Logo of Taiwan Semiconductor Manufacturing Company, the world’s largest IC foundry. Photo: AFP / Sam Yeh

The world is becoming more dependent on the Taiwanese semiconductor industry, not less, even as the war of words between the US and China heats up and people talk about the lessons to be learned from Ukraine.

According to the latest quarterly World Fab Forecast released by SEMI on June 13, Taiwan is expected to lead global spending on semiconductor production equipment this year, with a 52% increase to US$34 billion.

South Korea is forecast to come second with a 7% increase in spending to $25.5 billion, China third at $17 billion, and North America fourth at an unimpressive $9.3 billion. Total industry spending is expected to increase by 20% to a record $109 billion. 

SEMI (formerly Semiconductors Equipment and Materials International) bills itself as “the global industry association that unites the entire electronics manufacturing and design supply chain.”

“Fab” is industry jargon for semiconductor fabrication facility or factory.

TSMC, the world’s largest integrated-circuit (IC) foundry (contract manufacturer), will once again account for the bulk of semiconductor capital spending in Taiwan.

According to market research organization TrendForce, TSMC is likely to increase its share of the global foundry market from 53% in 2021 to 56% in 2022, while Taiwan’s total share rises from 64% to 66%. Other Taiwanese foundries include UMC, Vanguard and Powerchip.

At the leading edge, TSMC has a monopoly on 3-nanometer process technology and is overwhelmingly dominant at 5-nanometer. Production at the 3-nanometer node is scheduled to start this year with orders from Intel, AMD, Nvidia, Qualcomm, Apple and MediaTek.

TrendForce also calculates that Taiwan had 20% of the global market for IC packaging and test and 27% of the market for IC design in 2021, ranking first and second in those segments respectively.

Taiwan’s ASE is the world’s largest supplier of outsourced semiconductor assembly and test (OSAT) services.

Taiwanese IC design company MediaTek overtook American company Qualcomm to become the world’s top supplier of smartphone application processors in 2020. Qualcomm continues to dominate the high end of the market, but MediaTek is moving up fast. 

TrendForce data show four Taiwanese companies in the Top 10 fabless IC design revenue ranking for 2021: MediaTek (fourth), Novatek (sixth), RealTek (eighth) and, for the first time, Himax (10th). The others were all American, in the following order: Qualcomm, NVIDIA, Broadcom, AMD, Marvell and Xilinx.

The combined revenues of the Taiwanese companies accounted for 22.3% of the total, compared with 23.7% for top-ranked Qualcomm and 20.1% for Nvidia.

Three years earlier, in 2018, three Taiwanese companies – MediaTek (fourth), Novatek (eighth) and RealTek (ninth) – accounted for only 15.8% of the total Top 10 revenues. Since then, the revenue generated by the ranking Taiwanese companies has more than doubled.

And as Nikkei, Japan’s leading provider of business news, pointed out on April 28, 2021, “Taiwan’s growing role in chip design extends to US-based players as well. Nvidia, AMD and Xilinx … are headed by Taiwanese-born executives. TSMC is a key supplier to all three.”

On top of that, as I reported in Asia Times on December 15, 2021, foreign semiconductor-related companies are also building capacity in Taiwan.

This is not what US Secretary of Commerce Gina Raimondo had in mind when she said, “It is a problem for America that we are so reliant on Taiwan” (Bloomberg, December 9, 2021) and “It is a huge national-security issue and we need to move to making chips in America, not friend-shoring” (CNBC, May 25, 2022).

But the CHIPS for America Act (CHIPS stands for Creating Helpful Incentives to Produce Semiconductors) is still stuck in Congress. First proposed more than a year ago, it would provide $52 billion worth of subsidies for semiconductor production and research and development in the US over five years.

“Pass the damn bill and send it to me,” President Joe Biden said, according to CNBC on May 6. “If we do, it’s going to help bring down prices, bring home jobs and power America’s manufacturing comeback.”

But Congress has had other priorities, such as supplying weapons to Ukraine.

The US government has managed to persuade both TSMC and South Korea’s Samsung to build new semiconductor factories in America. TSMC is building a 5-nanometer facility in Arizona, but has fallen behind schedule because of intense competition for limited numbers of construction workers, technicians and engineers.

It has been reported that TSMC might eventually build six factories in Arizona, shifting a large part of its output to the US. It might, but with mass production at the first one unlikely to start until 2024, it would take a long time.

Meanwhile, all of TSMC’s 5-nanometer and 3-nanometer production capacity is in Taiwan, and its first 2-nanometer facility will be built there as well.  

On April 18, Taiwan News reported TSMC’s chief executive officer, C C Wei, as saying: “Our N2 [2-nanometer] development is on track, including new transistor structure, and progressing to our expectation. In 2025 it will be in production, probably close to the second half, or you know, in the end of 2025, that’s our schedule.”

No other semiconductor manufacturer is even close to being able to do this.

That can be viewed as a kind of national insurance policy. Without its world-leading semiconductor industry, Taiwan might be thrown under the bus, again, as it was by Richard Nixon and Henry Kissinger, who agreed to the One China Policy (no Taiwanese independence) in 1972.

On June 10, Japanese Prime Minister Fumio Kishida, delivering the keynote speech at the Shangri-La Dialogue conference in Singapore, said: “I myself have a strong sense that Ukraine today may be the East Asia [of] tomorrow.”

What does that mean? That America and its allies might stand back and watch while Taiwan is blasted to rubble? Let’s hope not. The island and its semiconductor industry are too important for that to be allowed to happen.

Scott Foster is an analyst with LightStream Research, Tokyo. Follow him on Twitter @ScottFo83517667