Recent Earthquakes Highlight Risk To Semiconductor Manufacturing Sites

On July 4, 2019, southern California experienced a 6.4 magnitude earthquake followed by a 7.1 earthquake the next day. Both earthquakes occurred near the town of Ridgecrest, but they were not related to the San Andreas fault, an 800-mile fault zone in California where two tectonic plates meet. The San Andreas fault is generally considered to be where “the big one” could occur in California, especially as it is part of the “Ring of Fire.”

The “Ring of Fire” is an area of high seismic activity that extends from southeast of Australia north along the Pacific coast of Asia, crosses south of Alaska, and then continues south along the Pacific coast of North, Central and South America. According to the U.S. Geological Survey (USGS), 90% of the world’s earthquakes occur along the “Ring of Fire.” Another 5-6% of the world’s earthquakes occur along the Alpide Belt, which starts along the west coast of Indonesia, continues across the Himalayas, through the Mediterranean, and out into the Atlantic.

Figure: Ring of Fire Map Source: USGS.gov

The semiconductor industry is truly global, with hundreds of fabs scattered all over the world. The industry has been consolidating into several main manufacturing centers in the Asia/Pacific region, the United States, and Europe. Unfortunately, many of these fabs are located in areas prone to earthquakes. Some locations are also at an added risk of damage from tsunamis generated by earthquakes. The northeast coast of Japan is a prime example; in March 2011, the region suffered a massive 9.0 magnitude earthquake (the Tōhoku earthquake) and tsunami that killed 15,897 people, injured over 6,000, and left over 2,500 still missing. In terms of damage to buildings, over 400,000 buildings were partially or completely leveled, and over 800,000 others sustained some sort of damage. The tsunami caused three meltdowns, hydrogen-air explosions, and the release of radioactive material at the Fukushima Daiichi nuclear power plant. Four reactors were decommissioned a year after the earthquake, and the plant was declared permanently disabled in December 2013. Radiation continues to be released at the site, and there is a 20km (12 mile) no-go zone around the plant without government approval. TEPCO, the owner of the plant, estimates it will take 30-40 years to completely decommission the site.

Semico Research considers fabs in Japan, Taiwan, and the west coast of the United States to be in the high-risk areas for earthquake activity. Moderate-risk areas include China, Malaysia, Singapore, South Korea and certain additional areas in the western US. Thirty-seven percent of all fabs are in these high-risk areas, with another 24% in moderate-risk locations. In terms of capacity, 36.7% is in the high-risk areas, with another 39% in moderate-risk areas.

The next figure shows how much capacity has been added over the past five years, according to the different risk levels. Total capacity increased at a 4.6% CAGR, while capacity in the high-risk areas grew 4.7%. Capacity in the medium-risk areas increased 5.1%. Unfortunately, capacity is being added at a faster rate to the higher-risk areas than to the lower-risk ones.

Figure: Semiconductor Capacity by Risk, 5-Year Comparison Source: Semico Research Corp.

Semiconductor fab building techniques help minimize risk of damage from earthquakes. But it still makes sense to try to diversify manufacturing locations, and the supply chain as well, to minimize risk. Taiwan is a key manufacturing center for the semiconductor industry, with two large foundries and most of their manufacturing capacity located on the island. Taiwan represents 20% of the semiconductor industry’s total wafer capacity. The country’s capacity increased at a 5.3% CAGR from 2014 to 2019. Japan is the next largest high-risk center of semiconductor manufacturing, at 14% of the total industry in 2019. Capacity in Japan has grown 17% CAGR since 2014. Intel has done a better job of spreading its fabs around the world, although its main R&D centers are on the west coast of the United States. Intel has fabs in Arizona and New Mexico, which are not prone to natural disasters of any kind. Its fabs in Ireland and Israel are also in stable locations. However, the Dalian, China fab is located on a peninsula that would be more at risk of flooding from typhoons or tsunamis.

The information above is an excerpt from the Semico IPI Report, July 2019. For the full report and the Semico Fab Database, please contact Rick Vogelei, [email protected].