Taiwan as a Data Hub

Propelled by soaring demand for AI technologies and geopolitical shifts, Taiwan is emerging as a crucial hub for server production and data transfer.

In December last year, digital infrastructure management company Vantage Data Centers announced plans to enter the Taiwan market. Through this move, the American multinational will be joining data center giants like Amazon Web Services (AWS), Microsoft Azure, and Google Cloud, all of which already have an established presence in Taiwan.  

Vantage’s first Taiwan investment is substantial – the company plans to set up a 20,000-square-meter data center campus in Taipei by mid-2024. According to a company news release, Vantage selected Taipei due to its vital role in supporting digital transformation, as well as its rich connectivity ecosystem and submarine cable access.   

“Taipei is a prime location to serve customers across Asia as demand across the region continues to skyrocket, especially given the use of modern technologies such as AI,” said Raymond Tong, president of Vantage Data Centers in APAC, in the release.  

Vantage’s entry into Taiwan comes amid a boom in the island’s data center market. Companies are building up their Taiwan presence as demand for cloud services and AI surges. Google and Microsoft have invested heavily in the Taiwan market in recent years, driven by increased demand for hosted data centers operated by Taiwanese telecom operators.  

Microsoft set up an AI research and development center on the island in 2018. Last year, the company also achieved an ambitious goal of training 200,000 digital experts in Taiwan – ahead of its 2024 target. Meanwhile, Google invested US$850 million in a hyperscale facility in Tainan in 2019 and opened a new engineering hub in New Taipei City in 2021.  

For its part, AWS is considering increasing its investments in Taiwan. Robert Wang, managing director of AWS in Hong Kong and Taiwan, told media in February last year that the company has yet to decide whether it will set up a data center on the island. Unlike Taiwanese telecom providers, AWS clients don’t have local data storage stipulations, Wang noted.  

Google is giving the stage to Taiwan, aiming to help it become Asia’s Silicon Valley.

Still, Taiwan is becoming increasingly attractive for data storage and has made significant strides in digital competitiveness. In 2023, the country ranked ninth out of 64 major economies worldwide and led in five key indicators in the IMD World Digital Competitiveness Ranking.  

Taiwanese data server equipment manufacturers are also realizing the attractiveness of setting up shop here. In the past few years, many companies with offshore production in China have been bringing business back home as the Chinese economy falters and Beijing’s ties with the West sour.  

“In the past couple years, we saw many Taiwan electronics ODMs (original design manufacturers) redeploy their server production lines from mainland China back to Taiwan,” says Jeff Lin, general director of the Industry, Science and Technology International Strategy Center at the semi-governmental Industrial Technology Research Institute (ITRI). “This is because their U.S. and European customers didn’t want to buy servers manufactured in mainland China, no matter whether it was due to security or government bidding restrictions,” Lin notes. 

This development has brought an added advantage to reshoring Taiwanese ODMs. “When they redeployed those server production lines, they also upgraded them with cutting-edge technologies such as automatic optical inspection or robotic assembly capability,” Lin notes. 

At the same time, chipmaking giants like AMD, Intel, and Nvidia have increasingly been working with Taiwanese server ODMs in high-performance computing. “This created a solid basis for Taiwan server ODMs to dominate AI server manufacturing too,” says Lin.  

The growth of AI-powered solutions is expected to ensure a strong demand for servers and computing power. Global private AI investment reached US$91.9 billion in 2022, according to Stanford University’s Artificial Intelligence Index. Online data-gathering platform Statista projects Taiwan’s AI market size to grow by 16% this year, resulting in a market volume of US$5.7 billion by 2030. 

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“When AI becomes a common application for servers, more and more servers will be built for AI model training and inferencing purposes,” says ITRI’s Lin. He notes that the price of an AI server is on average six to seven times more expensive than that of traditional servers. This cost increase is why the overall server market is growing despite a slight dip in total server shipments in 2023.  

As part of a larger AI push, the National Science and Technology Council opened the Taiwan AI Center of Excellence in June 2023. The center is responsible for developing the island’s AI capability but will also have a broader impact, according to research firm Arizton Advisory & Intelligence. 

“The increased usage of artificial intelligence will significantly grow data traffic and demand for data centers with the installation of efficient infrastructure in the market,” Arizton said in a press release. 

Research and Markets, a large vendor of market research reports, said it expects the overall size of Taiwan’s data center market to quickly expand from US$1.42 billion in 2022 to US$3.21 billion by 2028 at a compound annual growth rate of 14.57%. 

The sector “is poised for remarkable growth,” the research firm says, adding that the government’s emphasis on adopting sustainable energy sources to combat emissions and meet rising power demand will “further propel the industry forward.”  

Data transfer hub  

In addition to boosting its server manufacturing, Taiwan has an opportunity to become a regional data transfer hub. Its strategic geographic location makes it a focal point for East Asia data transit, connecting Japan and Korea to the north and Southeast Asia to the south. This places the island as a potential digital convergence and cloud business application center, says Chen Yi-ling, an industry analyst at the semi-governmental Market Intelligence & Consulting Institute (MIC). 

At one time, Taiwan might have been passed over in favor of Hong Kong, which also has a favorable geographic position. But the Chinese Communist Party’s sudden imposition of a draconian National Security Law in June 2020 marked a turning point for how multinational companies viewed the former British colony. What had once been considered a low-risk destination with a solid rule of law was henceforth seen as holding higher risk, given the potential for arbitrary enforcement of local laws.  

“Taiwan, due to geopolitics, is gradually replacing Hong Kong and is becoming an Asia-Pacific hub on a steady basis,” says Mark Liu, an analyst at Taipei-based market intelligence firm TrendForce. The island further benefits from being relatively mature in infrastructure and having “comparatively affordable green electricity and stable power provision,” he adds.  

Analyst Mark Liu says Taiwan is replacing Hong Kong as an Asia-Pacific hub.

Geopolitical factors have also influenced underseas cable routing decisions, notes Chen. One example is the Pacific Light Cable Network (PLCN), a submarine cable system initially designed to connect Hong Kong, Taiwan, the Philippines, and the United States. 

“In 2020, the PLCN cable planned to pass through Hong Kong, but due to geopolitical shifts related to Hong Kong’s National Security Law and the U.S. ‘Clean Network’ initiative, the route was adjusted to directly connect Taiwan and the Philippines,” she says. Recent Google investments in cables also use Taiwan as an East Asia hub, bypassing Hong Kong, she notes.  

In a September 2023 news release, Google announced that it is adopting advanced multi-core technology for a planned new undersea cable. Work on the system is set to begin in March this year, and the cable is expected to be ready for service in 2025. 

For this project, Google is collaborating with Japanese electronics corporation NEC, Taiwan’s Chunghwa Telecom, American telecommunications company AT&T, and a subsidiary of the Philippines’ Globe Group. The cable will connect Taiwan, the Philippines, Guam, and California – a first for submarine cable networks.  

Chunghwa Telecom has been strengthening its links with neighboring countries and telecom markets in the region by participating in several international undersea cable projects as part of an effort to improve Taiwan’s global internet security. For Google’s undersea cable, Chung-hwa will serve as the landing party and cable landing station owner at a new facility in Taitung’s Dawu Township. 

In a September statement, Google said its undersea cable efforts to connect Taiwan with the world had created more than 64,000 jobs and generated around US$26 billion in gross domestic product as of 2021. Google said it would continue to invest more in cloud infrastructure in the country, aiming to help Taiwan become Asia’s Silicon Valley.