IC Design White Paper (1): Navigating policy options for strengthening Taiwan's IC design industry

Staff reporter, Taipei, Tsung Lung Shyu, DIGITIMES Asia 0

The estimated revenue of Taiwan's IC design industry in 2022 totalled at a commanding US$40 billion. The sector has proven itself to be eminently high-yielding with an enviable average profit margin of 20%. Whereas the Taiwanese semiconductor industry avails itself of a 320,000 strong workforce (taking into account it's concomitant aggregate added values), it contributes up to 12% of the island's entire Gross Domestic Product (GDP). The IC design sector alone is responsible for 29% of the industry's returns and 2.4% of the country's GDP, achieved solely by an unpresuming 52,000 workforce.

The crux of IC design success lies in its specialist labour, who apart from being devoted to Research and Development (R&D), are able to constantly create highly competitive products for the market. Their triumphs would in turn induce an upsurge of corporate profits, which then would lead to a positive cycle of industrial growth and higher remunerative packages for the most gifted talents.

IC design R&D expenditures are notoriously expensive. They rank as the most expensive segment of the entire Information and Communication Technology (ICT) and semiconductor upstream/downstream supply chain in Taiwan. As of now, Taiwan's share of global IC design R&D expenditures takes up 28%, second only to that of the United States.

Notwithstanding Taiwan's renowned manufacturing prowess, its high-tech industry is still dominated by hardware production. Taiwan's IC design, however, is the only non-manufacturing section of the economy able to rise to prominence by virtue of their products and services' esteemed quality and value.

Given the particularities of the IC design industry, which is connected with a series of upstream/downstream sectors including the wafer foundry, packaging and testing, and other multi-faceted ICT businesses, the positive spillover-effects for the national economy proceeding therefrom cannot be overlooked. It can be therefore surmised that the IC design industry's developmental vitality is directly liable for the overall competitivity of Taiwan's ICT and high-tech economies.

Given the strategic importance of the IC design industry, many global actors, such as the US, European Union (EU), People's Republic of China (PRC), Japan and South Korea, have all, with the utmost urgency sought to put into effect policies that would both satisfy their national and supply chain security concerns. Of particular relevance is the US introduction of the CHIPS and Science Act, with a budgetary endowment reaching US$52.7 billion, in which US$39.0 billion is apportioned for production subsidies, and US$13.7 billion for research and talent development objectives.

Similarly, despite PRC's ambitious efforts of not having yet attained its committed chips self-sufficiency rate of 70%, as enshrined under the Made in China 2025 strategic plan, their fund raising programmes aimed at assisting frail sectors of the semiconductor economy, coupled with the creation of favourable policy conditions by central and local governments and their numerical dominance over that Taiwan's high-tech companies, has proven to be a formidable force to be reckoned with in the world economy at large.

In addition to the munificent support packages delivered by states (e.g. fiscal arrangements, subsidies and tax incentives) to build up their domestic semiconductor sector, the advent of the Sino-US trade rivalry, Covid-19 pandemic, system integrators' self-designed chips trend and the rapid rise of PRC, all add up to complexify the challenges posed for participants in the semiconductor business.

On top of the aforementioned, following export and technology transfer control measures announced by the US Department of Commerce on October 2022, many Chinese manufacturers may soon be diverting their attention to the world's mid-to low-tier IC market and mature process technology - posing a threat to Taiwanese IC design enterprises that have been active in the segment, especially when it comes to multiple consumer electronics ICs based on mature nodes. Given that the production output of Taiwan's IC design sector is envisaged to be surpassed by those of PRC by 2026, a constant levelling-up of the Taiwanese IC design industry is absolutely imperative.

On a side note, despite the IC design sector being the costliest in terms of R&D expenditure, this does not necessarily imply that the innovative edge of products developed are definitely of top-notch quality.

Many successful IC design enterprises place tremendous focus in delivering mature products, such as those coming from the US and China. On the other hand, the delivery of similar IC design products from Taiwanese enterprises are comparably scarce. Furthermore, a diminishing talent pool also poses serious menace to the Taiwanese IC design sector. It is expected that by 2030, the required workforce devoted to IC design will need to be augmented by an additional 34,000, in midst of, to make matters worse, the aging population crisis of our time. With the increase of unfair competitive practices stemming from both China and the US, it is expected that the domestic talent shortage situation improves, in conjunction with the active recruitment of foreign talents.

Taiwan lacks state-level strategic policies to support the industry's growth. Despite the fact that there are an array of projects, fiscal or incentive packages, or industrial innovation regulations or national security laws reinforcements in place, their end-effect falls short on being too generic. Hence, critical strategies must be taken to build up our domestic IC Design industry's competitiveness.

The white paper thus presents the following guidelines from a strategic, human resource and managerial standpoint:

1. Planning and implementation of state-level semiconductor strategy

2. Active budgetary enhancement to instigate execution of strategy

3. Continual nurturing and attracting of IC design talents both local and abroad as per the existing human resources policy framework

4. Re-examination of incentive programmes for foreign enterprises in setting up R&D centres locally so as to attract potential talents for Taiwan's IC design industry

5. Bolstering of IC design technologies and strategic policy arrangements in concert with prevailing developmental trends of the semiconductor industry.

6. Support for IC design providers in integrating their business globally.

Editor's note: At the Taiwan IC Design Industrial Policy White Paper Presentation scheduled on March 28, Taiwan Semiconductor Industry Association (TSIA) will release its IC Design White Paper to guide Taiwan's semiconductor policy. As a co-organizer, DIGITIMES will publish a series of articles to summarize the document. The white paper will be available for download after the event.