Insights from SEMI Taiwan’s Terry Tsao

When Terry Tsao heard President Tsai Ing-wen mention semiconductors as one of the six core strategic sectors the Taiwan government would focus on over the next four years during her inaugural address this May, he says he almost cried with happiness. The chief marketing officer and president of the Taiwan office of SEMI, a global industry association representing the semiconductor sector, had been advocating just such a development for the past four years.

“Semiconductors are the core driver of all the technologies Taiwan’s government wants to push forward under 5+2,” says Tsao, referring to the 2016 initiative to develop Taiwan’s smart machinery, IoT, green energy, biotech, defense, and circular economy capabilities. “Semiconductors are embedded in all of these areas and the key to future innovation growth,” he says.

That semiconductors are so vital to technological innovation has become even more apparent during the current global public health crisis. As a safety measure, a growing number of commercial operations have chosen to institute work-from-home policies in the wake of the COVID-19 pandemic. And millions of schoolchildren around the world have had to attend class virtually through video-conferencing and other technologies.

Given the huge shift in lifestyles and workstyles, the demand for electronic devices and large-scale data centers has increased drastically. And while many industries are facing very stormy weather in 2020, the semiconductor ecosystem is thriving. Taiwan Semiconductor Manufacturing Co. (TSMC), Taiwan’s largest chip maker, recorded an 81% increase in net profits for the second quarter this year.

Many companies in the tech supply chain feared a shortage at the beginning of the pandemic and panic-bought backup supply, Tsao says. Huawei and other Chinese companies, foreseeing U.S. pressure on TSMC to stop selling them chips, also bought up a substantial amount in preparation.

Much of the initial worry was probably unfounded, however. Chip production was never really disrupted, thanks to Industry 4.0 developments. Most of Taiwan’s fabs are fully automated, whether at home or in other locations like China. Even in places where human labor is needed, many functions can be performed remotely.

Tsao also emphasizes that the relative success now being enjoyed by Taiwan’s semiconductor companies would not have been possible without the government’s excellent early response to the COVID-19 pandemic, which kept disruption to business operations across industries to a minimum.

“We really haven’t seen any impact to our daily lives or business activity,” he says. “In fact, some of my friends who work for international companies told us that their HQ are very pleased about the uninterrupted performance of Taiwan’s fabs or manufacturing, considering that many other locations have likely had to implement controls or stop production.”

At the same time, there is no guarantee that the current positive conditions will continue indefinitely. COVID-19 aside, semiconductors’ importance to the world economy means the business will sometimes be affected by geopolitical pressures. The U.S.-China trade dispute has starkly exposed this reality, and has exacerbated the problem of trade barriers – something that SEMI and the industry have long been vocal in opposition to.

“If you think about the supply chain for a company like Apple, their IC design is probably done by a company in China or Taiwan,” Tsao notes. “Then they outsource chip manufacturing to a foundry in South Korea, Taiwan, or China” where the equipment being used was made in the U.S., Europe, or Japan. The supply chain is incredibly globalized.

Tsao argues that punitive trade barriers erode trust, causing countries to eventually build up their own isolated ecosystems with less efficient production. A less globalized system weakens the industry as a whole. “So really, if you want to use trade as a cudgel to punish countries, you often just end up harming yourself,” he says.

On the other hand, the existence of a strong industry like Taiwan’s semiconductors can be leveraged to help advance the country’s position on the international stage. The industry’s reputation for quality and technological prowess strengthens Taiwan’s value proposition and may draw interest from countries looking to do more business with reliable democratic partners.

That is why Tsao expresses enthusiasm over TSMC’s plans to build a US$12 billion chip fab in Arizona. Taiwan and the U.S., he says, play complementary roles in terms of semiconductor production. U.S. companies constitute the largest market share of fabless IC design sales and they rely on Taiwan-made semiconductors for their business.

The TSMC fab in the U.S. will attract the company’s Taiwan suppliers to invest there as well, creating a supply-chain cluster around the facility. The presence of the fab and its satellite operations will lead to tighter cooperation with TSMC’s American customers and strategic partners.   

Beyond the direct economic benefits of building the fab in the U.S., the project could play a role in attracting much needed engineering talent from the States. Young Taiwanese talent could also be sent there for training and broader cultural and linguistic exposure. The upfront costs of land, construction, and electricity to power the fab may be huge, but the long-term payoff could be much bigger.

Looking to the future, Tsao says that the government’s new initiatives are encouraging, but it can still do more to ensure that the island’s semiconductor ecosystem remains robust and globally competitive. He urges the formation of a Cabinet-level national council for semiconductors, composed of industry leaders and government officials.

“In Taiwan, this industry is so strategic,” he says. “We should therefore encourage communication between government and industry on overall, big strategy.” Based on those conversations, the government will be better able to make decisions on long-term strategic resource allocation to align with industry needs.

Tsao also advocates the establishment of an official office for implementing national semiconductor-related strategic initiatives, similar to the Smart Machinery Promotion Office in Taichung.

“These initiatives the government is launching are cross-ministerial, which takes a lot of coordination,” he notes. “An official office would be beneficial in that respect. And if the government feels overburdened, we can take a public-private-partnership approach, with industry taking the lead with the government’s support.”

In addition, Tsao encourages both government and industry to treat the issue of talent shortages as an urgent priority. “Even though many young Taiwanese are choosing to obtain degrees in STEM fields, it’s still not enough,” he says.

More non-STEM talent is needed as well, since the industry also needs talented sales, marketing, and HR professionals. “We want the semiconductor industry to continue to be a top career option for the younger generation,” he says.