The golden age of IC design in Taiwan

Taiwan’s semiconductor industry cluster plays a leading role globally.  It is ranked No. 1 in the world by market share in both the foundry industry and the packaging and testing industry, while the Integrated Circuit (IC) design industry takes the No. 2 worldwide position, after the US. 2022 will be a turning point for the Taiwan semiconductor industry since it is  when the mass production of next-generation Edge AI products based on 3nm technology starts. Taiwanese authorities have already prioritised “IC design and pioneering semiconductor technologies” in their technology policy. 

Current Status of IC Design in Taiwan

Taiwan IC design revenue reached NT$852.9 billion in 2020, up 23.1 % from the previous year, due to work and schooling from home because of the COVID-19 pandemic and the order transitions due to the US-China trade war. Taiwan’s IC design industry follows the US as No. 2 globally, accounting for 20.1 % of the world’s IC design revenue in 2020, according to the Taiwan Semiconductor Industry Association. The percentage reached 20.8 % in 2021, benefiting from the price increases for IC design products. 

By the end of 2020, the Taiwan semiconductor industry consisted of 238 IC fabless design houses, 13 fabrication companies, and 37 packaging and testing houses. It also included six substrate suppliers, 11 wafer suppliers, three mask makers and four lead frame companies. 

Taiwan’s IC design companies invest significantly in Research & Development (R&D) to stay ahead of competitors. In 2020, the local IC design industry invested NT$157.8 billion, which represented 18.5 % of its revenues in R&D. In comparison, the global semiconductor industry’s R&D expenses as a percentage of worldwide industry sales were was 14.2 % in the same year. Meanwhile, Taiwan’s IC design industry’s value add has increased from 25.1 % to 31.2 % in 2020.

Within Taiwan’s domestic semiconductor industry, IC design employed more than 41,000 employees as of the end of 2020. Many of Taiwan’s IC design houses are top ranked in multiple IC design sub-sectors including 5G, power management, server baseboard management controller, audio, radio frequency, high speed interfaces and display drivers. This means that Taiwan’s IC sector offers its partners diversified exposure to the exciting growth that is taking place across artificial intelligence (AI), cloud computing, 5G network infrastructure, data centers, storage devices, self-driving cars, personal computers and Internet of Things (IoT). 

Being part of Taiwan’s unique semiconductor eco-system is the key to local IC design success. As the world leading foundry businesses are all in Taiwan, being in the same geographical location as one’s key customers and suppliers makes supply chain management more efficient. The comprehensive semiconductor industrial cluster increases the ease of working with customers and bringing their ideas to fruition. As companies move away from discrete chips and towards integrated chip design, where components are etched directly into layers of silicon instead of being mounted independently, closer collaboration between IC design companies, manufacturers and packaging companies becomes even more important.

Alliance to Strengthen Competitiveness – AI on Chip Taiwan Alliance (AITA)

The pandemic, structural changes, and geopolitical competition have all led to persistent wafer foundry capacity and chip supply chain crisis around the world. They are reshaping Taiwan’s IC design sector. Those with individual designers can no longer succeed on a single-chip platform. Instead, building partnerships with peers and partners in other semiconductor segments may be the best way to counter changing industry and market conditions. 

The establishment of the AI on Chip Taiwan Alliance (AITA) in 2019 under the guidance of the Ministry of Economic Affairs (MOEA) and Executive Yuan’s Office of Science and Technology (OST) is a prime example of government-industry-academia collaboration to power the global AI revolution. According to the MOEA, the development of AI is expected to support and stimulate the growth of the semiconductor industry by helping it expand into agriculture, healthcare, and manufacturing industries. The value for the AI chips market is estimated to reach NT$500 billion in three years. But, there are some challenges to overcome.

The first is the language. Google and Microsoft, for example, use their own programming language on their AI cloud servers. Taiwan’s chips would be restricted to only one type of application if they were designed for one company. Application scenarios are also crucial to AI applications. In the IC design industry, especially in AI field, the design of the products can be contingent upon the requirements.

The last is brain drain due to the fact that many AI professionals in Taiwan have left for other countries such as China, for instance, often being headhunted. 

