How Helene damage in one town could disrupt the chip sector

Hurricane Helene may have an unexpected impact on the chip sector. A small town in North Carolina called Spruce Pines produces a significant portion of the quartz needed to make semiconductors. The storm devastated the town and halted mining operations. Peter Hanbury, Bain & Company partner, and leader of operations for technology practice, joins Josh Schafer and Madison Mills on Market Domination Overtime to discuss the potential impact on chipmakers.

“The situation in North Carolina has the potential to have a big impact on the industry if it lasts for more than six months… The high-purity quartz produced is really critical to the industry in two ways. It helps produce the silicon wafers that form the basis of all semiconductor products, and it's also used in the wafer manufacturing tools used by TSMC (TSM), Intel (INTC), and Micron (MU).”

Supply bottlenecks are “one of the challenges of the industry” since there are limited options for chipmakers to find the resources needed to produce the tech. Hanbury says, “The best players in the industry recognize these bottlenecks and spend a lot of time identifying where these bottlenecks are, developing proactive mitigation plans like additional inventory and monitoring their supply base.”

Hanbury reports, “We see several months of inventory along the value chain, which will limit the immediate impact… We don't know the exact impact of the damage or how long it will take to get the facilities up and going again, but we think there's at least a couple of months of inventory to limit the immediate impact.”

For more expert insight and the latest market action, click here to watch this full episode of Market Domination Overtime.

This post was written by Naomi Buchanan.

Video Transcript

Let's take a look at the semi conductor industry.

Most folks might associate the semi space with countries around the globe even here in the broader country.

But there's a small town in North Carolina that imprint on the sector is shockingly critical.

According to B company, about 80 to 90% of global court supply coming from Spruce pine and almost every cell phone and computer chip contains from the small Southern town.

So what does this mean for the broader semiconductor industry amid challenging weather conditions?

Joining us now to discuss, we got Peter Hambury Bain and company partner and leader of operations for tech practice.

It's it's great to speak with you here.

So I just want to start by giving our audience a little bit of context.

Talk to me about the relationship between this town and the semiconductor industry in just 60 seconds here.

Sure.

Uh Yeah, I mean, the situation in North Carolina has the potential to have a big impact on the industry uh if it lasts for more than six months.

And really two reasons for that one, the high purity quarts produced uh is really critical to the industry in two ways, it helps produce the silicon wafers that form the basis of all semiconductor uh products.

It is also used in the way for manufacturing tools used by A TS MC Intel and Micro.

Uh And then there's not really a lot of suppliers in this space.

Uh uh who can meet the purity requirements of the industry and the complexity of the manufacturing process uh requires months of work to qualify new suppliers.

So it's very hard to switch.

So uh together the criticality and challenge of adding new suppliers means this uh a potential for a big impact is uh possible here.

And Peter, you mentioned if it lasts for longer than six months, I mean, how do you sort of assess that risk of, is it going to last more than six months?

And how are you sort of weighing those two different options there maybe being short or maybe going longer than we think?

Now, it's a great question and it's uh one of the challenges of the industry and the best players in the industry, recognize these bottlenecks and spend a lot of time uh identifying where these bottlenecks are developing proactive mitigation plans, like uh additional inventory uh and monitoring their supply base.

Uh And the best players would have known this uh potential impact was coming about a week ago.

So as we look at the impact, you know, we see several months of inventory along the value chain which will limit the immediate impact a few years ago during a lot of the, the shortages, this would have immediately flown through and led to a larger disruption.

But given the utilization and lead times have returned to normal over the last year or so, we've got a little bit more buffer in the system to absorb shocks like this.

So we don't know the exact impact of the damage or how long it will take to get the facilities up and going again.

But we think there's at least a couple of months of inventory to limit the immediate impact.

And Peter I'm just curious to, to take a step back for a second.

Uh for folks who are listening, who have no familiarity with courts.

Can you talk about the everyday devices that could be impacted by this?

Yeah.

Uh I mean it as a part of the semiconductor manufacturing process, uh every form of uh logic, semiconductor, uh NAN DRM or memory or even solar devices.

Uh for example, the the solar cells on your roof all use uh these uh comp to make the individual chips.

Uh So you would see them in your smartphone notebook, uh the servers that support all of the web pages you interface with.

Uh and uh a lot of the the our delivery into your house, for example, would be driven by semiconductors.

And so that impact could spread quite widely and impact a lot of folks similar to what we saw with the chip shortage.

Absolutely.

And I think it points to this broader challenge that certainly the government has been working through which is domestic chips production.

I'm I'm curious from your perspective, what this story tells us about the importance of increased competition in the chip sector just to diversify a little bit.

Yeah, the the chip sector in general is inherently challenged.

Uh The technical requirements of the process being able to print 30 trillion transistors on a a dinner plate means that the technical requirements of the industry are are massive.

Uh And that's up and down the value chain.

And uh the amount of R and D and scale required to be successful is uh is massive.

And so you end up with many uh single sources of failure uh within the industry, heavy levels of consolidation.

And so obviously, a lot of the Chips Act funding has gone towards the uh manufacturing itself, the Intel Samsung TSM CS of the world.

Uh As you think about the broader resiliency of the industry, you do have to look, you know, multiple levels deeper to include the equipment.

Uh uh quarts would be an example of a subsystem, the materials that go into semiconductors.

You'll see this level of concentration and risk at many places in the industry.

All right, Peter, we got to leave it there.

Really appreciate you joining us.

Thanks so much.