Summary: Two of Taiwan’s tech giants, TSMC and Hon Hai (aka Foxconn) are making moves that could change the planet–and make world economies, production and militaries even more dependant on Taiwan. This has huge national security implications for Taiwan, and makes Taiwan’s continued independence crucial for the national security of the free world.
TSMC gambles big on making the world depend on Taiwan
Taiwan Semiconductor Manufacturing Co. (TSMC) is targeting capital spending of US$25 to US$28 billion in 2021.
According to Bloomberg that is double what analysts were expecting.
That is almost double the US$14.5 billion that US chip giant Intel is planning to spend.
About 80% of the outlay will be devoted to advanced processor technologies, which is clearly intended to further entrench TSMC dominance in the chipmaking market.
Note that is just capital outlays to grow the company, and the company’s research lead, for the future–not gross revenue.
To put that in perspective, their 2021 spending on investment alone would make it the 100th largest country in the world, right between the entire economies of Latvia and Estonia.
It’s also double Taiwan’s entire regular military budget for 2021 of nearly US$14 billion, and still dwarfs total defence spending including special budgets at nearly US$16 billion.
Over roughly the last year or so, the world’s most important economies have woken up to the fact that their products, their entire economies and their militaries are dependant on Taiwan’s chipmakers, especially TSMC.
There is currently an international chip shortage, especially in the automobile industry, that was caused in large part by those companies cutting their orders during the pandemic and being caught flat-footed when demand rebounded.
Car factories are being shuttered around the world as a result.
The governments of Japan, Germany and the US have directly appealed for help.
The US also successfully pressured TSMC to build a chip fab in Arizona, and Japan and the EU are also trying to follow suit over concerns about local supplies of this critical product.
TSMC, however, is keeping its most advanced tech in Taiwan.
This has led, in part, to the realization that if China were indeed to invade Taiwan and gain control of this industry, it would have huge strategic implications.
In one fell swoop, it could vault China to the top of the heap, making the world have to choose between using inferior chips from friendly nations like South Korea and the US or allowing China to gain dominance.
This would allow Chinese products to leap ahead of the US, Japan and the EU–with huge impact on companies like Apple, HP, Nintendo and Microsoft.
For example, it could mean that companies like Huawei could be guaranteed the most advanced phones in the world.
And the People’s Liberation Army would have access to better chips than the US military and NATO.
One clever writer in a tech magazine compared Taiwan’s chipmaking industry to melange, the fictional “spice” in the science fiction book Dune, a commodity only available on one world that all worlds were entirely dependent on for space travel to be possible.
Before, the main practical and self-interested reasons for countries like the US and Japan for keeping Taiwan out of China’s hands is its position in the “first island chain” that includes Japan and the Philippines.
This chain, and especially Taiwan, flank crucial international trade routes.
Taiwan is in an especially crucial position, if it fell it would threaten trade routes to Japan and South Korea.
It would also give China access to deep water access on Taiwan’s east coast that would allow China’s submarines to head out to sea undetected–effectively allowing them to act with impunity.
That all remains true, but the growing importance of Taiwan to the world’s supply chains–and not just chips–adds a new dimension.
The world is increasingly dependent on Taiwan.
It’s in this context that the staggeringly huge US$28 billion investment is so important.
They’ve pulled ahead of rivals Intel and Samsung, and Intel is outsourcing some chip production to TSMC.
There has even been talk of Samsung doing the same.
If TSMC’s money is spent well, it could come to increase it’s dominance.
And that would make Taiwan’s continued independence crucial to the free world.
Hon Hai’s bid to dominate the auto industry
Another Taiwanese tech giant, Hon Hai (aka Foxconn), is also crucial to international supply chains.
Because their factories are scattered around the world, with many in China, they don’t help Taiwan much on the national security front like TSMC does, but they are important nonetheless.
Hon Hai has become one of the largest employers in the world by manufacturing other company’s products, for example Apple’s iPhones, Microsoft’s Xbox and Sony’s Playstations.
Now they are making a big move into the electric vehicle business.
This makes sense, unlike internal combustion vehicles, electric vehicles are much more like iPhones–they’re essentially large electronic devices loaded with software, but on wheels.
They’ve established four joint ventures with automakers so far, plus invested in battery manufacturers and other key component industries.
The first was with Fiat-Chrysler in January of last year to manufacture electric cars in China within two years.
This January, they signed a strategic cooperation framework agreement with China’s Byton and the Nanjing Development Zone to jointly accelerate production of Byton’s first model, the M-Byte, by the first quarter of 2022.
They are assigning 100 engineers to the project, which will no doubt give them valuable experience.
