A Short History of Semiconductor Technology in Taiwan during the 1970s and the 1980s – Taiwan Insight
Taiwan Insight
The online magazine of the Taiwan Research Hub
Written by Ling-Ming Huang.
Image credit: CHIPS-TSMC/ by 李 季霖/ Flickr, license: CC BY-SA 2.0 DEED.
As we approach the midpoint of the 2020s, “semiconductor” emerges as a defining term for this decade. Taiwan has garnered intense global interest due to its complex and precarious relations with China, as well as its critical role in the semiconductor supply chain. The significance of Taiwan’s semiconductor industry is underlined by its market dominance. In the fourth quarter of 2023, Taiwan Semiconductor Manufacturing Corporation (TSMC) alone held 61% of the global market share in professional foundry services, while Taiwanese manufacturers collectively accounted for 68%. In the area of IC Design, Taiwanese companies, holding 18% of the market, trailed only behind American companies, which captured 63% in 2022. Additionally, Taiwan commands more than half of the global market share in testing and packaging.
The transformation of Taiwan into a semiconductor powerhouse is notable, especially considering its past as an island state known for exporting low-tech products such as fruits, shoes, and umbrellas before the 1980s. Scholars and analysts often compare Taiwan to South Korea, viewing it as a successful example of a developmental state. This shift in Taiwan’s economic focus was largely influenced by strategies and policies implemented by the Taiwanese authoritarian government in the 1970s. However, the history of Taiwan’s semiconductor industry is complex, indicating that while the state played a crucial role in its inception, there are many more layers to explore.
The “RCA Project,” a Transnational Project
The “RCA Project” marked a significant starting point for Taiwan’s semiconductor industries, even though Taiwan already had some prior activity in this field. In the mid-1970s, Chiang Ching-Kuo, the de facto political leader at the time, sought a “technical breakthrough” to advance Taiwan’s industrialisation. Fang Hsien-Chi, the Director General of Telecommunications, began discussions with Dr Pan Wen-Yuan, a Chinese American engineer who had previously worked at RCA, to achieve this goal. Following ongoing discussions and Dr Pan’s investigative trips across Taiwan’s industries, they proposed to Sun Yun-Suan, the Minister of Economic Affairs, the idea of investing in the transfer of IC manufacturing technology to Taiwan. After a pivotal breakfast meeting in a modest noodle restaurant in downtown Taipei, hosted by Minister Sun, the government committed to investing in the project to transfer IC technology.
As the decision to invest in IC technology transfer was finalised, several critical questions arose: Who would oversee the technology transfer? Which specific IC technologies should be imported? How could Taiwanese teams navigate the complex process of technology transfer with limited semiconductor experience? To address these challenges, the Taiwanese government selected the newly established Industrial Technology Research Institute (ITRI), a semi-state-owned research institute, to oversee the technology transfer. This choice aimed to ensure that the newly acquired technology would benefit the private sector, even though the government was the sole sponsor of the substantial initiative. Additionally, Dr Pan established the Technology Advisory Council (TAC) to assemble a group of Chinese/Taiwanese American scientists and engineers who would provide expertise and consultation on the technology transfer.
TAC and Dr Pan focused on utilising the technology transfer to boost Taiwan’s capability to produce specific IC products rather than merely advancing scientific research. Identifying electronic watches as potential products to meet this goal, Dr Pan and Fang Hsien-Chi noted that Taiwan already had an established IC packaging industry, heavily dependent on foreign investments and imported components. Consequently, TAC recommended the transfer of C-MOS technology, which is particularly suitable for consumer electronics like electronic watches due to its power efficiency. They advocated for a comprehensive transfer of manufacturing capabilities to the Industrial Technology Research Institute (ITRI), not just a turn-key solution. The plan included building a demonstrative factory at ITRI that could produce market-ready IC products to be sold globally. Despite some criticism from Taiwanese technocrats and Chinese/Taiwanese American engineers—who argued that the government and research institutes should focus on creating an ideal environment for innovation rather than directly engaging in manufacturing and sales—TAC and ITRI proceeded with their approach. They selected RCA as the technology provider to transfer 7.5-micron C-MOS and N-MOS technology and commenced construction of the Demonstrative Factory in 1976. This strategic move marked a significant step in developing Taiwan’s semiconductor industry, aiming to create a sustainable and practical output from the technology transfer.
ITRI took a proactive step by recruiting over 30 young engineers, including 19 in the initial group, and dispatched them to RCA’s four branches in the U.S. to master IC manufacturing technology. This comprehensive training covered all critical aspects, including mask design, wafer manufacturing, testing, and packaging. Many of these young engineers had previously studied abroad in the U.S. and other countries, and most had experience in local electronics industries. By the end of 1977, the Demonstrative Factory at ITRI had commenced production of ICs for electronic watches and melody cards. Notably, the yield rate at the Demonstrative Factory exceeded 70%, surpassing the performance of RCA’s own facilities in the U.S. This success was attributed to the highly disciplined workforce and the dedication of the engineers involved.
Building on its success, ITRI made a strategic decision in 1980 to spin off part of the Demonstrative Factory’s team and its technologies to create United Microelectronics Corporation (UMC). This new venture was established with investments from both the Taiwanese government and the private sector, signifying a significant development in the evolution of Taiwan’s semiconductor industry. This move not only leveraged the skills and technologies developed within ITRI but also helped catalyse the growth of the semiconductor sector in Taiwan, setting the stage for Taiwan’s future prominence in the global semiconductor market.
