Taiwan and Semiconductors: Present Conditions and Possible Futures

A large percentage of the electronics we use on a daily basis run on semiconductor chips. Consequently, we would immediately feel the effects of a chip shortage. This precedent is made worse by the world’s continuing dependence on Taiwan for semiconductors. 

This is quite a terrifying fact when you consider China is right across the sea with an amphibious landing force ready to go (see last week’s article). In today’s article, we will explore in greater detail the current state of the semiconductor industry, Taiwan’s role in the semiconductor market and  the future of the industry. 

The Current State of the Semiconductor Industry

From computers to smartphones to even our cars, the importance of semiconductor chips cannot be overstated especially in the era of 5G and IoT. Forbes estimates the semiconductor industry to be worth approximately $100 billion in 2021. 

Increased demand for chips is predicted to cause a 43.8% growth in the wafer fabrication equipment and the wafer fabrication facilities industry in 2021 (wafers are the circular silicon materials needed to manufacture chips).

Nonetheless, according to the BBC, even before the Covid-19 pandemic, the ever-increasing demand for chips was going to result in a shortage regardless of the pandemic. However, the Covid-19 pandemic and the rapid shift online did, in fact, exacerbate the global shortage.

The sudden increase in demand for personal electronic devices meant that chips would be prioritised for devices. As a result, when automobile plants reopened following lockdown, for example, automobile companies were forced to slash production rates and/or raise prices, writes the Guardian.

The Guardian adds, “A simple solution would be to make more chips, but the market for these components is finely tuned, and adding manufacturing capacity… is extremely complex, expensive and takes a long time.” Shipping limitations during the pandemic did not help either.

The Role of Taiwan in the Semiconductor Industry

CNBC reports that Taiwan and its “Taiwan Semiconductor Manufacturing Company” (TSMC) manufactures approximately 50% of all semiconductors worldwide, accounting for 54% of semiconductor industry revenue in 2020. The South China Morning Post believes it would soon account for 56% of revenue by 2023.

Its closest competitors are arguably South Korea (e.g., Samsung), Japan (e.g., Renesas), and the US (e.g., Intel). In fact, South Korea is the only country beside Taiwan able to produce the most advanced 5-nanometre chips and is currently preparing to produce the next-generation 3-nanometre chips. 

Initially, the US was the dominant industry player. However, as competition ramped up, it began outsourcing production to countries including Taiwan to focus on the more profitable design aspect of their business, like Apple has done.. Now, the US, alongside Japan, maintains its significant chip design capabilities but certainly not the production scale.

Paradoxically, the overall semiconductor industry has contracted despite production and demand skyrocketing. Over-dependence on Taiwan can prove disastrous. Nikkei estimates that should Taiwan shut down production for a year, electronics companies’ revenue could decrease by as much as  $490 billion. 

The Future of the Semiconductor Industry

Many countries have sought to attract Taiwanese and TSMC investment in the hopes of boosting domestic chip manufacturing and creating a more resilient global semiconductor industry. The US, for example, has agreed to a$12 billion deal to create a new chip factory in Arizona, in addition to passing the “Chips for America Act'' that would invest  $25 billion in its chip industry.

However, while leaders are more or less in agreement, investors are more divided. Some advocate investment in high-end computing, others in less-advanced but more numerous semiconductor technologies produced in China. At the same time, CNBC states tech giants Apple, Amazon, Meta, and Tesla have begun developing and producing certain aspects of chip development in-house.

It remains to be seen how quickly these countries and companies can catch up to current industry standards set out by Taiwan. After all, the production of the 3-nanometre chips able to house 250 million transistors per square has already begun, as has the development of the 2-nanometre chips able to house 310 million transistors per square, according to the South China Morning Post.

Conclusion

As you can see , the state of the semiconductor industry is in constant flux and no one is sure what will happen next.

We here at Kusu believe in staying ahead of the curve and closely monitoring industry trends in helping you and your company gain any advantage it can. For more news on manufacturing sector developments, be sure to follow Kusu’s newsletter and its blog.