Chips and factories: the heart of tech beats in Taiwan

From each edition of CES in Las Vegas, the biggest technology show in the world, we often only remember TVs of improbable dimensions, automobile concepts that will never see the light of day and star products that end up in tech limbo. — this year it was the very useless Rabbit R1. Aside from the large historical companies (Sony, Samsung, Intel and others), the bulk of the projects presented at CES are carried out by companies which have talents and ideas, but without an industrial backbone. Understand without factories, neither for the assembly nor for the production of components.

In contrast, Computex Taipei is an extremely down-to-earth show. Here, we are not announcing a connected rabbit or a headband that generates alpha waves to help you think and sleep. The ads are PCs, memory sticks, super processors, computing racks, storage technologies, network equipment. Devices that appear less fun, but which over the years have become the technical backbone of our digital lives.

In Taiwan, all the bosses are there

Another marker of the importance that Computex has in relation to CES is the number of CEOs who travel to speak at the plenary conferences. In addition to the bosses of local IT groups, such as Asus, Acer or SuperMicro, the show is where all the heads of semiconductor companies come in the flesh.

Such as Pat Gelsinger from Intel, the duo of enemy cousins ​​that are Jensen Huang from Nvidia and Lisa Su from AMD who play almost at home since they were born on the island, or even Cristiano Amon from Qualcomm. From the boss of ARM René Haas to the boss of MediaTek (who really plays at home), all the chip giants are today represented by their bosses, which was not the case ago even before the pandemic.

And that’s without even talking about behind the scenes, where we know that bigwigs from Google, Meta and others come to do their shopping to fill their data centers with chips to train their AI and fill their racks with petabytes of hard drives to store Russian cat and disinformation videos. If the chefs are (almost) all there, it is because the visibility, but also commercial, challenges are colossal. We measure it with the market capitalization of Nvidia, of course, of which it should be remembered that all of its chip production is entrusted to TSMC.

A player produces all of its cutting-edge chips in this small island of just over 20 million inhabitants, which holds in its hand all the technological champions of the Top 50 American stock market listings. In addition to Nvidia, we must also add Apple, AMD and Qualcomm to the ranks of visible semiconductor clients. There is also Broadcom, but also Microsoft, Alphabet, Meta, Amazon and Tesla who all trust TSMC (and Taiwan) to produce their chips.

A small island, a unique ecosystem

The star of Taiwan is undoubtedly Jensen Huang, who enjoys the status of a living god there. The founder and boss of Nvidia is not only a local man, who makes jokes in Taiwanese during his conferences and wanders the night markets in search of good skewers, but he also brings with him an entire ecosystem.

If TSMC is obviously the local champion since it holds in its hand – or rather in its factories – the destiny of half of the American economy, we must not forget the major players such as MediaTek (mobile chips) or Supermicro ( servers). Key Taiwanese companies in their sector who all invited Mr. Huang to their keynote. A way of showing that the island’s stakeholders together form a powerfully intricate ecosystem.

And this is the reality: the chips of Nvidia, founded by a Taiwanese native, are produced by the Taiwanese TSMC and assembled on motherboards by the Taiwanese Supermicro. The local ecosystem of the small island offers a concentration of IT talent (design and production of chips, system design) unique in the world. The founder of TSMC, Morris Chang even stated that it is this concentration and this proximity of subcontractors which is the secret of TSMC’s success. Its partial relocation would be “impossible”.

And all this is without even mentioning the shadowy actors, whether it is Hon Hai Precision Industry, better known under the name of Foxconn and which produces the majority of Apple products (but in its factories Chinese companies), or lesser known ones like Compal Electronics, Quanta Computer, Wistron or Inventec. These ODMs (Original design manufacturers) partly design and produce most of the PCs from well-known brands.

Economic decoupling almost impossible

In recent years, Apple has slowly reduced its dependence on Chinese factories. In the context of the giant’s single production, partial decoupling could still take a decade. But for other companies, leaving China is now possible with alternatives like Vietnam or Malaysia. This industrial decoupling, possible in terms of product assembly, seems almost impossible in terms of Taiwan chips.

For this European industrialist (who prefers to remain anonymous) who was exhibiting at the INNOVEX pavilion at Computex, a section dedicated to startups, “if we were to be able to do without Chinese factories with the development of India, Vietnam and other Asian countries (from the South-East, editor’s note), I don’t see how we could do without Taiwan for chip production. Their technical advance, but also their production capacity, is unmatched in the world.”.

Far from being an accident of history, this state of affairs comes from a political will. Beyond economic and technological success, Taiwanese IT and semiconductor players in the small country are part of a… protection strategy.

From Silicon Shield to Silicon Bunker?

Theorized by journalist Craig Addison in 2001 in the book of the same name, the Silicon Shield strategy stated that by making itself indispensable for the production of chips, Taiwan benefits from protection from the USA. The latter was the leader in processors until the 1990s, before the switch to fabless business models (without factories) which shifted the industrial part to subcontractors. A model that showed its limits during the pandemic and that the foundry projects of Intel (IFS 2.0) and the American government (CHIP Act) are trying to reverse.

But aside from the fact that the sums ($52 billion) spent by the US government seem like a drop in the ocean compared to the cost of modern fabs (up to $30 billion for a state-of-the-art gigafab), the reality is that even if Intel is bringing all its factory projects to fruition, current demand is already exploding existing production capacities. Remove Taiwan from the equation following, for example, a foreign attack, and all the stock markets on the planet collapse in a few hours. Because Taiwan is not only a production of cutting-edge products, it is also and above all a production in enormous volumes.

China threatens, but…

Described as the most dangerous place in the world by the (yet serious) British business magazine The Economist In 2021, the Republic of China (ROC, Republic of China, the official name of Taiwan) remains for the time being a haven of peace. A fragile peace: more than any other Chinese leader in the past, President Xi Jinping is hardening his discourse against Taiwan month by month. Mainland China has claimed sovereignty over an island since the 1940s, which has never been administered by the Middle Kingdom. And it continues to violate the island’s airspace, isolate it politically and flex its muscles in international institutions to ostracize Taiwanese citizens from nations.

We could give in to geopolitical, strategic and military analysts on the different scenarios for conquest of the island that China is putting in place. One could admit that China could – or could not – achieve its goals militarily. But without making a prediction, even in the light of a potential re-election of the very unstable conservative Republican Donald Trump to the presidency of the United States next November, most of these conflicting scenarios must nevertheless be subject to reality. Which is that the dependence of the American titans on the Taiwanese production apparatus is (almost) total. An American laissez-faire scenario therefore seems totally improbable.

Because if the brains of tech and AI boil in Silicon Valley, the silicon heart of the machines of our digital world is forged in Taiwan. Unique forges. And closely monitored…