No, this column is not about the chips you eat, I’m talking about the chips we in the electronics industry know and love best – those of the semiconductor variety.
In light of China’s escalating aggression toward Taiwan, some have posited the notion that what China is really after is Taiwan’s semiconductor manufacturing industry. This is not some oddball conspiracy theory either, as red flags have been raised by everyone from political leaders, researchers and journalists to those on the frontlines of the local electronics manufacturing industry – for example, Dirk Venter, senior technical sales manager at the Centurion-based EMS (electronics manufacturing services) provider Jemstech, expresses his concern in this article
The highly regarded semiconductor market research company, IC Insights, makes a compelling case for this scenario, given that healthy future global economic growth is increasingly dependent upon the continued introduction of advanced electronic systems. The critical components within these systems are integrated circuits (ICs), without which advanced electronic systems cannot be produced.
IC Insights’ analysis points to the ongoing trade conflict between the US and China and how it may have caused China to question how it will be able to compete in the future IC and electronics industries. The conclusion drawn is that it is increasingly apparent that China’s answer to that question centres on its ‘reunification’ with Taiwan.
Here are some headline figures to back up IC Insights’ case: As of December 2020, Taiwan held the largest share of IC industry capacity of any country or region in the world. Taiwan holds by far the largest share (63%) of leading-edge IC capacity of any country in the world. About 80% of Taiwan’s total IC capacity is dedicated to foundry production. Moreover, its pure-play foundries are forecast to represent almost 80% of the total worldwide pure-play foundry market in 2021.
Although China has a long memory and has never wavered from its claim on Taiwan as a Chinese province, a full-blown war between the Asian nations is unlikely simply because both have too much to lose. First of all, Taiwan is no pushover despite its relatively small population (23,5 million versus China’s 1,4 billion) as it has been shoring up its military defences against China for decades and it can count on a few Western allies to come to its aid. Furthermore, let us not forget that China has a power crisis (of the electrical kind) to contend with on its own soil and just requisitioning Taiwan’s IC fabrication plants would not be enough to create its own industry overnight. ICs are not made from thin air after all, they require raw materials and highly specialised expertise to be produced effectively. China would effectively need to take over a large chunk of the global supply chain to achieve that goal and the rest of the world is unlikely to play along.
My opinion, for what it’s worth, is that China is simply shaking the tree to see what falls out – at least for now. If it were to besiege Taiwan it might be able to elicit concessions from Taiwan itself and/or one of its allies, most notably the USA.
However things play out at the state level, the last thing the electronics supply chain needs is another crisis on top of what it’s already dealing with. In the big scheme of things, geographic diversification is the name of the game as the industry looks to spread its risk in case of just such political disruptions, or natural disasters.
This means we can expect to see semiconductor plants popping up or expanding in other parts of the world over the next few years. It costs upwards of $1 billion to build a new one (although you’ll probably find one going cheaper on eBay) so I was thinking, if all the readers of Dataweek would pitch in a few bob… well, you don’t have to look far to find my contact details.
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