Taiwan’s Semiconductor Industry

Taiwan is particularly known for its dominance in the design and manufacture of semiconductors. Several Taiwanese companies are critical players in the world’s growing demand for microchips across various sectors beyond simply computing. Mika Sahlström, Asian Insiders partner in Taiwan explores the strength of Taiwan’s semiconductor industry and what lies ahead.

Taiwan’s semiconductor industry is huge, holding around 56% global market share, with one company in particular Taiwan Semiconductor Manufacturing Company (TSMC) dominating this space. TMSC products are used by almost all the top semiconductor industries worldwide including AMD, Apple, ARM, Broadcom, Marvell, MediaTek and Nvidia. The sector is a major driver of Taiwan’s economy accounting for over 15% of Taiwan’s GDP and employing over one million people.

The foundation for Taiwan’s semiconductor industry was laid in the 1960s, when the government established the Industrial Technology Research Institute to promote technological development, playing an early key role in semiconductor manufacturing and licensing these technologies to several Taiwanese companies including TSMC. This pattern of close involvement and support from the government continues to present times with policies and investment support that encourages ongoing research and development, investment and innovation. Further the government continues to actively encourage an industry ecosystem of related, supporting industries including equipment manufacturers, design firms, testing and packaging companies.

The Taiwanese government further encourages foreign investment, liberalising the economy, offering strong protection for intellectual property rights and actively encouraging both public-private infrastructural, logistical and communications schemes as well as investment in large scale alternative energy installations. Read more on this here. A high-tech sector such as this requires a highly skilled workforce, so there has also been considerable investment in technical education in Taiwan, ensuring a good supply of trained researchers and technicians.

Taiwan has succeeded in integrating closely with the global technology industries and both collaborates and competes with international research institutes, equipment manufacturers, software developers. Taiwan’s semiconductor industry plays a critical role in the global supply chain, with its products powering a wide range of devices, from smartphones and laptops to automotive systems and IoT devices. This global reach has made Taiwan indispensable to the world’s technology ecosystem. Taiwanese brands are familiar to computer users the world over.

The global semiconductor shortage, which began in 2020 and continued into 2021, highlighted the strategic importance of Taiwan’s semiconductor industry. As geopolitical tensions simmered in the Taiwan Strait, concerns over the industry’s vulnerability to disruptions gained prominence. This heightened awareness underscored the need for diversification in the semiconductor supply chain.

Taiwan does face some challenges in this sector, including the demand and cost for raw materials, such as silicon, along with rising labour costs as well as increasing competition from China, where the government there is investing heavily in their own manufacturing capabilities. The ongoing geopolitical tension across the Taiwan Straits also continues to pose a significant risk to the industry. Any disruption to the supply chain would likely have far-reaching consequences to global technology manufacturing companies. The awareness of this risk perhaps supports efforts towards peaceful settlement of these tensions.

In order to face increasing competition from China and elsewhere, Taiwan’s semiconductor industry continues to invest heavily in research and development. The semiconductor market is constantly evolving with new opportunities arising in areas such as 5G technology, artificial intelligence and machine learning, IoT, advanced vehicle driver assistance systems and quantum computing.

TSMC’s leadership in advanced manufacturing processes has also been critical. TSMC had already achieved 5nm (nanometres) technology and has plans to develop 3nm and even 2nm processes. These smaller nodes allow for more powerful and energy-efficient chips, enabling the development of cutting-edge devices.

Continuous, relentless innovation is the key to ensuring Taiwan’s semiconductor industry maintains its present position of global leadership. The Taiwanese model of intense government support for technological industries allows Taiwanese companies to compete and prosper, supported by a robust infrastructure and ecosystem. Taiwan is open for business and welcomes foreign investors.

Taiwan’s semiconductor industry offers significant areas of opportunity for collaboration with international companies. Asian Insiders offers expertise and experience in this sector and in Taiwan. For a no obligation call, please contact Jari Hietala, Managing Partner: jari.hietala(at)asianinsiders.com or Mika Sahlström, Taiwan Partner: mika.sahlstrom(at)asianinsiders.com

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