Covid Outbreak at Taiwan Factory May Worsen Chip Shortage

(Bloomberg) -- 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 component shortages.

King Yuan Electronics Co. shut down its main plants in Miaoli County over the weekend and reported 182 confirmed cases as of June 5, according to Taiwan’s Centers for Disease Control. Most of those are among its foreign workers, including the factory floor staff. The government placed all 2,000 of its overseas workers, around 30% of its workforce, into 14-day quarantine, and the company has turned to temporary local workers to get its production lines running again.

King Yuan resumed operations last night at lower-than-normal production volumes, said Aaron Chang, acting spokesperson of the company. Its shares gained 1.9% Monday.

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

Production capacity and revenue are expected to drop by 30% to 35% in June, King Yuan Electronics 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 chipmaking industry is a crucial supplier, and potential choke point, for companies across a wide array of sectors, from consumer electronics, to server farms to the auto industry.

Companies are already dealing with a chip shortage that has slowed production and shuttered whole automaking plants, prompting the U.S. and China to explore ways to boost their own domestic production.

King Yuan says on its website that it is the world’s largest pure-play professional testing company, testing semiconductors for the likes of MediaTek Inc. Its shares fell about 5% last week after the outbreak was reported.

Taiwan saw little impact from the pandemic through last year and the first few months of 2021 as it managed to keep the virus out through a mixture of border controls and quarantine measures. But the virus managed to breach the defenses in mid-April, and since spread island-wide.

Health authorities have reported more than 11,000 local cases and 260 deaths, mostly in the last five weeks. The government has imposed a soft lockdown in an effort to slow the spread, shutting schools and recreational facilities but they have so far proved reluctant to implement measures that may impact the export-focused manufacturing sector that is the main driver of the 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 in an effort to protect themselves against raw material shortages and surging costs.

(Updates with projected loss of production in fifth paragraph)

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