13 Jan 2020
A Bad 2019 Sees Taiwan's Semiconductor Sector Hope for a Better 2020
Even before the final figures are in, it's accepted that 2019 was not a vintage year for Taiwan's semiconductor industry. Now, though, with China-US relations thawing and the roll-out of 5G, some in the sector are daring to be optimistic.
Despite the likelihood that global sales in the sector suffered a year-on-year drop of some 10.5% in 2019, the major players in Taiwan's semiconductor sector seem surprisingly upbeat about the prospects for the year to come. Indeed, Fang Leuh, Chairman of Vanguard International Semiconductor Corp, one of the territory's leading high-tech manufacturers, has gone as far as to say he sees clear signs of a rebound in the market.
Any such development would be a timely one for Taiwan, with the territory just one of the many to be caught in the crossfire of the ongoing trade dispute between two of its key export markets – China and the US. It also suffered as a result of the Trump administration's moratorium on the supply of high-tech components to Huawei, the Shenzhen-headquartered telecoms giant, after security concerns were raised.
Now, though, amid signs that global stock markets have regained something of their faith in high-tech manufacturing, the likelihood that the implementation of the high-speed 5G mobile protocol will trigger new demand and the easing of tension between China and the US, many are seeing reasons for optimism. On top of that, the global economy is tipped to expand by 3.4% over the next 12 months.
All of this is particularly welcome news for Taiwan. The territory has long had a distinct niche within the world's high-tech sector, largely on account of its strategy of developing a comprehensive industry chain, one that offers both upstream chip design and downstream OEM (Original Equipment Manufacturing) and OBM (Original Brand Manufacturing) production. Much of this has been spearheaded by Taiwan Semiconductor Manufacturing Co (TSMC), the Hsinchu Science Park-headquartered business that has established itself as the world's largest independent semiconductor foundry, while also proving itself to be a keen driver of innovation and growth in a number of other semiconductor-related sectors.
The US, Taiwan and South Korea are widely regarded as the three principal players in the global semiconductor sector, with mainland China clearly keen to emerge as a fourth force. According to figures released by Mediatek, Taiwan's leading integrated-circuit (IC) design house, the global semiconductor industry grossed about US$514.8 billion in 2019, with the US accounting for 44.6% of the total, followed by Taiwan with 16.9% (14.9% in 2018) and South Korea with 16.3%.
According to the Industrial Technology Research Institute (ITRI), a state-funded R&D body, Taiwan's semiconductor industry grossed NT$2.65 trillion (about US$86.9 billion) in 2019, a 1% rise on 2018. For 2020, it is predicting that the sector's output value will rise 6.8% to a total of NT$2.8 trillion.
Frequently seen as an important indicator of the health of the semiconductor industry is the level of associated capital investment. Thankfully, with investment in memory chips said to have soared in the second half of 2019 – according to a report released by Semiconductor Equipment and Materials International (SEMI) in mid-December – following something of a downturn in the first six months of the year, semiconductor sales are expected to have totalled US$57.64 billion in global terms for 2019 as a whole.
Looking ahead, SEMI is predicting that global semiconductor equipment sales will increase 5.5% (to US$60.82 billion) in the coming year. It then anticipates this will be sustained throughout 2021 and will see the market valued at US$66.79 billion, a record high. Throughout this period, the Institute expects Taiwan to remain the world's largest market for semiconductor equipment, with the related sales valued at about US$15.43 billion. Mainland China will come in second (US$14.92 billion), followed by South Korea (US$10.34 billion).
In its analysis of the sector, SEMI maintained that demand from TSMC and Intel led to advanced logic chip manufacturing and wafer foundry investment climbing 26% in the second half of 2019, while expenditure on 3D NAND (faster, lower-energy and longer-lasting memory technology) is expected to have soared by more than 70% during the same period. In the case of Dynamic Random-Access Memory (DRAM) products, although investment fell in the first half of 2019, the speed of the decline is now believed to be slowing.
Overall, Taiwan's semiconductor industry consists of four key constituent parts – wafer foundry, IC design, IC assembly / testing, and IDM (Integrated Devices Manufacturing, including memory chips). According to figures from 2018, Taiwan is a world leader in wafer foundry resources and IC assembly / testing, with market shares of 72.2% and 55.9%, respectively. The two key players in these sectors are – again respectively – TSMC and ASE.
In terms of the IC design sector, with a market share of 17.2%, Taiwan is ranked second only to the US in terms of market share, with MediaTek being its lead player in this segment. With regard to IDM, Taiwan ranks only fifth in the world, with its market share of just 1.8% trailing that of South Korea, the US, Japan and Europe. In terms of key players, Nanya is seen as being at the forefront of the sector locally.
When it comes to the provision of foundry services, however, three Taiwanese companies are ranked among the global top 10 – TSMC, United Microelectronics Corp and Vanguard International Semiconductor Corp. For its part, TSMC owes much of its prominence to its hefty investment in R&D and advanced manufacturing processes.
The prime movers in terms of Taiwan's IC design houses are MediaTek, Novatek and RealTek. Of these, the most significant player is MediaTek – the world's fourth-largest such company, with only Qualcomm, Broadcom and Nvidia rating ahead of it.
According to the ITRI, Taiwan's IC design sector grew by 4.6% to NT$671.1 billion (about US$22 billion) in 2019. Looking ahead, further growth is expected to be fuelled by demand for the imminently launching 5G-compliant phones, which are expected to account for a minimum of an additional 250 million units throughout 2020.
Finally, with regard to the assembly and testing sector, the major Taiwanese players here are ASE, Siliconware Precision Industries, Powertech and Chipbond. In this instance, the ITRI estimates that the sector grossed NT$495.6 billion in 2019, representing a slight year-on-year increase of 0.5%. As to the future, the sector is pinning its hopes on heterogeneous integration, a process said to improve efficiency and dependability, while reducing costs and allowing for a high degree of miniaturisation.
Robert Kang, Special Correspondent, Taipei