TAIPEI (Taiwan News) — Taiwan’s semiconductor industry is set to hit a record NT$6.49 trillion (US$212 billion) in output this year, up 22.2% from last year and outpacing global growth.

The surge is largely fueled by the rapid adoption of artificial intelligence, particularly generative AI, which can generate content such as dialogue, images, and music. AI adoption is driving strong demand for high-performance semiconductors, according to a Science & Technology Policy Research and Information Center report authored by Liu Pei-chen (劉佩真), a researcher at the Taiwan Institute of Economic Research.

Globally, the World Semiconductor Trade Statistics predicts the semiconductor market will grow 15.4% this year, reaching US$727.7 billion. Despite US tariffs affecting some end-market demand, widespread AI integration in cloud computing and edge devices continues to sustain hardware upgrades and robust demand across the supply chain.

Taiwan’s industry spans the full semiconductor spectrum, making the country a critical player in meeting global demand. Its ecosystem is recognized as the world’s most complete, supported by specialization and industrial clustering, according to the Taipei Exchange's information platform.

• Upstream: Intellectual property and integrated circuit (IC) design
• Midstream: IC and wafer manufacturing, production inspection equipment, photomasks, and chemicals
• Downstream: IC packaging and testing, components like substrates and lead frames, IC modules, and distribution channels

Semiconductors begin as IC designs, which define the chip’s functionality before fabrication. ICs are then manufactured on wafers at foundries and can be classified into memory, microcomponent, logic, or analog.

Taiwan holds a commanding position in chip design, advanced process technologies like sub-5nm nodes, and sophisticated packaging solutions, including chip-on-wafer-on-substrate and 2.5D and 3D-IC integration. Global AI chip designers rely heavily on Taiwan’s foundry and testing services, cementing its role as a cornerstone of the AI era.

Taiwan’s foundry sector is projected to grow 28.3% this year, slightly below last year’s 30.1% due to a high base effect, but still outpacing other segments. Strong demand for AI and high-performance computing chips, which require advanced nodes and packaging, is driving this growth.

Foundries manufacture ICs for fabless companies without engaging in design or sales. Among Taiwanese firms, TSMC leads the industry with a 67.6% market share, while UMC ranks fourth globally after Samsung Foundry and SMIC, according to Stockfeel.

Advanced nodes like 3 nm and 2 nm, alongside cutting-edge packaging, remain critical for AI chips. This year, 3 nm processes are expected to power flagship graphics chips and mobile processors, while 4 nm and 5 nm nodes support mid- to high-end smartphones and AI GPUs.

TSMC’s combined monthly capacity for 7 nm, 5 nm, and 3 nm production in Taiwan is around 500,000 wafers, with 2 nm production projected to bring advanced-node capacity to roughly 600,000 wafers by the end of next year, according to Business Next.

Despite geopolitical uncertainties, Taiwanese foundries are strategically investing overseas, including in the US and Japan, to diversify risk and strengthen supply chain resilience.

The growth of cloud services and data centers continues to boost demand for server CPUs, networking chips, and other high-performance components. AI integration in personal devices such as AI PCs and wearables further drives semiconductor demand.

Taiwanese IC design companies, long active in these markets, are well-positioned to meet the demands of next-generation AI chips. The country houses over 200 IC design firms, with larger companies like MediaTek leading the sector, while small, medium, and startup IC design companies make up about 80% of the industry, according to CNA.

In packaging and testing, advanced back-end technologies are critical as miniaturization approaches physical limits, elevating these processes from basic manufacturing to high-value solutions. Companies like Ase Technology Holding have progressively expanded their share of advanced packaging services.

Advanced semiconductor packaging, including 2.5D, 3D-IC, and system-in-package techniques, combines multiple chips into a single electronic package, enhancing functionality while reducing power consumption and cost. Packaged units are connected to printed circuit boards or flexible substrates and integrated into devices.

Memory up

Taiwan’s memory and other semiconductor segments are projected to grow 12.7% this year, up from 3.3% last year. Rising DDR4 prices amid supply constraints and preemptive purchasing due to geopolitical uncertainties are key drivers.

Different generations of SDRAM (synchronous dynamic random-access memory), including DDR, DDR2, and DDR3, have distinct characteristics. DDR4 enhances signal integrity, improves data transmission, reduces power consumption, and increases storage reliability, according to Transcend.

While manufacturers gradually shift to higher-margin DDR5 and high-bandwidth memory, demand for DDR4 persists in legacy systems, entry-level products, laptops, routers, and embedded devices, benefiting Taiwanese memory producers.