Challenges facing Taiwan’s semiconductor industry

Intertwined semiconductor supply chains with US, China a risk for Taiwan

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Semiconductor silicon wafer (Getty Images photo)

Semiconductor silicon wafer (Getty Images photo)

TAIPEI (Taiwan News) — Taiwan’s tech sector is well-positioned in the world post-coronavirus, but challenges lie ahead in terms of its reliance on both the U.S and China, according to an economist at Singapore-based DBS Bank.

Ma Tieying (馬鐵英), a DBS economist, noted in a report published on Tuesday (July 7) that COVID-19 is likely to further push tech innovation in an era characterized by AI, IoT, and 5G technologies, and that Taiwan is set to benefit from the numerous opportunities.

Reasons she cited include the country’s integrated semiconductor supply chain and the fact that it is a hub for wafer fabrication and boasts integrated circuit (IC) packaging and testing prowess. Taiwan Semiconductor Manufacturing Company (TSMC) and South Korea’s Samsung are the only two in the world that have the capacity to produce chips using 5-nanometer (nm) nodes, with both eyeing the more advanced 3nm by the mid-2020s, she added.

Challenges remain, though, stemming from heightened nationalism and protectionism, manifested by U.S.-China tech tensions. Taiwan is exposed to a heavy reliance on the U.S. for upstream IC design and semiconductor manufacturing materials and equipment, and Washington’s many moves to target Chinese companies could create collateral damage for the country.

In May, Washington slapped new sanctions on Chinese tech giant Huawei, which require foreign semiconductor manufacturers to obtain approval from U.S. authorities before shipping semiconductors to the Chinese company for products that use Huawei designs and U.S. technology. Due to the restrictions, TSMC was reported to have halted orders from Huawei, its second-largest client.

Also, as China and Hong Kong account for up to 60 percent of Taiwan’s electronic component exports, the country is extremely reliant on China for market sales and this comes with risks. For the longer term, the economist cautions that Taiwan’s competitive advantage could be undermined as the world’s two largest economies compete to invest in their own semiconductor capacity.