Taiwan’s Covid-19 outbreak spreads to chip companies


The spread of Covid-19 into Taiwan’s electronics factories is threatening to delay semiconductor shipments, according to companies and analysts, raising the prospect of renewed disruption to an industry gripped by a global shortage. 

The country, viewed as a linchpin in the world’s chip supply chain, is suffering from its first large coronavirus outbreak. It has come against a backdrop of escalating warnings about the depth of the semiconductor shortage, which has hit everything from cars to consumer electronics.

King Yuan Electronics, a chip testing and packaging company, said on Monday that it expected an outbreak among its workers to reduce its June output and revenue by up to 35 per cent. Of KYEC’s 7,300 staff, 238 are confirmed to have been infected with Covid-19.

An outbreak among migrant workers in Taiwan has also hit chip packager Greatek, telecoms gear producer Accton and Foxsemicon, a semiconductor equipment maker affiliated with Apple supplier Foxconn.

Taiwan reported 214 new Covid-19 cases on Tuesday, 211 of them locally spread, and 26 deaths. The country has recorded more than 11,000 cases and 260 deaths since the start of the pandemic.

KYEC and Foxsemicon have each closed one factory for two days for disinfection, and all four companies are testing their entire workforce, an undertaking that is expected to identify 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 Bain, the consultancy.

KYEC and its ilk test and package chips produced by contract manufacturers such as Taiwan Semiconductor Manufacturing Company. Those are the last steps in a complex manufacturing process before the chips are shipped to the companies that designed them.

Among KYEC’s customers is MediaTek, one of the world’s largest chip design houses, which sells semiconductors for electronics gadgets from smartphones to televisions. 

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

Mark Li, a chip analyst at Bernstein, said the disruption was likely to be short-term. “My guess is that it will mostly hurt smaller chip design houses as priority will be given to large customers,” he said, adding that MediaTek had reiterated its revenue target for the second quarter despite the problems at KYEC. 

The risk of infections disrupting production in the rest of the chip supply chain is considered much lower because those stages are significantly less labour intensive than packaging, allowing companies such as TSMC and MediaTek to implement socially-distanced work arrangements.

But analysts said it was unclear if measures taken by Taiwan’s health authorities were enough to stop the spread of Covid-19 in electronics factories.

According to Taiwan’s Central Epidemic Command Centre, migrant workers from the affected plants were staying in the same dormitories. 

“The same thing happened in Singapore, and I don’t know if maybe there are lessons to be learned,” said Patrick Chen, head of Taiwan Research at CLSA, a brokerage. “They need to improve living conditions for the migrant workers.” 

Taiwan has 713,000 migrant workers, according to government statistics, as well as at least 50,000 undocumented ones. Almost 470,000 work in industrial sectors, with many living in dormitories on factory premises or nearby. 

Employers, which are required by law to provide migrant workers with accommodation and food, mostly outsource these services to brokers that cram large numbers of workers into shared rooms.

While the government has installed rapid testing stations at the main technology industry parks and is quarantining those who test positive, health authorities are struggling to improve the cramped living conditions for migrant workers who have not tested positive.

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