply chain’s reliance on a small number of key players. Taiwan’s chip making industry is a crucial supplier, and potential choke point, for companies across a wide array of sectors, from consumer electronics to server farms and the car industry.

Companies around the world are already dealing with a chip shortage that has slowed production and closed whole car making plants, prompting the US and China to explore ways to boost their own domestic chip production.

Everything you need to know about the global semiconductor shortage

KYEC said on its website that it is the world’s largest pure-play professional testing company, providing semiconductor tests for the likes of MediaTek. Its shares fell about 5 per cent last week after the outbreak was reported.

Taiwan saw little impact from the Covid-19 pandemic through last year and the first few months of 2021, as it managed to keep the coronavirus out through a mixture of border controls and quarantine measures. But the coronavirus managed to breach the island’s defences in mid-April, and has since spread widely.

Health authorities have reported more than 11,000 local cases and 260 deaths, mostly in the last five weeks.

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The government has imposed a soft lockdown in an effort to slow the spread, shutting schools and recreational facilities. But it has so far proved reluctant to implement measures that may impact the export-focused manufacturing sector, which is the main driver of the island’s economy.

While manufacturing data indicate Taiwan’s technology exporters have been little affected so far, a report by IHS Markit last week warned that Taiwan experienced severe supply chain delays in May, as companies built out their inventories to protect themselves against raw material shortages and surging costs.