US Navy ships sail in formation with Japanese, Australian and Canadian ships in the Philippine Sea. Credit: US DoD

The growing tension between China and Taiwan in the last months raises fears of a coming war and possible takeover of Taiwan’s semiconductor’s capacity, which may reshape the Global Semiconductor Industry. With small population of 24 million people, Taiwan is one of the most important hubs of the semiconductor supply chain. According to IC Insights, in 2020 Taiwan held the largest share of IC industry capacity of any country or region in the world.

Led by TSMC, Taiwan by far holds the largest share of leading-edge (small nodes of less than 10nm) IC capacity (63%) of any country in the world. South Korea, represented by Samsung, holds the remaining 37%. Taiwan holds 22% of the world’s 300mm IC capacity, second only to South Korea, which holds a 25% share.  North America possesses only an 11% share of global 300mm IC capacity. ICs are all semiconductor devices, excluding computer processors.

Taiwan is a Global powerhouse of foundry services: About 80% of Taiwan’s total IC capacity is dedicated to foundry production. Taiwan’s pure-play foundries (TSMC, UMC, Powerchip, Vanguard, etc.) are forecast to represent almost 80% of the total worldwide pure-play foundry market in 2021.

37% of Global IC capacity

A special report by IC Insights, suggests that China is determined to take hold of the Taiwanese semiconductors assets. “If combined, the share of IC capacity within the borders of China and Taiwan would represent about 37% of global IC capacity, about 3x the amount of IC capacity located in North America.”

IC Insights analysts believe that the US sanctions, especially with regard to IC technology, caused China to question how it will be able compete in the future IC and electronics industries.  “It is increasingly apparent that China’s answer to that question centers on its reunification with Taiwan. Currently, there is no more important base of IC capacity and production than Taiwan. China has a huge problem with its inability to produce leading-edge IC devices —a problem that it believes can be solved through reunification with Taiwan by whatever means necessary.

Short term Pain, Long term Gain

What will be the price of a possible war? “While the Taiwanese economy would crater if China attempted a military takeover of the island nation, China’s economy would also suffer greatly.  The question is whether China is willing to accept relatively short-term economic pain for the long term benefit of having the largest amount of the world’s leading-edge IC production capacity under its control for many years to come.”

It is important to mention that IC Insights does not bring evidence to support this conclusion. It also does not mention the deterrent effect of the US forces in the Pacific (photo above). Maybe it is more a warning than a prediction. However, it expresses a real concerns that geopolitical tension in the Taiwan Strait may develop, any moment, into a huge disruption of the entire Global semiconductor supply chain.