Why chip fabs can’t afford to stop: The hidden cost of a single disruption

 

It is rare for a country's prime minister to publicly intervene in a factory labour dispute.

But earlier this month, as nearly 48,000 Samsung Electronics memory-chip workers prepared for an 18-day strike over bonus disputes, South Korean Prime Minister Kim Min-seok warned that the government could invoke emergency mediation powers if the walkout threatened the national economy.

For the global semiconductor industry, the prospect was alarming.

Samsung is the world's largest memory chipmaker and any disruption at its fabs has the potential to ripple across the electronics supply chain. While the crisis was ultimately averted after Samsung agreed to allocate 10.5% of its semiconductor operating profit towards special bonuses for workers, the episode offered a reminder of a reality unique to chip manufacturing: semiconductor fabs cannot simply stop and restart like conventional factories.

Earlier in April, even a one-day labour action at Samsung had significantly disrupted operations.

"At Samsung, the one-day labour action is reported to have caused the foundry output dropped 58% and memory fabrication fell 18% during that affected shift," Arun Mampazhy, an independent semiconductor analyst, told Business Today.

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Why fabs operate differently

The sharp drop in output from a single-day disruption highlights how fragile semiconductor manufacturing can be.

Unlike traditional factories, chip fabs operate in highly controlled environments where silicon wafers move through hundreds, and sometimes thousands, of manufacturing steps over several weeks or even months. Interruptions caused by labour unrest, earthquakes, power outages, contamination incidents or material shortages can permanently damage wafers and trigger lengthy recovery cycles.

"Unlike discrete manufacturing factories, chip fabs cannot simply pause and restart. A silicon wafer goes through up to 1,000 highly precise steps over several months. If power fails or a process stops midway, the wafer is often permanently ruined," Pareekh Jain, CEO of EIIRTrend & Pareekh Consulting told Business Today.

While semiconductor fabs are highly automated, human intervention remains critical.

"They might give the impression that a human resource disruption may not impact them too much. But at various points there are quality checks and manual monitoring involved, and in the absence of these the line won't proceed," Mampazhy explained.

Natural disasters can create even greater challenges.

"In case of a severe earthquake, wafer fab equipment can get damaged mechanically," Danish Faruqui, CEO of Fab Economics told Business Today. "Many supporting functions like labs, bare wafer banks and materials inventory get impacted, resulting in disruption to supply chains feeding fab operations. Even the under-fab facilities that house utilities, HVAC systems and critical infrastructure can be affected, requiring substantial time to repair."

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The hidden cost of restarting

Restarting a semiconductor fab is often as challenging as keeping it running. Recovery timelines vary significantly depending on the nature and severity of the disruption.

After a major earthquake in Taiwan in 2024,  chipmakers reportedly restored around 70% of affected tools within 10 hours. At the other end of the spectrum, Japanese chipmaker Renesas required more than three months to recover from a fire at one of its semiconductor facilities in 2021. The same year, Samsung's S2 fab in Austin, Texas, remained offline for nearly a month after severe winter storms destabilised the state's power grid.

The technology node involved also plays a major role in determining recovery time and cost.

"In case of a 28nm fab, a seven-day worker strike could result in a two-week return-to-production timeline for fully assuming high-volume manufacturing. For a 3nm fab, it could result in four to six weeks of return-to-production timeline and a multifold higher cost penalty compared to a 28nm fab," Faruqui said.

The impact extends well beyond the factory floor.

"The damage doesn't stop at the factory gate," Jain said. Delayed chip shipments can force customers to postpone product launches, idle assembly lines and miss critical market opportunities.

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History offers several examples. In 2019, contamination from a batch of photoresist chemicals at Taiwan Semiconductor Manufacturing Company (TSMC) reduced the company's quarterly revenue by roughly $550 million.

Even after the equipment is repaired, fabs cannot immediately resume normal production.

"Most of the equipment is complex and it takes time to get them up and running at optimal conditions," Mampazhy told Business Today. "Multiple checks need to be done before in-production wafers can be channelled through them. Sometimes the process involves sending test wafers—either fresh or half-processed, through the brought-back-online tools and testing the results before the tools can be called ready for real production wafers."

India's coming test

The lessons are particularly relevant as India prepares to enter semiconductor manufacturing with projects such as Tata Electronics' upcoming fab in Dholera, Gujarat. Industry experts say disruptions are inevitable over the lifetime of any fab. The challenge is minimising their impact through planning, redundancy and operational discipline.

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Beyond backup power systems, water recycling infrastructure and disaster recovery protocols, India will also need to build a resilient ecosystem around semiconductor manufacturing.

"Policymakers must focus on skilled workforce development, stable labour relations and local ecosystems for semiconductor chemicals, gases and equipment," Jain told Business Today.

Faruqui argued that India must also prioritise supply-chain resilience and deeper vertical integration to reduce dependence on a single geography or supplier.

The Samsung labour dispute may have ended without a prolonged shutdown, but it offers a glimpse into the realities of semiconductor manufacturing.