Artificial intelligence, blockchain, and cryptocurrency all offer avenues for growth as global demand eases for mobile devices.
Taiwan’s semiconductor manufacturer are looking for new growth drivers as the global market for mobile devices cools. Emerging technologies like artificial intelligence (AI), blockchain, and virtual currencies appear to be offering abundant opportunities.
“We’re seeing a rapid diversification of applications for semiconductors beyond 3C devices, and artificial intelligence is among the most important,” says Peng Mao-jung, a manager in the Industry, Science and Technology International Strategy Center at the state-backed Industrial Technology Research Institute (ITRI).
Research firm Research and Markets forecasts that the global AI market will reach US$190.6 billion by 2025. At the current stage of AI, which is focused on imaging, Taiwanese manufacturers have “certain advantages” since they have long invested in the development of chips used to capture, encode and decode images, says Jane Yeh, an industry analyst at the semi-governmental Market Intelligence & Consulting Institute (MIC).
“The complexity of AI chips could lead to manufacturing innovation since these chips require larger dimensions and specialized processors,” wrote Paige Tanner, an analyst at research firm Market Realist, in a January report. “That could boost the demand for new equipment across memory makers and foundries.”
Tanner says AI’s ascendancy can be expected to increase demand for CPU processors, memory, graphics processing units, and more. Taiwanese IC makers could benefit considerably, especially Taiwan Semiconductor Manufacturing Co. (TSMC), the world’s preeminent contract chipmaker.
In March, TSMC’s revenue rose 60% from a month earlier to reach a record high of NT$103.7 billion (US$3.55 billion), buoyed by strong demand for AI applications and cryptocurrency graphics processing units (GPUs).
Some analysts say that TSMC may have an edge over global IC giants Samsung and Intel in AI chips. As a pure-play foundry, TSMC can dedicate all its resources to future chip development and customize chips for fabless customers, notes Seeking Alpha, a financial-content service, in a February report.
At the same time, TSMC will never compete with its own fabless customers the way Samsung does, Seeking Alpha says. Both TSMC and Samsung have produced processors for Apple’s iPhone, but Samsung also competes with Apple in the mobile-device segment.
U.S. technology firm Nvidia, a leader in the fledgling AI space, is also a TSMC customer. Nvidia earns more than 20% of its revenue from data-center hardware optimized for artificial intelligence. “Nvidia’s AI business is expected to grow at a high pace,” according to Seeking Alpha. As that business grows, “TSMC’s opportunities for chip production will be there.”
Meanwhile, the Tsai Ing-wen administration is funding a four-year NT$4 billion (US$132 million) initiative called Project Moonshot to help Taiwanese IC makers capitalize on the rise of AI. Announced in August 2017, the program has a broad scope, covering everything from AI processor chips and advanced memory chips to self-driving cars and process technologies for sensors.
Taiwanese IC makers must be prepared “for fresh challenges in 2022 when global high-tech heavyweights are likely to launch commercial production of chips made with the advanced 3-nanometer technology node,” Minister of Science and Technology Chen Liang-gee was quoted as saying on the Ministry of Foreign Affairs’ English website.
Cash from cryptocurrency
Compared to artificial intelligence, virtual currency applications – such as making chips for mining machines, the high-powered computers used to create digital currency – are providing more immediate revenue opportunities for Taiwanese IC makers.
“Crypto and blockchain could be opportunities for Taiwan’s semiconductor industry as long as demand is sufficient and stable,” says Lin Jian-hong, an industry analyst at Taipei-based market-intelligence firm TrendForce. He points out that Taiwanese IC makers are able to produce chips that can meet the high computing performance and low power consumption requirements of mining machines. The entire local supply chain could benefit from virtual-currency mining demand, including IC design houses, foundries, and the packaging and testing segment.
Virtual currencies surged in value last year amid rampant speculation. Bitcoin, the best known cryptocurrency, increased in value from US$900 in early 2017 to nearly $20,000 by mid-December. Since then, it has fallen to under US$7,000. Ethereum, another widely traded digital currency, hit US$300 in mid-August, its lowest point since November 2017.
In the virtual-currency industry, the demand for semiconductors is still closely associated with the often mercurial trading value of common cryptocurrencies in the market, Lin says.
TSMC’s virtual-currency rollercoaster ride is a case in point. In May, Technode reported that virtual-currency business was the foundry’s fastest-growing source of revenue and could account for up to 10% of the company’s revenue by the end of 2018. Technode quoted a TSMC executive as saying that “strong demand from high-performance computing such as cryptocurrency mining” helped first-quarter revenue reach US$8.46 billion.
Yet at a July investor conference, TSMC said third-quarter sales could be adversely impacted by weaker global demand for mining machines, according to a July report by Taiwan’s Central News Agency.
In contrast, Global UniChip, a local maker of application-specific integrated circuits (ASICs) told investors in August that resilient demand for chips used in cryptocurrency mining would drive its expected double-digit growth in the third quarter. Global UniChip expects that digital-currency mining ASICs will contribute 20-23% of its revenue this year, up from 15% in 2017, according to an August report in the English-language Taipei Times.
At this point, “cryptocurrency mining is not yet expected to bring stable growth momentum to the semiconductor industry, considering the uncertainties in trade value,” Lin concludes.