Taiwan’s major electronics manufacturers and chip makers are slumping in the stock market as they grapple with supply chain disruptions amid the ongoing lockdowns in Shanghai and its neighbouring cities. The shares of Hon Hai Precision Industry, Pegatron Corp, Quanta Computer, Compal Electronics and AU Optronics, five of Taiwan’s bellwether electronics suppliers, retreated by 8.5 per cent on average in April, erasing a total of NT$118 billion (US$4 billion) in market capital. TAIEX, the Taiwan Stock Exchange’s benchmark weighted index, dropped 6.5 per cent to a six-month low of 16,592 last month. In other major markets, Hon Hai’s subsidiary Foxconn Interconnect Technology, lost 12.8 per cent in Hong Kong, while Taiwan Semiconductor Manufacturing Co. (TSMC) retraced 10.9 per cent in New York during the month. One in four of the 161 Taiwan-listed companies that halted production amid ongoing Covid-19 lockdowns in Shanghai and in the neighbouring city of Kunshan in Jiangsu province are in electronics, said Chang Chen-shan, an official at Taiwan’s Financial Supervisory Commission. The suspensions have spilled over to other manufacturing activities from bicycles to automobiles. The spillover underscores why Taiwan’s government had been nudging the island’s companies for many years to diversify their investments from mainland China to Southeast Asia to reduce the reliance of vital supply chains on China. Taiwan, administered separately from China, should work with the US, Japan and other “ like-minded partners with shared strategic interests” to revamp the supply chains related to hi-tech products, said the island’s President Tsai Ing-wen said as early as in September 2020. ‘Just in time’ morphs into ‘just in case’ as Covid-19 cuts supply chains Taiwan has an important role in China’s electronics manufacturing supply chain and chip industry. Kunshan in Jiangsu, less than an hour by train from Shanghai, is home to more than 5,000 Taiwan-based companies, including a number of key Apple suppliers. Together they contribute to more than 30 per cent of the city’s economic activity. “Even if factories [operate] under closed-loop management, there are still challenges in the transportation of the products as well as components including PCBs,” said IDC’s Vice-President of devices research Bryan Ma, adding that the shortage of printed circuit boards (PCBs) remains a hurdle for computer notebooks. A citywide lockdown in Shanghai, now heading into its second month, has upended supply chains and caused havoc in Taiwan’s manufacturing industry, from electronics to vehicles. Their woes were reflected in the stock market in plunging prices. Compal, which supplies for Apple’s iPads, has had several production facilities and staff dormitories sealed off in Kunshan because of suspected infections. It was unclear when production could resume. The first-quarter revenue of AU Optronics, a Taiwanese notebook panel supplier for Tesla, HP and Dell, fell 50 per cent, due to production slump in Kunshan, estimated at 30 to 40 per cent. AU’s shares dropped 13.6 per cent in April, losing NT$26 billion in market capitalisation. “The biggest challenge comes from transportation bottlenecks, [where] materials have been stuck on the road,” AU Optronics’ chairman Paul Peng said during an earnings call. “Starting from April, the [logistics] had slowed down and we had been unable to deploy technical personnel and equipment into the fabrication facility.” Shanghai is faced with limited manpower and logistics as well as suspended transportation options, said Forrest Chen, an analyst at TrendForce. “This means OEMs and ODMs in neighbouring areas can only rely on on-site inventory to barely meet the needs of production lines, further exacerbating component mismatches,” Chen said. Both Shanghai and Kunshan have been working to give go-ahead to nearly 2,000 manufacturers to resume production, but as the lockdown shows no sign of ending, various barriers still exist for full resumption. For chip makers such as TSMC, analysts and companies expect relatively limited impact from the lockdowns, but chip makers still faced a hit as the lockdowns added to the global chip shortage, further battering the company’s share price. Lucy Chen, vice-president at Taiwan-based Isaiah Research, said the company managed to maintain a steady business-to-business logistics level during the lockdown. But shares of TSMC fell to a two-year low of US$92.93 in New York on April 27. United Microelectronics Corp (UMC), another Taiwan-based contract chip maker whose wafer fab Hejian Technology Corporation suspended operations in Suzhou after one employee tested positive for Covid-19, dropped 11.5 per cent in April. The company’s 2021 revenue jumped 34.7 per cent to a record NT$47.1 billion. The lockdowns in Shanghai and its surroundings had “some effect” on demand, but overall demand for auto chips, industrial servers and networking segments had offset any “softness” in smartphones, notebooks and personal computers, said UMC’s co-president Jason Wang.