It will be scant comfort to those who lost relatives and property in the earthquake, but Taiwan's pain was briefly felt around the world. Stock markets in New York and Japan tumbled on the tragic news--an unwanted tribute to Taiwan's importance in the global computer business. The island produces more than half of the world's chip sets and motherboards, plus 45% of its notebook computers. But at midweek most of its factories stood silent, awaiting repairs and full restoration of power that could take weeks, and the uncertainty on Silicon Island contributed to an already bearish week on Wall Street, hitting the tech-heavy NASDAQ index particularly hard.
Without warning, the earth moved under Taiwan, triggering the island's worst natural disaster in 64 years. Political aftershocks will be felt locally--and in China
For anyone who knows Taiwan's electronics industry, it's all a lot of unnecessary fretting. The business got as big as it has not through cheap labor or government subsidies but by fast footwork and the ability to constantly innovate. For a taste of Taiwan firms' legendary ability to bounce back, look at Universal Scientific Industrial Corp., which makes boards and notebooks for IBM and Lucent Technologies. Its headquarters is in Nantou county, not far from the quake's epicenter. When program manager Edward Hwang reached the facility on Tuesday morning, he found a shambles. Everywhere I shone my torch, I saw fallen pipes, concrete, glass, machinery out of place, he says. Three days later, the factory was immaculate--albeit still waiting for the power to come back on. IBM is going to be surprised when they get their next order--almost on time, says Hwang.
Fortunately, most of the computer business is located in the north of the island, mainly in the Hsinchu Science Park. The quake didn't cause much trouble there. Nor was there a lot of damage done to Taiwan's most important highways and ports. The main setback is the widespread disruption of electricity. Peter Kurz, president of Merrill Lynch Taiwan, estimates that the semiconductor industry as a whole will lose $150 million to $200 million--assuming power is restored relatively quickly. That's not a killer blow for an industry with $12.6 billion in annual revenue. Recalibrating the sensitive equipment in high-tech facilities also can pose problems. But much of Taiwan's equipment was designed in California's quake-prone Silicon Valley, and many of the machines are engineered to withstand tremors of at least 6 on the Richter scale. Our engineers are laughing at all the analysts who say recalibration could take weeks, says Alex Hinnawi, a spokesman at Hsinchu-based United Microelectronics Corp. He expects things to be up and running early next week.
The government concedes that its target of 5.7% economic growth this year will be hard to meet. Some private economists expect the growth rate to slip by half a percentage point. But they also predict that the economy will get a lift from funds spent to repair the damage. Japan's economy surged due to rebuilding efforts after the Kobe quake, says Remming Yu, assistant vice president of Core Pacific Securities, a Taipei brokerage house. That's a dividend Taiwan surely deserves.
Reported by Macabe Keliher/Taipei and Maureen Tkacik/Hong Kong