The semiconductor industry, including Integrated Circuit (IC) manufacturing, design, and packaging, forms a major part of Taiwan's IT industry. Due to its strong capabilities in OEM wafer manufacturing and a complete industry supply chain, Taiwan has been able to distinguish itself as a leading microchip manufacturer and dominate the global marketplace. Taiwan's semiconductor sector accounted for US$115 billion, around 20 percent of the global semiconductor industry. In sectors such as foundry operations, Taiwanese companies account for 50 percent of the world market, with Taiwan Semiconductor Manufacturing Company (TSMC) the biggest player in the foundry market.
Overview
In the 1970s, policy decisions by technocrats like Li Kwoh-ting helped Taiwan pivot from low-tech manufacturing to high-tech industries. The 1976 RCA Project, one of the first significant policy shifts, facilitated critical technology transfer from the U.S., which led to Taiwan's first IC plant and laid the groundwork for technological self-reliance. Further early developments included the founding of the Industrial Technology Research Institute (1973), United Microelectronics Corporation (1980), and the Hsinchu Science Park (1980). Morris Chang's founding of Taiwan Semiconductor Manufacturing Company (TSMC) in 1987 was a foundational moment for Taiwan's semiconductor industry. Close ties with Silicon Valley and the return of engineers trained in the U.S. fostered a startup ecosystem distinct from the conglomerate-driven models of Japan and South Korea. TSMC now produces over half the world's advanced chips, supplying firms like Apple Inc. and Nvidia. However, its strategic value has made Taiwan a key geopolitical flashpoint, especially amid U.S.-China tensions. The semiconductor industry is one facet of a wider geopolitical contention regarding Taiwan's independence from China. Taiwan has responded to the crisis by growing closer to the United States, via investments in U.S.-based fabs, including a $65 billion project in Arizona, supported in part by the CHIPS and Science Act. China's industrial espionage campaigns have targeted Taiwan's semiconductor sector. In response, Taiwan has strengthened cybersecurity, enacted stricter investment laws, and bolstered domestic talent retention.
History
The Taiwanese semiconductor industry got its start in 1974. In 1976 the government convinced RCA to transfer semiconductor technology to Taiwan. Under the direction of Chiang Ching-Kuo the government appointed the Industrial Technology Research Institute (ITRI) to lead the development of the industry with an emphasis on developing commercial products rather than pure scientific advances. ITRI sent four teams of engineers to train at RCA before building a demonstration factory in Taiwan. The demonstration factory was able to achieve higher yields than RCA's fabs in the US. The demonstration factory was spun off by ITRI in 1980 as United Microelectronics Corporation (UMC). UMC received initial investment from both private and public sources. In 1987, TSMC pioneered the fabless foundry model, reshaping the global semiconductor industry. From ITRI's first 3-inch wafer fabrication plant built in 1977 and the founding of UMC in 1980 the industry expanded rapidly. MediaTek was originally a unit of UMC, tasked with designing chipsets for home entertainment products. On May 28, 1997, the unit was spun off and incorporated. MediaTek Inc. was listed on the Taiwan Stock Exchange (TSEC) under the "2454" code on July 23, 2001. The industry had developed into a world leader with 40 fabs in operation by 2002. In 2007, the semiconductor industry overtook that of the United States, second only to Japan. The sector output reached US$39 billion in 2009, ranking first in global market share in IC manufacturing, packaging, and testing, and second in IC design. Although the 2008 financial crisis affected sales and exports, the industry has rebounded with companies posting record profits for 2010. In 2010 Taiwan had the largest share of 300 nm, 90 nm, and 60 nm manufacturing capacities worldwide, and was expected to pass Japan in total IC fab capacity by mid-2011. By 2020, Taiwan was the unmatched leader of the global semiconductor industry with Taiwan Semiconductor Manufacturing Company (TSMC) alone accounting for more than 50% of the global market. In the 2020s artificial intelligence processing emerged as a significant demand driver for the Taiwanese semiconductor industry. While Taiwan continues to dominate global semiconductor manufacturing, its critical role in global supply chains has placed it at the center of geopolitical tensions, especially between the United States and China. In response to growing concerns about supply chain resilience, and the Trump Administration's contentions that Taiwan had taken away the chip business from the United States, TSMC pledged to invest $100 billion in three new fabrication plants and two packaging facilities in Arizona. Taiwan remains a global leader in semiconductor manufacturing, with TSMC at the forefront. TSMC produces over 50% of the world's advanced semiconductors, supplying critical components to tech giants like Apple, Nvidia, and AMD. In 2025 the Merck Group opened a major semiconductor components and supplies production facility in Kaohsiung.
Challenges facing industry development
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