May 2021

Posted by Anton Murray Consulting on . Posted in 2021

Semiconductors make up the brains of many items we use daily. They are especially important in consumer electronics, computing and the auto industry, and Taiwan remains the clear world leader in semiconductor technology and production. The main component of semiconductors, silicon, has faced a recent supply crisis with increased demand for these sorts of products. The immediate need to manufacture Covid-19 vaccines has added further pressure to the supply and price of silicon, with its use in the manufacture of vaccine vials. The pandemic further forced factories to close, resulting in customers delaying their purchases, and this was followed by a miscalculation by many industries, particularly the auto industry, on demand for semiconductors. As an example, Apple accounts for $58 billion a year in semiconductor sales, and was forced to delay the launch of the new iPhone due to the shortage of semiconductors. The semiconductor manufacturing process is also intricate and expensive. Factories take a number of years to build with multi-billion dollar capital costs, as the US is learning as they rapidly seek to build a domestic semiconductor capacity.

Geopolitical tension surrounding Taiwan is creating a global reliance on a unique product in a hotly disputed location in the region. The US has begun the process of becoming less reliant on imported chips from Taiwan, although this will take time and availability of high-quality semiconductors from non-Taiwan sources will be a slow process. Further, demand for semiconductors is rapidly increasing as every country adds more interconnectivity and complexity to the devices that we use and the cars we drive.

Global dependence on Taiwan for the production of semiconductors is an interesting regional geopolitical flashpoint in Asia-Pac that affects financial services and, notably, highlights the importance of Taiwan to both China and the US. As the US and the EU rapidly seek to diversify away from Taiwan semiconductor reliance, there will be heightened interest in this small north-east Asian island who in 2021 are still ‘holding all the chips’.

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