• The Taiwan semiconductor industry has several upstream opportunities for overseas businesses, including manufacturing equipment, IP, and renewable energy
• The semiconductor sector is valued at USD 141.6 billion and accounts for more than 10 percent of Taiwan’s GDP
• Current challenges include increased competition and a domestic talent shortage that has left many positions unfilled

The Taiwanese semiconductor industry is among the most important globally, and its status is expected to grow further in the coming years. That’s due to increasing demand from artificial intelligence, 5G communications, electric vehicles, cloud computing, and various other advanced uses. With lofty output targets and greater competition in the industry, Taiwan continues to look for support. Asian Insiders managing partner, Taiwan, Mika Sahlström, shares insights on where foreign firms fit into the picture.

If Taiwan is to remain among the leaders in the semiconductor industry, it must tackle a wide range of issues. A talent shortage is starting to be seen as the number of unfilled positions mounts. A net zero commitment from the government means the energy-intensive sectors need to find renewable energy sources quickly. Competition is also growing with China and South Korea among those seeking a bigger slice of the pie.

According to predictions from the Industrial Technology Research Institute (ITRI), output from the Taiwan semiconductor sector will surpass USD 141 billion in 2024 with this comprising nearly 15 percent of Taiwan’s GDP. Additionally, around 40 percent of Taiwan’s total export value came from semiconductor products.

In terms of revenue, there are two areas where Taiwanese firms excel. They account for an estimated 78 percent of the revenue generated worldwide through semiconductor fabrication at foundries. These are also responsible for 52 percent of global revenue from assembly and test activities.

Demand for chips will grow in the coming years due to advancements in sectors such as artificial intelligence, the Internet of Things, and electric vehicles, among other technologies. The key is continuing growth while fending off competition from elsewhere. Something Taiwan will be unable to do without the support of overseas companies.

Understanding the streams

The Taiwan semiconductor industry stream can be broken down into three stages. The first is upstream, which essentially covers everything before manufacturing begins. This includes design and the equipment used to make products.

Midstream is the second stage. Activities here involve making semiconductors, integrated circuit (IC) design and assembly, testing, and packaging (ATP). That is followed by downstream, or how the manufactured chip is integrated into an end product.

When looking at all three stages, Taiwan excels at midstream activities but requires some assistance with the other two.

Why does the Taiwan semiconductor industry need upstream support?

With Taiwan having focused most of its time and effort on becoming a leader in IC design, chip fabrication, and ATP, there has been less emphasis on building upstream capabilities. This is where support from foreign organisations has proven critical. It has allowed for the scaling up of midstream production that keeps the sector moving.

To that end, there remain many opportunities in this space for overseas companies with knowledge, tools, and materials. Semiconductor manufacturing equipment (SME), Electronic Design Automation (EDA), semiconductor intellectual property (IP), and energy and water resourcing are the most pressing needs.

Semiconductor manufacturing equipment (SME) –Taiwan requires semiconductor manufacturing equipment to ensure production continues. It can build the chips, but the tools to make chips, especially those related to advanced fabrication and packaging, tend to be sourced from overseas. 

Semiconductor intellectual property (IP) – Some local IP firms serve this field, but it also relies on foreign assistance. With new industries requiring more specialised applications, there are opportunities for smaller IP companies to support the space.

Electronic Design Automation (EDA) – Similar to IP, a growing number of unique uses has meant more diverse EDA services are now being sought after.  

Energy and water resourcing – One of the most pressing challenges for the semiconductor industry is reducing the amount of energy and water used during the manufacturing process. As an island, Taiwan faces several unique issues, including the risk of natural disasters disrupting power supplies and droughts. The Taiwanese government’s net-zero target is creating an additional sense of urgency. The potential here is expansive with renewables to energy storage and water treatment solutions currently in demand.

Finally, Taiwan still imports a notable amount of the material required for semiconductor manufacturing. Lithography materials, certain gases, and cleaning chemicals are among the areas where import opportunities may exist.

Other considerations

For overseas firms considering Taiwan, there are two primary considerations that should be factored into planning. First, a talent shortage may have an impact on manufacturing. Demand for chips is soaring, but so too is the number of unfulfilled engineer positions in the sector. Both the business community and government have taken steps to address the issue. However, it may be years before the results of these bear fruit.

Elsewhere, competition from China is another consideration to monitor. Beijing has invested a great deal in manufacturing in recent times. Additionally, geopolitical tensions linger over the Taiwan Straits. Should these eventually lead to a supply chain disruption, the ramifications would be felt globally.

Final thoughts

The Taiwan semiconductor industry continues to seek support from international companies. There is a focus on upstream activities, although downstream sectors may be of interest as well. Crucially, the Taiwanese government makes it easy for foreign investment while providing robust protection of intellectual property rights.

With demand for chips expected to increase in the coming years and Taiwan seeking support in several key areas, it remains a promising option for organisations boasting expertise or products in semiconductor SME, EDA, IP, energy and water resourcing, and a few other places along the supply chain.

Finally, opportunities exist in the semiconductor industry elsewhere in Asia. For example, South Korea is continuing to build its capabilities. Companies considering entering the region may want to examine the situations there to get a better understanding of where best they fit in.    

For further details on how your organisation can tap into opportunities in the Taiwan semiconductor industry, including those found upstream, please get in touch with Mika Sahlström, Managing Partner, Taiwan: mika.sahlstrom(at)asianinsiders.com or Jari Hietala, Managing Partner: jari.hietala(at)asianinsiders.com.