The strengths of Taiwan's IC design sector include excellent and dedicated STEM talent, a complete semiconductor industry ecosystem from upstream to downstream, and a well-developed downstream ICT (information and communications technology) industry to act as the outlet for ICs.
The strengths of Taiwan's IC design sector
Strength No.1: Taiwan's ICT downstream as the outlet for ICs
Taiwan's IC design and downstream ICT sectors have built a tight partnership, with the former providing the latter with ICs for motherboards, displays, CD drives, and more. Even after downstream industries moved manufacturing to places like China, their main R&D centers remain established in Taiwan. This allows IC designers' products and solutions to work closely with ODM clients from the early stages of system product design.
Even though master chips and specifications for electronic products are mostly dominated by US-based companies, peripheral ICs like microcontrollers provide Taiwanese IC design houses the business opportunity to break into the market.
Strength No.2: A complete semiconductor ecosystem
Taiwan's IC design sector started to flourish during the 1990s, related to the mature operation model of Taiwan's foundry and IC testing and packaging sectors. On top of that, with enhancements in chip manufacturing, testing and packaging technology, and market status, Taiwan's IC design sector has the world's best manufacturing infrastructure to build a competitive advantage for its products.
Strength No.3: A high-quality and dedicated talent pool
The technology industry has been the most important industry for Taiwan since the 1980s, fueling economic growth and allowing top talents to escape poverty and enter the middle class. This has attracted many young students to pick STEM majors as their field of study. The talents demanded by Taiwan's IC design sector are mainly those with a master's degree or Ph.D. in electrical engineering-adjacent majors with courses taken in IC design. The industry has attracted many graduates from schools like National Taiwan University (NTU), National Tsing Hua University (NTHU), and National Yang-Ming Chiao Tung University (NYCU).
Taiwanese engineers have the strong work ethic typical of East Asian cultures. They are well-versed in engineering technology, while also being dedicated to the development of highly competitive technologies and products in Taiwan's semiconductor industry, as has been the case for more than 40 years.
The weaknesses of Taiwan's IC design sector
The shortcomings of Taiwan's IC design sector are the lack of a comprehensive semiconductor strategy, a talent shortage, the lack of specification approval rights and system architecture talents, insufficient R&D capacity and innovation for advanced process products, and limited international planning experience.
Weakness No.1: Lack of a national-level semiconductor strategy
Although the government recognizes the importance of the semiconductor industry and is closely following the industry's planning and development, it still lacks a national-level semiconductor strategy to respond to the new competitive situation driven by the policies of other countries.
How do we effectively respond to the impact of geopolitics and China-US separation? How do we invest sufficient resources to strengthen the industry's weaknesses in the face of China's rise? All of these strategic and macro issues require comprehensive policies to support and advance Taiwan's industrial projects.
Weakness No.2: Domestic STEM talent shortage
According to the Taiwan Semiconductor Industry Association (TSIA), the output value of each sector in Taiwan's semiconductor industry saw more than 10% growth in both 2020 and 2021. Of particular note is the IC design sector, which reported over 40% growth in 2021. Against the backdrop of the industry's rapid expansion, the demand for talent in Taiwan's semiconductor industry is also increasing rapidly.
TSIA's 2022 semiconductor talent survey pointed out that in 2019, Taiwan's semiconductor workforce in each sector saw growth of under 5%. However, fueled by the industry's growth momentum and increased revenue, the annual workforce growth rate for IC manufacturing and IC testing/packaging had already increased to 15% in 2020, with 2021 also higher than 10%. As for IC design, the growth rate in 2020 was still less than 10%, but it quickly rose to 15% in 2021 and recruitment was further expanded in 2022.
Although the demand for IC design talent continues to grow, without an effective supply, it will limit the competitiveness of Taiwan's IC design sector. According to statistics from the Ministry of Education, there were around 92,000 STEM students in Taiwanese colleges and universities in 2021, which accounted for 32.4% of the total student population. Both the number and the ratio are decreasing year after year.
Besides the compounding effect of a low birth rate, Taiwan's education reforms failing to take into account the actual demands of the post-academic job market, and encouraging diverse development in higher education are widely viewed as the main reasons why more and more students are choosing non-STEM majors.
Weakness No.3: Lack of approval rights for main chips and system specs, as well as system architects
Taiwan's ICT industry mainly consists of ODM and EMS, which do not need to define system specifications or architecture system demands. That job is done for them by brand suppliers. Only a few Taiwanese suppliers (e.g. MediaTek) have invested in main chips (e.g. smartphone APs, Chromebook CPUs, smart stereo SoC, and more).
Without main chip R&D and system brands leading the way, there's a lack of system architecture thinking and a say in system specifications. Therefore, Taiwanese IC design houses mostly focus on peripheral IC development to pair with the main chips of US-based suppliers.
Although Taiwanese suppliers have achieved high competitiveness in the peripheral IC supply chain, the added value of these products is relatively limited. This has meant that it is more difficult for Taiwanese IC design houses to master the related technologies, which in turn has restricted their ability to conduct R&D and innovate products.
Weakness No.4: Insufficient R&D capacity for advanced process products
Taiwan has the world's most advanced semiconductor manufacturing technology. In recent years, Chinese IC design houses have been actively utilizing Taiwan's advanced foundry process to develop high-end chips for AI and GPU, which resulted in them becoming the focal point of US export restrictions.
In contrast, the product and technology R&D invested in by Taiwan's industry-academia-research institutions are mostly still for the more mature 28/22nm processes. They lack experience in advanced process designs and delivery. Only a few IC design houses such as MediaTek use advanced process technology to develop products. This doesn't benefit talent cultivation and product competitiveness.
Weakness No.5: Limited experience in international planning and management
The key to the high competitiveness of US-based companies is the fact that they establish many overseas R&D sites to recruit local talent to expand their R&D energy. In 2021, within the top five IC design houses in the US (Qualcomm, Broadcom, Nvidia, AMD, and Marvell), overseas employees account for up to 50-70% of all employees. IDMs like TI and ADI also have overseas employee ratios of 60-70%.
These long-established chip companies have long had plans to go international. They were able to utilize overseas talent to expand their business scale and cultivate outstanding competitiveness. In addition, they also have a lot of experience collaborating with and managing overseas talent due to their employees' different cultures and languages.
Even though Taiwanese IC design houses don't lack overseas experience, most of it is in China. Only a few suppliers have set up R&D centers in places like India, Israel, the US, and Northern Europe. With limited international planning experience, it is difficult to recruit overseas talent. On top of that, the relative lack of cross-cultural management ability makes it more difficult to retain foreign talent. For example, Indian talents are often less preferred due to the perceived challenges of managing them.
The lack of international experience also makes most Taiwanese companies unable to take advantage of collaboration opportunities with international academic and research institutions, thus making it more difficult for them to plan for more forward-looking IC product technology development.
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.