Therefore, AITA aims to set up an AI design and verification platform so that its members can develop different products on a large scale and, eventually, expand their overseas market. AITA’s goal is also to help semiconductor companies shorten the R&D time required for AI chips by at least six months and to substantially reduce costs. The alliance provides an interdisciplinary platform for researchers, practitioners and educators to discuss recent trends as well as explore cooperation. Different forms of government assistance under the “Taiwan AI Action Plan” and “5+2 Industrial Innovation Policy” can lower investment risks for enterprises, thereby bolstering the local industry’s international competitiveness. AITA’s efforts have brought to production AI chips for use in many applications including early warning, fingerprint identification, telematics and smart lighting and temperature control systems. Currently, the alliance consists of more than 110 integrated circuit design, manufacturing and packaging houses, software companies, system integrators, research institutes and universities pledging to build an AI innovation ecosystem. 

IC Design Platform for Startups

The Industrial Development Bureau (IDB) under the MOEA supports the Industrial Technology Research Institute (ITRI) and ARM Ltd., a world leader in semiconductor IP design, in providing critical resources to make innovative IC design accessible to startups in the region through an initiative called the IC Design Platform for Startups. The platform brings together ARM’s silicon IPs and ITRI’s technology portfolios and other resources, designed to help local IC design startups speed up time-to-market for their products and increase competitiveness. Meanwhile, the platform also assists international IC design startups in investing in Taiwan, which will in turn further accelerate the evolution of the industry ecosystem. The ecosystem involves over 1,000 partners of ARM, and Taiwan’s IC and hardware OEM/ODM industry supply chains.

Most IC design startups often suffer from insufficient capital or resources, hampering their ability to access critical IP and preventing innovative designs from progressing to the commercialisation stage, due to challenges around things such as technology, patents, legal issues and capital. The initiative enables local and international startups with less than US$ 5 million in capital to join this program and to better navigate these challenges by providing a platform through which they can access chip design support from ITRI, alongside no-cost access to more than 80 ARM products via ARM Flexible Access for Startups. 

The collaboration between ITRI and ARM is expected to achieve three objectives. First, it invites global IC design innovators to Taiwan. ARM’s global network and resources could assist foreign startups anchoring in Taiwan to speed up chip development. Second, ITRI will contribute extensive industrial resources and experience to engage in IP conversion through its IC Design Incubation Center. In conjunction with ARM’s diverse IP portfolio, this joint effort will provide startups with inclusive chip design and wafer roll-off services, quickly deploying niche chips to fulfill market demand. Third, by connecting ARM’s global ecosystem of more than 1,000 technology partners with Taiwan’s unique semiconductor cluster, in addition to electronic OEM/ODM, software developers and the end application ecosystem, this initiative is critical to further positioning Taiwan at the center of the Asia-Pacific semiconductor eco-system.

Challenges & Opportunities

The data-driven era has brought new design challenges. ICs may need to process large volumes of data and re-use the data while maintaining power efficiency. Designs are becoming more complex, and design engineers often need to consider trade-offs between components to manage the volume and speed of data flowing through the circuits, as well as the need to integrate greater security into the designs.

As higher end applications demand more complex designs, a number of companies are moving away from in-house IC design. Yet, at the same time, the desire for higher performing chips has led other companies such as Apple and Amazon to design their own chips which are used in the iPhone, Mac computers and Amazon’s data centers. These crosscurrents create both opportunities and challenges for Taiwan’s leading IC design companies.

US-China geopolitical tensions have also strengthened the resolve of Chinese companies to reduce their technological reliance on the US. As Beijing seeks to identify and replace risky parts and suppliers, some of Taiwan’s IC design companies have benefitted from China’s move away from US suppliers, while others who count Huawei amongst their key clients have suffered in the face of US sanctions on the company.

Meanwhile, the emergence of RISC-V (Reduced Instruction Set Computing-Five), a new open source approach to designing chips, could lead to more innovation, opportunities as well as challenges. Some of Taiwan’s IC design companies have joined the RISC-V Taiwan Alliance and are positioned for the potential opportunities that could come from the RISC-V open architecture.

Looking ahead, some industrial insiders have indicated that the demand will likely undergo a slowdown in 2022 and lead to decreased orders for certain components. However, given that foundries’ newly installed wafer capacities have yet to start mass production, the ongoing chip shortage is expected to continue, for now. In addition, as some orders from end-devices clients still remain unfulfilled, IC design companies’ revenues will likely experience further growth in 2022 despite a relatively limited extent.