While the world has become increasingly familiar with Taiwanese semiconductor giants like TSMC and UMC, these companies rely on the support of a tightly knit, specialized local supply chain.
Located in Taiwan’s silicon stronghold of Hsinchu County is a world-class leader in the island’s robust semiconductor supply chain. The company in question is not the well-known Taiwan Semiconductor Manufacturing Co. (TSMC), nor is it the United Microelectronics Corp. (UMC), Taiwan’s second-largest chipmaker. Yet WinWay Technology Co. counts both TSMC and UMC among its customers, along with Advanced Micro Devices (AMD), NVIDIA, MediaTek, Realtek, Google, Tesla, and too many others to count.
“When we do our job right,” says Jason Chen, WinWay’s vice president of global sales, “it’s almost as if our product never existed.”
WinWay is a maker of semiconductor Automatic Test Equipment (ATE) – specifically, custom semiconductor testing interfaces. Their products are needed to ensure that every chip going into a piece of high-end electronics will work before it is soldered into the product.
Despite the fact that WinWay employs fewer than 1,000 personnel and only began being traded on the Taipei Exchange’s Emerging Stock Board last year, it holds the number-three spot in the world’s logic IC-testing market and is the only Taiwanese company in the top 10. More than 90% of its production capacity is in Taiwan.
Liu Chi-chuan, deputy director of Kaohsiung’s Nanzi Technology Industrial Park (formerly known as the Nanzih Export Processing Zone), says that while TSMC, Hon Hai Precision Industry Co., and other tech titans get all the glory, “hidden champions” like WinWay are just as important for the global competitiveness of Taiwan’s tech sector.
“Maybe they’re not a big brand like Apple,” says Liu. “But they are world-beaters in their own right.”
Many Taiwanese companies are leading the way in different sectors of the semiconductor industry, which is almost unimaginably complex, says Marco Mezger, a memory, storage, and security expert based in Taipei.
“The government made a good decision back in the 1970s to support the semiconductor industry,” says Mezger, who heads the management consulting firm APIS4 Management. “The foundry model was invented here, and a huge number of small and medium-sized enterprises sprang up to support it.
“Think about how long it would take you to get from Texas to Arizona,” he says. “In Taiwan it takes just two-and-a-half hours to get from one end of the country to the other.”
The sheer concentration of suppliers means offline exchanges and visits between companies can be fast and convenient. “It’s the only place like it on the planet,” says Metzger.
South Korea’s Samsung is TSMC’s closest competitor in the foundry business, but the South Korean semiconductor chain relies more on the chaebol structure of large conglomerates with centralized control. On the other hand, the approximately 700 companies that make up the TSMC supply chain operate independently, though they must work closely with other companies within the “ecosystem” to ensure that the supply chain is relentlessly optimized.
A helpful analogy might be to think of a wafer that emerges from TSMC’s foundries as a very expensive, very delicate cake. It is then “baked” in Dutch company ASML’s EUV lithography machines – the “oven.” Before that cake can be sold, however, it needs to be cut into little squares and packaged. Only then can it be used in anything from a mobile phone to an electric car or any other smart device.
The process, which has already advanced in commercial terms to the 5-nanometer level, can go wrong for any number of reasons. The slightest fluctuation in electricity, for instance, could cause the wafers to become unusable.
At home, how would you test whether a cake has been cooked properly? One way would be to stick a knife or skewer into it. This is essentially what WinWay specializes in, although at an incredibly minute scale. The “skewers” are called “pogo pins” in the industry jargon, and to test a complicated chip, some test interfaces contain as many as 20,000 of them.
WinWay focuses its operations on the high-end chip market. “It really doesn’t matter much if a chip in a cheap product fails,” says Chen. “A cheap toy is treated as disposable.” However, if a Wi-Fi chip in a US$500 high-end phone fails, the chipmaker is not just responsible for the cost of the one-dollar chip, but for the whole defective phone.
In the testing process, multiple chips are mounted onto the test interface, which is then connected to a testing platform provided by an automatic test equipment manufacturer such as U.S. company Teradyne. Testing is performed at every step, from the silicon wafers to the packaged chips, ready to mount. But the sooner a defective chip is caught, the less extra cost it incurs down the road.
