TAIPEI, Feb. 19, 2024 /PRNewswire/ — Geopolitical pressures and changes in industrial structure are driving strategic collaborations among semiconductor companies, with various countries or regions incentivized for partnerships, particularly Taiwan and Japan. However, support from Taiwan, Japan, and South Korea is essential to establish ICT supply chains in emerging countries such as South Asia and Southeast Asia.
In an interview, DIGITIMES President Colley Hwang, a seasoned expert and consultant in the semiconductor industry, stated that the semiconductor industry is undergoing structural changes.
Observing that Taiwan’s two major semiconductor pure-play foundry giants are both seeking alliances with foreign IDM (integrated device manufacturer) firms, Hwang expects cooperation between Taiwan and Japan to generate the greatest synergies.
TSMC (Taiwan Semiconductor Manufacturing Company) recently announced its investment plan for the Kumamoto Fab 2 plant, collaborating with local companies like Sony, Denso, and Toyota. In addition, UMC (United Microelectronics Corporation) is jointly developing a 12-nanometer process with Intel. Hwang emphasized the compatibility between Taiwan and Japan and highlighted Japan’s dominance in semiconductor materials and equipment, accounting for 52% and 36% of the global market share, respectively.
Furthermore, Hwang pointed out Japan’s forward-looking application research, which Taiwan lacks. He cited the example of Taiwan’s proficiency in manufacturing components but lacking understanding of the gaming console usage scenario, while Japan’s Nintendo excels in this area and is capable of defining applications.
Japan also needs Taiwan. Currently, Taiwan’s best talents are still in the manufacturing industry, lacking strong application definition abilities, while Japan, besides strong application development capabilities, excels in basic scientific research. Hwang noted a significant structural change as Japan’s per capita income has almost reached parity with Taiwan’s, making Taiwan’s collaboration with Japan less challenging due to reduced cost disparities.
Challenges in supply chain transfer
The industry is undergoing a structural change evident in three major trends: software and hardware integration, diversified production, and regionalized production, affecting companies’ transformation and semiconductor industry chain migration.
Hwang pointed out that in 1999, automobiles produced by five European countries accounted for 27% of global production, which was reduced to 12% by 2022. Similarly, Japan’s share decreased from 17% to 9.5%. Automobiles are crucial to these countries, which is why Europe and Japan are undergoing paradigm shifts as internet companies are beginning to penetrate the smart cockpit market. In the future, automobiles will be a manufacturing plus service industry.
Hwang emphasized providing more opportunities to emerging countries such as India, Vietnam, Malaysia, and Thailand. Constructing local production ecosystems in Southeast Asia and South Asia now presents greater opportunities than before, but support from Japan, South Korea, and Taiwan is essential due to the increased difficulty in establishing production systems. With large-scale operations, complete component matching is required, highlighting the importance of ecosystems.
Communication end products and electrified automobiles are key semiconductor demand sources. Taiwan has six major electronic manufacturing service providers (Foxconn, Pegatron, Compal, Inventec, Quanta, and Wistron) and Delta Electronics, manufacturing for major brands like Apple, Dell, and HP in Southeast Asia and South Asia. Japan has Nintendo, Sony, Toyota, and Nissan, while South Korea has Samsung, LG, and Hyundai, which have been cultivating the Southeast Asian and South Asian markets for many years.
According to a September 2023 research report by Gartner, 48% of surveyed companies plan to establish or expand manufacturing capacity in Southeast Asia in the next three years, while 36% plan to expand in South Asia.
Hwang believes that rebuilding a low-margin and large-scale production system is challenging due to high entry barriers. Therefore, the best approach is a highly integrated collaboration between Southeast Asian/South Asian countries and East Asian traditional production systems. This strategy is most beneficial and carries the lowest risk for them. In addition, Taiwan, Japan, and South Korea also need more social resources, suggesting a potential borderless new generation in the future.
Since many semiconductor fabs in East Asia have already depreciated their equipment, why not sell the old equipment and plants to emerging countries and provide consulting services on technology and operational experience for a licensing fee? Hwang said that increases revenue for East Asian companies to invest in more advanced technologies and equipment but will also help emerging market countries to lower the threshold and accelerate the development of their semiconductor industry.
Geopolitics still at play
Echoing 19th-century British economist David Ricardo’s emphasis on the specialty division of labor in international trade, Hwang stressed that each country must optimize its strengths and advantages to seamlessly integrate and assist emerging countries in establishing local ICT production systems. For instance, Taiwan has advantages in capital costs, talent quality, and industrial experience that need to be fully developed.
However, South Korea may face challenges as industries are too concentrated in a few conglomerates, and companies such as LG and Samsung may find their brand value diminishing. Consumer electronics products contribute 50-66% of revenue but likely less than 15-20% of profits. Samsung’s smartphone sales decreased from 260 million units in 2022 to 220 million units a year later, indicating changes in brand value and necessitating significant changes in technology, products, and business structure after 2023.
"When these emerging countries transition to software, low-orbit satellites, and healthcare, they may challenge the core interests of advanced Western countries, particularly in strategic defense and national security areas. Information security will also challenge Western countries’ tolerance," Hwang sharply stated, "Ultimately, they will realize that brand is not the key; geopolitical influences are still at play. This is not a good thing as it will inevitably impact economic prosperity."
Source : Colley Hwang: Taiwan-Japan best match in semiconductor synergy
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