Taiwan's chips are under attack from the mainland, success or failure depends on this year's transformation

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Faced with the challenges of international chip giants continuously integrating software, firmware, and even platforms to gain a strong foothold, as well as mainland IC design companies catching up quickly, the me too product strategy adopted by Taiwan's IC design industry in the past has become less effective. Coupled with the emergence of a new wave of emerging business opportunities such as automotive electronics, artificial intelligence (AI), 5G communication technology, automation and robotics, and augmented/virtual reality (AR/VR) devices around the world, Taiwan's IC design companies have gradually stepped onto a new stage. Companies including Crystal Electronics, FocalTech, Elan Electronics, Symphony, Parade, Macroblock, Richchip, and Macronix have all been striving for transformation in 2017, which will play an important role in the mid- and long-term development of Taiwan's IC design industry.

The global semiconductor industry ecosystem is increasingly dominated by downstream brand customers, including product performance and related application strategies. Not only has the chip design department lineup of brand manufacturers such as Apple and Samsung Electronics continued to expand, but even Amazon and Google have begun to intend to design their own chips. This has begun to have a certain degree of impact on Taiwan's IC design industry, which is still stuck in the hardware mindset.

Taiwanese chip manufacturers admit that in the past, chip performance dominated everything, but now software applications, operating systems, and ecosystems can effectively differentiate terminal products and even create greater value. The role of chip solutions has changed, and Taiwanese IC design companies must actively transform, including Jinghong focusing on electronic tag chip solutions, Duntech betting on the prospects of TDDI chips, Elan Electronics focusing on fingerprint financial cards, Xinhua and Parade focusing on server-related chip opportunities, Macronix rushing into the LED car light market, and LiJia and Macronix focusing on RF technology.

Taiwanese chipmakers said that MediaTek decided to strive for transformation as early as mid-2016. Chairman Tsai Ming-kai even announced that it would increase investment in new technology fields such as the Internet of Things (IoT), artificial intelligence, software and network services, Internet of Vehicles, Industry 4.0 and 5G, and planned to spend another NT$200 billion in the next five years to expand its layout.

Especially in artificial intelligence applications, the past 4 to 5 years have seen significant breakthroughs in related technological development. AlphaGo's victory over the world's Go masters further highlights the emergence of artificial intelligence technology. Chip computing will play a key role. This is not only MediaTek's subsequent focus, but other Taiwanese IC design companies have also followed suit in the face of MediaTek's full transformation and value-added innovation.

Compared with the past me too product strategy, as long as international customers sell well, Taiwanese IC design companies will rush to catch up, take advantage of the cost-effectiveness of chips, seize market share, and make the company's performance grow steadily. However, with the accelerated replacement of old and new terminal products, the hot selling period of products has been shortened from the original 2~3 years to less than 1 year. The shortcut strategy of Taiwanese manufacturers has begun to hit a wall. In addition, mainland IC design companies are more cost competitive, which reduces the survival space of Taiwanese IC design companies.

Taiwanese chip manufacturers pointed out that Apple's iPhone's complete architecture ecosystem, Google's launch of its own Android operating system, and Samsung's success story show that the success or failure of terminal products is no longer determined solely by chip performance. Global chip suppliers are beginning to play a supporting role, especially as terminal brand manufacturers are entering the field of chip design to effectively grasp the key to product differentiation and cooperate with the new generation of artificial intelligence, Internet of Things, virtual/augmented reality (VR/AR), robotics, and automation market opportunities. The dominance is not in the chips at all, and the transformation of global IC design companies is imperative.

The me-too product strategy of Taiwan's IC design companies in the past is no longer applicable, because international chip manufacturers can completely exclude Taiwan's IC design companies through platform, software and firmware support solutions and the power of the ecosystem. In addition, after the semiconductor industry has shifted from a dominant role to a subordinate role in the entire terminal product ecosystem, Taiwan's IC design companies are facing tremendous pressure.

It is worth noting that although the rapid rise of mainland China's IC design industry has caused pressure on Taiwan's IC design industry, including a decline in chip prices and gross profit margins, the rise of a new generation of terminal products and application markets may almost completely wipe out the innovative energy and added value based on hardware thinking, bringing disaster to Taiwan's IC design industry, which may be greater than the rise of mainland China's IC design industry.

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