The technology transferred to Taiwan through the RCA Project was not the newest or mainstream at the time. Still, the initiative was strategically focused on embedding comprehensive manufacturing capabilities within Taiwan. This was designed to reduce the local electronic industries’ dependence on imported components. Additionally, the project facilitated connections and collaborations between people and technologies across Taiwan and the U.S., reinforcing the technological capabilities of IC manufacturing in Taiwan. This approach shifted the focus from treating semiconductor technology as merely a scientific endeavour detached from practical applications to integrating it with the industrial sector.
Consequently, the RCA Project transcended being merely a replication of American technology in Taiwan. Instead, it was an endeavour that encouraged the transnational flow of knowledge, materials, and personnel. The project’s ultimate goal was to integrate these international semiconductor technologies with Taiwan’s local industries and human resources, thereby creating a solid, self-sustaining ecosystem within the semiconductor sector.
The Birth of TSMC
The establishment of the Demonstrative Factory and United Microelectronics Corporation (UMC) marked a foundational phase for Taiwan’s burgeoning semiconductor industry, yet it also ushered in immediate challenges. The inauguration of the Hsinchu Science-Based Industrial Park in 1979 attracted significant foreign investment and saw a wave of “returning” Chinese/Taiwanese Americans establishing enterprises, particularly IC design houses, in the early 1980s. Despite this influx of talent and ideas, these new firms faced substantial financial hurdles, lacking the capital necessary to build their own fabrication plants. Consequently, they had to rely on the spare production capacities of existing Integrated Device Manufacturers (IDMs). Further complicating matters, both the Demonstrative Factory and UMC were limited by their production capacities and the use of increasingly outdated technology. Tensions arose as UMC expressed concerns over competing for business and resources with the Demonstrative Factory. These challenges demonstrated the growing pains of an emerging industry striving to evolve from its nascent state into a mature, globally competitive sector.
To keep pace with advancing technology, ITRI launched the VLSI Project and prepared to construct another factory. In a strategic move, K. T. Li, a key technocrat in the Taiwanese government, invited Morris Chang to become the president of ITRI in 1985. Around the same time, three IC design houses approached the government seeking investment to enhance their wafer production capabilities. The government, in turn, consulted ITRI and Chang for advice.
During the early 1980s, ITRI and Chang had embraced the concept of a “professional foundry” from Carver Mead, a professor at Caltech, who had even delivered a lecture at ITRI in 1980. Leveraging Chang’s experience and foresight, ITRI and Chang recommended that the Taiwanese government should focus its resources on the VLSI Project rather than investing directly in the three design houses. They argued that the project should evolve into a professional foundry that could serve not only Taiwanese IC design houses but also fabless design houses globally. The Taiwanese government accepted this proposal, setting a course for the VLSI Project to become a pivotal enterprise in the global semiconductor industry and paving the way for Taiwan to become a leader in semiconductor manufacturing. This decision significantly influenced the trajectory of Taiwan’s semiconductor sector, showing innovation and global service provision. In the development of the new company, ITRI and the Taiwanese government were keen on ensuring it was not state-owned. They sought to attract an international industry giant as a partner to boost confidence among Taiwanese private investors. Morris Chang took the initiative to invite over a dozen IC companies to invest in the new venture, but Philips was the only one that responded positively to his proposal.
Initially, Philips wanted to own half of the company in exchange for its technology. However, ITRI successfully negotiated this down by demonstrating that they had already mastered some of the technologies Philips offered through the VLSI Project. Ultimately, Philips agreed to invest 27.5% of the new company with cash. This significant investment from a reputable international player encouraged numerous local investors to join as well. The company, established in 1987, embarked on a mission that would significantly impact the global semiconductor industry. This company is now known as Taiwan Semiconductor Manufacturing Corporation (TSMC), an important entity in the tech world.
Cluster for Chips
As the semiconductor landscape evolved during the 1980s with many new companies emerging, the Demonstrative Factory began to lose its engineers and its relevance as a research base, especially after completing its objectives, including the VLSI Project. However, ITRI was not concerned by this shift; they viewed their role as foundational—aimed at establishing the industry and supplying human resources and technology to the private sector. By 1988, most of the remaining members of the Demonstrative Factory transitioned to newly established semiconductor companies, including Winbond Electronics Corporation. This movement was indicative of a broader trend where many enterprises, inspired by ITRI’s success, began operations in Taiwan. The semiconductor industry had matured significantly, in part due to TSMC’s encouragement of fabless design houses. Additionally, companies like ASE Technology emerged during this period, specialising in professional testing and packaging OEM services. This growth also extended to various supportive services within the semiconductor industry. Therefore, the strength of Taiwan’s semiconductor capability is embedded in an extensive industrial cluster rather than being confined to one or two companies. This shows a robust ecosystem that supports and sustains the technological advancements in the sector.
Ling-Ming Huang obtained a PhD in the History of Science and Technology and Sociology from the Georgia Institute of Technology in the United States in 2020. Currently, he is a research scholar in the Department of Geography at National Taiwan University, concentrating on the history of semiconductor technology in Taiwan.
This article was published as part of a special issue on “Exploring Technology and Society in Taiwan.”
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