Apple’s iPhone production may face delay after virus outbreak at chip maker TSMC, analysts say

The timing of the virus incident at the world’s largest contract chip manufacturer could interfere with Apple’s new product launch next month

PUBLISHED : Friday, 10 August, 2018, 6:30am
UPDATED : Friday, 10 August, 2018, 6:49am

A computer virus unleashed last week at Taiwan Semiconductor Manufacturing Co (TSMC), the world’s biggest contract chip maker, caused damage that could set back iPhone production through September, according to industry analysts.

A variant of the year-old WannaCry ransomware hobbled computer systems and factory tools at TSMC from Friday through Monday after a supplier installed software without a virus scan to the company’s computer network. The virus made machines crash and continually reboot.

While TSMC said manufacturing operations were fully restored on Monday, the virus outbreak may have damaged “some of the company’s most cutting-edge facilities used to build Apple’s A-series chips” for iPhones in production this year, said Lee Cheng-hwa, a senior industry analyst with the Market Intelligence & Consulting Institute in Taipei.

This incident has come at a sensitive period for Apple, which is preparing for its much-anticipated annual launch of new iPhone models next month after recording a market value of US$1 trillion last week.

iPhone chip maker TSMC races to recover after crippling computer virus delays shipments

Apple could introduce as many as three new iPhone models, along with upgrades of its iPad and Apple Watch, according to Jason Barry, a research analyst with Gap Intelligence in the United States. All of those devices have used TSMC-made chips in the past, he said.

TSMC’s factories makes plenty of chips designed for iPhones, so Apple would be the most likely client to face shipment delays – though not necessarily severe ones, analysts said.

New York-listed TSMC has said the virus outbreak will delay its chip shipments through the end of September, but expected to make a recovery by year’s end. It had to shut down virus-infected fabrication tools and automated handling systems during the outbreak at its manufacturing facilities, but restored 80 per cent of those by Sunday.

“The production delays should be negligible, although with Apple being TSMC’s largest customer, the timing of the incident could interfere with [its] fall line-up refresh,” said Barry of Gap Intelligence.

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Apple did not immediately respond to a request for comments on Thursday, while a TSMC spokeswoman declined to offer information beyond the company’s official statements.

TSMC had blamed the virus outbreak on missteps by an unnamed person who was installing new software. The company said it was notifying clients individually this week on any changes to deliveries. It declined to name clients.

Developers with rush orders to build consumer electronics will probably wait the longest for any delayed chips from TSMC, said John Brebeck, the senior adviser at investment consultancy Quantum International Corp in Taiwan.

“The question is if it’s concentrated on any given company,” Brebeck said. Apple would “get really upset” if the virus attack set back its production schedule, he said.

Clients as well as investors took notice of the virus outbreak at TSMC because it was the first time such an incident has happened at the chip maker.

The timing of the incident could interfere with [Apple’s] fall line-up refresh
Jason Barry, analyst at Gap Intelligence

A virus like this has never before “hit such an important company, so it’s catching everyone’s attention,” said Wu Hui-ling, a research fellow at Taipei-based think tank Chung-Hua Institution for Economic Research.

It also showed how such incidents can cause major disruption to the global electronics supply chain.

US-based chip giant Qualcomm, which develops processors for major Chinese smartphone brands, also contracts manufacturing to TSMC.

TSMC is sometimes seen a bellwether for technology investments because of its relatively transparent management and advances in chip production technology. Its US-educated founder and chairman, Morris Chang, retired this year at age 86.

Still, TSMC will probably live down the virus incident as “just a blip on the screen” because its reputation is otherwise clean, Quantum’s Brebeck said.