Just days after announcing that deal, Hon Hai and Chinese carmaker Geely announced a joint venture aimed at selling manufacturing and services to the global auto industry.
The model here is reportedly more along Hon Hai’s standard business–they would manufacture cars and products for other companies, who would put their brand name on them.
Their first tie-up, however, was inked last year in February with a subsidiary of Taiwan’s Yulon Motor Company to form Foxtron Vehicle Technologies Co.
This deal appears to have two prongs.
On the one hand, they aim to roll out their first electric vehicle (EV) bus this October.
It’s the second prong that is most interesting, and potentially transformative.
Foxtron is focusing on automobile design and the MIH Open Platform, which provides hardware and software to other automakers for electric car development.
Hon Hai said it plans to build the platform into the “Android of the electric car industry.”
Their EV developer tool, called “EVkit,” has been made public online.
Over 600 companies have joined in on this open platform so far.
Here is the description of the MIH Open Platform from Foxconn’s website:
There are three major challenges facing the traditional automotive industry: high development costs, long lead times and insufficient resources.
In response to these challenges, we built an open Electric Vehicle (EV) platform, called MIH which is available to all partners and third-party developers to utilize as they develop functional attributes and systems that will support the growth of the whole EV market.
It provides developers with the essential hardware and software components to build upon, in the formation of a complete EV industry ecosystem.
The MIH platform has four key characteristics:
- Its architecture is fully modularized, scalable, and easily customizable
- The chassis is made with the latest lightweight material, with a unibody design that would optimize the EV’s performance
- It provides a powerful electrical architecture for all levels of applications
- This platform will allow for the development of autonomous driving technologies
If successful, this project could accomplish three things for Hon Hai.
First, by being open-source, this allows for the involvement of engineers, coders and scientists from around the world at no extra cost to Hon Hai.
Second, it could dramatically lower the barriers to entry in the auto industry.
In other words, anyone with enough money could come to Hon Hai and say “make me a car with these specifications and slap my brand on it.”
Why would they go with Hon Hai?
Because by being at the centre of this initiative, and with their well-known manufacturing process and cost efficiency, why wouldn’t they?
Apple is already known to be developing a car that they plan to outsource the actual manufacturing of.
But really any company with the money could do it.
We could be seeing Hennessy or Coco Puffs brand cars in the future.
The third is they could end up with control of the platform.
I haven’t been able to find who owns the name or owns what in this open platform, but they themselves have said they are using Android as the model.
Here is a description of Android from Wikipedia:
It is free and open source software; its source code is known as Android Open Source Project (AOSP), which is primarily licensed under the Apache License.
However most Android devices ship with additional proprietary software pre-installed, most notably Google Mobile Services (GMS) which includes core apps such as Google Chrome, the digital distribution platform Google Play and associated Google Play Services development platform.
About 70 percent of Android smartphones run Google’s ecosystem; competing Android ecosystems and forks include Fire OS (developed by Amazon) or LineageOS.
However the “Android” name and logo are trademarks of Google which impose standards to restrict “uncertified” devices outside their ecosystem to use Android branding
What is important about this description is to note how much power Google has accumulated within this ecosystem.
Through Google Play they control what apps are available, and through Chrome how you access the web.
To get around Google in Android is possible, but it’s hard work to do so.
Legacy automakers are big, lumbering beasts with a mindset built on internal combustion engines.
They’re highly regulated, slow-moving and often unionized.
They’re also over staffed for electric vehicles.
One estimate from Ford suggests that they require 30% less time to manufacture than internal combustion engines, but in the hands of an electronics manufacturer it could be more than that.
Hon Hai has specialized in taking over manufacturing from legacy companies in electronics, like Sony and Nintendo.
Now they are clearly aiming to do the same in the automotive industry.
Most people don’t care if their Sony Playstation was made by Sony or Hon Hai–but it would be much harder for a car company to outsource all their manufacturing the same way.
How would the German government feel about BMW or Volkwagon abandoning manufacturing and becoming purely design houses?
Or the Japanese government, or Korean government or even the US government with their automakers?
It is unlikely they could do so with the bulk of their production.
What Hon Hai is clearly aiming to do is take them on, whether under their own brand names, joint venture brands or on behalf of other brands.
These are still very early days in this project, and there is a long way to go and a lot of hurdles ahead.
But if they are successful in their aims, they potentially not only could have dominance in the operating systems and components used in cars, they could end up with a significant chunk of the manufacturing end of it as well.
It’s a staggeringly ambitious plan, but it could lead to a dominant force in the industry being headquartered here in Taiwan.
And that would have national security implications for Taiwan.