During this period of chip shortage, the world’s dependence on Taiwan chipmakers has become quite evident.
A The global chip shortage since last year has revealed the critical position of Taiwan Semiconductor Manufacturing Company (TSMC) in the global semiconductor supply chain. TSMC is the world’s largest chipmaker with a 53% share of the global semiconductor foundry market in the second quarter of 2021 and its current market capitalization ranks 8th globally. Along with three other smaller players: United Microelectronics Corporation (UMC), Powerchip Technology Corporation (PSMC) and Vanguard International Semiconductor Corporation (VIS), Taiwan leads the global chip manufacturing market with a 63.3% market share in the world. second quarter 2021.
This continuing global shortage of chips has been caused by several reasons. These include: a sharp increase in demand for consumer electronics when people need to work, study and play at home during the Covid-19 pandemic, an increase in demand for tall mining machinery performance as the price of bitcoin rose last year, and the rebound in demand for cars as the global economy recovered from the pandemic later last year. Other reasons include: the global supply chain disrupted during plant closures and global transportation capacity has fallen sharply due to the pandemic, and geopolitical factors such as the trade war between the United States. and China which resulted in the stockpiling of chips by China and other countries. According to a report by Goldman Sachs, 169 industries have been affected by this shortage of chips, ranging from smartphones to computers, automobiles to industrial control systems.
During this time of chip shortage, the world’s dependence on Taiwanese chipmakers has become quite evident. Industrial players around the world are now trying to diversify away from Taiwanese chipmakers through several potential non-Taiwanese sources.
First, in May 2021, the South Korean government announced a plan to invest $ 451 billion by companies to strengthen the competitiveness of the country’s chipmakers, of which $ 151.1 billion came from Samsung, the the world’s second-largest chip maker, and also the largest company in South Korea. Earlier in May 2020, Samsung had already started building a $ 116 billion state-of-the-art chip production line to help it take on TSMC. Its release is expected to go into applications ranging from 5G wireless networks to high-performance computers.
Second, China, the world’s second-largest economy, is determined to increase self-sufficiency in the semiconductor industry amid tensions with the United States. In this plan, Semiconductor Manufacturing International Corporation (SMIC), China’s largest and most important chipmaker, as well as the 5th largest foundry in the world, plays a key role. In March 2021, the SMIC began construction of a new $ 2.35 billion factory in Shenzhen, partly funded by the government. Also in September 2021, the SMIC announced its plan to build a new $ 8.87 billion factory on the outskirts of Shanghai. However, SMIC currently mainly manufactures 28-nanometer chips, an old technology, while TSMC manufactures 5-nanometer semiconductors, the most advanced chips used in smartphones. It is also testing 3-nanometer chips that may be first adopted by Intel and Apple in the near future. Although SMIC may focus on industrial customers who do not need high-end chips, the technological gap between these two companies should not be overlooked if China is to become a leading power in the global semi-trailer industry. -conductors.
Also in March 2021, Intel announced its intention to invest $ 20 billion in chip facilities in the United States and its desire to become a global foundry player.
Another US chipmaker, GlobalFoundries, the world’s fourth largest, is also expanding its production capacity in Southeast Asia with a $ 4 billion investment in its Singapore plant in June 2021. In a recent report from Nikkei Asia , Beh Swan Gin, Chairman of the Singapore Economic Development Board was encouraged by GlobalFoundries’ decision to expand its plant in Singapore with an investment of $ 4 billion and commented that “The semiconductor industry is a A key pillar of Singapore’s manufacturing sector, and GlobalFoundries ‘new fab investment is a testament to Singapore’s attractiveness as a hub for advanced manufacturing and innovation. “Singapore will certainly benefit from GlobalFoundries’ new investment. But compared to the production capacity of its Taiwanese counterparts, the change of supply chain in the chip manufacturing industry may not be as important as GlobalFoundries anticipated.
Despite all the attempts by global industrial players to diversify away from Taiwanese chipmakers, I believe that in the short term, the global semiconductor industry will continue to rely on them.
There are many reasons for this, such as the large capital required to finance a new semiconductor foundry and the extreme complexity of its construction. The technological capability in manufacturing chips, especially the higher end ones, will take years for companies to build up. The semiconductor supply chain is also one of the most complicated of any industry, with more than two thousand stages, requiring the collaboration of dozens of industrial players around the world. Making chips is difficult, diversification amid Covid-19 and the US-China trade war is even more difficult.
According to a 2014 article published in “Technology in Society” by two Taiwanese researchers, the structure of the Taiwanese semiconductor industry is one of the main reasons for its dominance. TSMC was the first to adopt the independent chip foundry model, in which the company focused only on manufacturing chips based on other designs. At the same time, other Taiwanese semiconductor companies have also played highly specialized roles, each focusing on certain specific stages of the chip manufacturing process. According to Adam Smith’s theory of the “division of labor”, in doing so, they built up cutting-edge expertise. Therefore, over the years, Taiwan has built up a very efficient and profitable ecosystem for chip manufacturing which is not easily emulated by others.
In a nutshell, diversifying away from Taiwanese chipmakers is a necessary attempt, but it is not easy and it takes time.
Yan Li is a professor in the Information Systems, Decision Sciences and Statistics (IDS) department of ESSEC Business School Asia Pacific
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