As disastrous as it would be to let a bad chip through, it’s equally important not to throw out any good chips. “It’s all about the yield,” says Chen, taking a pause before spelling the word out for emphasis: “Y-I-E-L-D.”
The ideal test interface should simulate the way the chip would perform if actually soldered into the final device. It should not introduce any extra variance in performance. If the test socket is not made to be extremely precise, perfectly good chips could be mistakenly found to be defective, reducing that all-important yield.
When WinWay was founded in 2001, TSMC was making 0.13-micron chips. By 2004, the chips had shrunk to 90 nanometers, then 10 nanometers in 2016, and finally to 5 nanometers in 2019. The next “die shrink” – down to 3 nanometers – is on track to begin in the latter half of 2022, while research and development has already begun on the 2-nanometer process.
Every decrease in the size of the chips is a new challenge for WinWay to improve the precision of their testing interface. “We have no choice but to follow TSMC every step of the way,” says Chen. “We have to go smaller, go faster, go more precise.”
The strength of a company like WinWay is its ability to work very closely with customers, since the cycle time for these chips is exceedingly short. Physical and electrical specifications change in the span of mere months. To survive and thrive, WinWay and other hidden champions in Taiwan’s semiconductor supply chain will have to stay incredibly agile.
“We work with our clients, such as IC design houses, from the beginning of the process,” says Chen. “The design has to begin with the testing in mind.”
Some of the companies that TSMC now relies on to turn out its most complex chips have surprisingly humble roots. Kinik, a manufacturer based in the Yingge District of New Taipei City, originally got its start as a maker of tableware.
“Kinik has transformed itself every 20 years,” CEO Frank Hsieh told Taiwan Panorama magazine for a March 2021 report.
In order to differentiate itself from other tableware manufacturers, Kinik, then known as the Jin Ming Kiln Factory, rebranded as China Grinding Wheel in 1953 and started producing the abrasive wheels needed to support Taiwan’s first industrial growth spurt. However, profits eventually began to stagnate. The company got in touch with the Industrial Technology Research Institute (ITRI), the same semi-governmental incubator that birthed TSMC, and asked for help with its next transformation. ITRI then developed a method to “refurbish” reclaimed wafers with high-precision diamond wheels. With a NT$100 million investment, China Grinding Wheel spun off into Kinik Precision Grinding.
“I’ll always remember that in March of 2000 we got our first order for reclaimed wafers from TSMC,” Hsieh noted in the Panorama report.
Small can be beautiful. Kinik has under 2,000 employees. United Integrated Services (UISCO), an engineering and construction firm that provides cleanroom systems, only has 700 employees. Yet UISCO was recognized by TSMC as “an outstanding supplier” at the 20th annual TSMC Supply Chain Management Forum in December last year.
“With the support of our suppliers, TSMC was able to lead the industry in volume production of 5-nanometer technology in 2020 and quickly improve yields despite the challenges of the global pandemic,” J. K. Lin, TSMC’s Senior Vice President of Information Technology and Materials Management & Risk Management, said at the forum. “Looking ahead, TSMC will continue building a responsible supply chain and strengthen collaboration with supplier partners to improve our competitiveness and move towards the next generation’s 3-nanometer technology.”
The U.S., China, and to some extent the EU are trying to replicate Taiwan’s success in the semiconductor industry. The global shortage of chips touched off by the COVID-19 pandemic of 2020 led President Joe Biden to remind U.S. companies in April that “America shouldn’t wait” when it comes to investing in chipmaking. Bolstering America’s semiconductor industry is in fact a large part of the Biden administration’s US$2.3 trillion infrastructure plan. The world can also expect China to continue honing its chipmaking capabilities, as it has been increasingly cut off from the supply of high-end semiconductors, thanks in part to U.S. sanctions.
“There’s no holding back for China,” says APIS4’s Mezger. “Expect them to accelerate the development of their indigenous supply chain.”
Yet Taiwan’s small size and robust and dense network of suppliers remains unique. “The ecosystem’s not something that can be replicated overnight,” says Mezger, indicating that any economy hoping to match Taiwan’s prowess will have quite a bit of catching up to do.