I call the first island chain in East Asia the "Asian Edge," which carries a double reference: cutting-edge technologies in an IT context, and the peripheral in geopolitics. In the ICT market, the US is the first superpower, while China, which has been catching up fast, comes in second. Following the two dominating forces, Japan, South Korea and Taiwan that feature cutting-edge technologies form the third camp of superpowers lurking on the geopolitical edge of the top-two superpowers.
Apple's application processors (APs) are completely outsourced to Taiwan Semiconductor Manufacturing Company (TSMC), while its demand for memory and OLED is met by Samsung Electronics. Apart from the iPhone vendor, most of the other US-based top-notch ICT firms including Intel, Microsoft, Qualcomm, Nvidia, AMD, Synopsys, Texas Instruments (TI) and Xilinx heavily depend on Asia's supply chain.
The operation of the ICT industry, which used to simply follow traditional business practices, has changed in response to the rising of China. The trade war waged by US president Donald Trump may even become the beginning of a revolution for Asia's ICT industry and permanently change the global supply/demand relationships.
For the key trends of the global ICT industry in the next 10 years, we should not just monitor the tech giants in the US and China, such as Apple, Amazon, Microsoft, Google, Alibaba and Tencent. The roles of Taiwan, Japan and South Korea in semiconductor and 5G applications will also be important. Because of the enormous investment amounts and the intricate links between existing and emerging technologies, I believe hardware technologies that have been written off for so long may stage a comeback.
Taiwan is situated at the very front of the first island chain. It is a major player in the worldwide ICT supply chain, but is also the weakest link from a geopolitical perspective. The rise of China has sent Taiwan makers relying more on production in China, boosting their competitiveness on the one hand and yet putting Taiwan's ICT industry in an awkward position on the other.
If China were to take over Taiwan politically, not only would it give the superpower direct access to the Pacific Ocean, it would also be able to leverage Taiwan's ICT prowess and resources, fixing the chink of its armor – namely the semiconductor sector – turning the country into a true manufacturing power worldwide.
Taiwan's over 100 semiconductor firms together contributed US$92 billion in production value in 2018, while South Korea's semiconductor industry generates a value of around US$100 billion a year. Currently, Taiwan's and South Korea's semiconductor industries run a coopetition relationship. They form the very first obstacle that China needs to remove in order to develop its own semiconductor industry.
(Note: This is part of a series of articles by Digitimes president Colley Hwang on the latest developments of the IT industry in the wake of the US-China trade war.)