- Taiwan semiconductor industry – an overview
- Competitive strength of Taiwan semiconductor industry
Taiwan, a strategically positioned island between north and south Asia, has always enjoyed a commercial potential in spite of its size. Made up with around 98% of private-sector companies that employ 80% of the workforce, Taiwan’s economy has emerged as a strong international commercial force, ranging from biotechnology to alternative power supply and presented itself as a key hub for technological innovation.
From more than the last three decades, Taiwan’s semiconductor industry or ICT sector, has been known for its ability to compete with the top technology provider countries and has pioneered in chip production. Companies in Taiwan are engaged separately in each process of manufacturing of semiconductor, from chip designing to its fabrication from wafer and to its packaging and testing; this makes them stand apart from multinationals such as Intel which work on an integrated approach. This approach has allowed Taiwan to gain and position itself as a leader in IC fabrication and IC packaging & testing sector. The Taiwan semiconductor industry consists of 238 IC fabless design companies, 37 packaging and testing companies, 15 fabrication companies, 11 wafer suppliers, 7 substrate suppliers, 3 mask makers and 4 lead frames companies (source: TSIA- Taiwan Semiconductor Industry Association, 2018). The island represents ~75% of worldwide IC foundry revenue, ~55.8% of worldwide package and testing revenue and ~17% of worldwide IC design revenue and is home to Taiwan Semiconductor Manufacturing Co. (the world’s largest contract chipmaker producing chips that go into everything from the iPhone to bitcoin-mining rigs) and ASE Technology Holding Co., Ltd (which is the world’s leader in semiconductor assembling and test services).
As per the latest estimates released from TSIA, Taiwan’s IC revenue as a whole (including design, manufacturing, packaging and testing) is expected to be approx. NT$ 2,645.3 bn (US$ 87.6 bn) in 2019, representing 1% growth from 2018. While Q3-2019 revenue is expected to reach NT$ 721.7 bn (US$ 23.9 bn), representing 15.4% growth on QoQ basis and up 4.4% on YoY basis. This reflects Taiwan’s strong hold on global map as worldwide IC revenue witnessed a decrease of 14.6% (US$ 106.7 bn) with US IC revenue (US$ 19.8 bn) declining the most at 30.4% in Q3-2019 on QoQ basis (WSTS analysis) backed by overall slowdown in broader economies.
The global semiconductor industry is currently experiencing a tough time due to macroeconomic slowdown as stated in Televisory’s previous blog “State of Semiconductor industry” and Taiwan’s semiconductor industry is no exception. Positively, however, Taiwan is not in the list of the most impacted regions in global IC industry but it has reached to a point where companies are now facing the need to reinvent as the global industry approaches towards the physical limits of Moore’s Law (Moore’s Law – predicts that the number of transistors on a chip doubles roughly every 18 to 24 months). In the recent years, as a new era of IoT, AI applications are threatening to disrupt the semiconductor industry, it has become increasingly challenging to cram more transistors onto smaller sized chips, thereby raising a question as to whether Moore’s Law is slowing down or will come to an end.
During the past three decades, Taiwan has developed a strong hardware and software integration and strengthened its semiconductor research and development capability to gain a competitive edge. Among other Asian peer countries, Taiwan is investing the highest in its R&D to boost its technological innovation.
At present, Taiwan is the largest wafer foundry supplier, the largest IC packaging and testing services provider and the second largest IC designer. With the combined IC output value at NT$ 2,645 bn (US$ 85.75 bn) representing ~20% of the global production value, Taiwan would beat South Korea to regain the second position globally. Despite decline in value, the US remains at top position with ~40% market share. Taiwan’s robust infrastructure, skilled workforce, government support with relaxed regulatory environment has further aided to its strong technical and competitive edge in global market.
However, Taiwan has faced increased competition from China over the past few years. China ’s aspiration to become a self-sufficient semi-conductor industry has posed stiff competition to other Asian countries. To cultivate its own IC industry, China has identified semiconductor industry as a strategic industry in ‘Made in China 2025’plan and allocated financial resources to achieve that goal. Though Taiwan currently has a clear advantage over China in terms of technology and semiconductor talent pool, China has progressed rapidly in the recent years. In spite of this threat, China also poses as a key strategic partner to Taiwan’s semiconductor industry with IC design companies relying heavily on China’s OEMs and vendors. More than 57% of Taiwan’s semiconductor exports went to China in 2018 and over half of semiconductors were shipped to China for product assembly. Moreover, China also holds strategic importance for Taiwan to its geographical proximity, shared language compared with other major markets like the US and thus IC designing companies in Taiwan cannot simply move away from it, in spite of the heavy poaching of talent by China.
Taiwan’s semiconductor industry has showed promising results despite the worldwide downtrend. Taiwan is the biggest spender on IC equipment and chipmakers and the country is exploring ways to to bring rapid technological advancement and developing new markets for their products. Even if Moore’s Law does slow down, the foundry will still exist by adapting and innovating thereby creating high performance, fast and energy efficient IC chips. With 5G set to come on stream and IoT on roll, which essentially uses 5G and RFID (radio-frequency identification) chips to connect, Taiwan’s semiconductor industry needs to upgrade at a faster pace in order to maintain and sustain its position on global high-tech map.