Navigating uncharted waters of the 'Silicon Era of Discovery'

Colley Hwang; Judy Lin, DIGITIMES Asia 0

Credit: AFP

In 1492, Queen Isabella of Spain drove out the Moors and supported Christopher Columbus in discovering the New World, evoking a pivotal moment in the Age of Discovery.

Taking a longer perspective of the semiconductor history, which began in the early 1970s, it has gone through a half-century of business opportunities in the form of mainframes, personal computers, and smartphones. It is now just entering a new era of the Internet of Everything (IoT) and seamless connectivity.

We are seeing massive amounts of connected data, requiring chips with fast computing capability and memory with huge storage capacity. What has been described as the "10X era" is just beginning.

Growing at exponential speed

Netflix took 41 months to get its first 1 million users, Facebook took 10 months, but ChatGPT took just 5 days. We're looking at a business opportunity growing exponentially, and the age of the "winners take all" seems to be upon us.

But apart from the big winners like Amazon, Apple, Nvidia, Microsoft, and Google, Taiwan has become the most reliable partner to successful companies that win with software prowess, thanks to its indispensable "hard work."

The Internet business can be a quick fix, but building a production system requires a large labor force and upstream hard work in chips, design, and system integration. Taiwan is in its prime, and there is no substitute for it. This is the gift and destiny that the world has bestowed upon Taiwan.

Matrix Thinking: more "cooperation" than "competition"

Amid all these positive developments, there have been many subtle changes. In the past, IC design companies and component manufacturers made products, gave them to component distributors, and sold them to Electronic Manufacturing Service (EMS) providers such as Hon Hai (Foxconn), Pegatron, Wistron, Quanta, and Inventec, which received large OEM orders from PC and cell phone brands. This is a linear supply chain.

However, AUO, which produces panels, started to develop digital signage. Is the relationship between AUO and Qisda, spin-offs from the Acer Group and founded by K.Y. Lee, becoming a competition or a partnership? Qisda is organizing a holding group in a "big fleet" mode to take a diversified approach to growth and is also more proactively laying out new business opportunities such as smart cabins for automobiles.

Taiwan's six largest EMS providers have maintained gross profit margins at 6~8% over the years. When gross profit is thin, they can not afford mistakes. However, TSMC's gross margins of more than 50%, Delta's 30%, and Advantech's 40% show various choices, which is an irreplaceable competitive advantage for Taiwan's electronics industry, which started earlier than other emerging countries.

The industry structure is changing rapidly, and no one can afford to "wait and see" the changes. In the process of change, an open strategy is the direction. When facing the world, Taiwan's economic scale, mass production system, capital advantage, and management experience make Taiwan a "harmless partner."

Taiwan businesses making good use of Taiwan's local advantages will still be able to make a difference in the short term. When our concept of mass-production manufacturing evolved from the earliest "OEM" to "supply chain" and now to "value chain," Taiwan won from the start and took its position at the commanding heights.

Colley Hwang, president of DIGITIMES Asia, is a tech industry analyst with more than three decades of experience under his belt. He has written several books about the trends and developments of the tech industry, including Asian Edge: On the Frontline of the ICT World published in 2019, and Disconnected ICT Supply Chain: New Power Plays Unfolding published in 2020.