China-Taiwan Conflict
Tensions between China, Taiwan raise concerns about supply
chain disruption
A service of Semiconductor Business News, CMP Media Inc.
Story posted 5:45 p.m. EST/2:45 p.m., PST, 7/16/99
By Mark LaPedus and Sandy Chen
Electronic Buyers' News
TAIPEI, Taiwan -- Mounting political tensions between China and Taiwan this week raised concerns about
stability in the region and possible disruptions in the worldwide supply chain, including semiconductor
products.
In a stunning reversal of policy, Taiwanese president Lee Teng-hui declared that China and Taiwan are no
longer parts of the same country, a principal that has prevented a war between the two entities for 50 years.
Technically, Taiwan has been (and still is) a province of China, albeit a renegade entity.
Lee stopped short of saying that Taiwan is an independent nation right now, but his comments reportedly
prompted China to consider a military strike against the island.
Though military action appears remote at this point, a major disruption of Taiwan's business and political
climate could turn into a major disaster for the worldwide electronics industry, according to Brian Matas, an
analyst with IC Insights Inc. in Scottsdale, Ariz.
"Companies [doing business in the region] should stay on full alert right now," Matas said. "There's always
a possibility that China could use military force against Taiwan, but I don't believe this is a strong
possibility, perhaps less than 5%. But certainly, that's not the type of news you want to hear if you're a
fabless design company and your sole foundry is located in Taiwan."
It is also unwelcome news for Cisco, Compaq, Dell, Hewlett-Packard, IBM, and other such OEMs, most of
which have a large percentage of their systems built by manufacturers based in Taiwan.
In fact, Taiwan is a major cog in the worldwide supply chain: In total, it is the world's largest supplier of
computer cases, hubs, LAN cards, keyboards, modems, motherboards, power supplies, monitors, and
scanners, according to the government-sponsored Market Intelligence Center in Taipei.
The island is also the wafer-foundry capital of the world. Nearly every fabless IC design house and
integrated device manufacturer has some or all of its chips made on a foundry basis in Taiwan.
So far, Taiwanese and foreign electronics companies are saying tensions in the region have had little or no
impact on their business, although the Taiwanese stock exchange took a bit of a beating this week.
Nevertheless, multinational electronics companies are keeping a close eye on the situation. "We are
observing the situation [between Beijing and Taipei] closely, but at this point we don't expect any changes
in our business," said Chiou-Ming Chen, general manager of HP's international purchasing organization
(IPO) for the Greater China region, which includes China and Taiwan.
HP's IPO plans to buy a total of $2.5 billion to $3 billion worth of PC-related products from both Chinese
and Taiwanese companies this year, compared with $1.5 billion in 1998, he said.
However, some OEMs are devising backup plans. "So far everything seems fine," said a spokesman for
Compaq in Taipei. "But if there is a big reaction from China, we will consider a plan to shift our orders
from Taiwan to Korea or Japan."
Compaq, one of the biggest spenders in Taiwan, plans to source $7 billion worth of PC products and
components from the island this year.
IBM, which procures a large percentage of its board- and system-level products from Taiwan's Acer Inc., is
considering a plan to shift some orders away from the island, said an IBM spokesman in Taipei.
Simon Lin, chairman and chief executive of Acer, downplayed the situation. "For us it's business as usual,"
Lin said. He pointed out, however, that Acer has set up factories around the world to lower the risk factor
for OEM customers.
Still, the tension in the region brings back some recent, unpleasant memories. In 1996, Taiwan held its
first-ever presidential elections, which was perceived by Beijing as a step toward independence. Hoping to
avert a declaration of autonomy, China held full-scale military exercises near Taiwan, and even fired several
missiles close to the island's major ports in an effort to block its shipping lanes.
The United States then sent an aircraft carrier to the Taiwan Straits for the first time in years, prompting
Beijing to back down on its threats. These events hurt Taiwan from an economic point of view. At the time,
Taiwan's stock market plunged, business slowed to a crawl, and a number of OEMs even shifted some of
their orders from Taiwan to Japan and Korea.
In addition, HP at that time scrapped plans to form a wafer-foundry venture in Taiwan, and instead forged
ties with Singapore's Chartered Semiconductor Manufacturing Pte. Ltd.
History could repeat itself. For example, Motorola Inc., which recently entered into separate foundry
relationships with both Chartered and Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC), may have to
revise its two-company outsourcing strategy as a result of political uncertainty in the region. "Now, if I were
Motorola, I would be looking at whether I should do business at Chartered or TSMC," said one analyst.
One chip maker with strong ties to Taiwan claimed it does not plan to change its strategy. "We're keeping a
close eye on the situation but think TSMC is a stable operation," said a spokeswoman from San Jose-based
PLD supplier Altera Corp., which counts TSMC among its major foundries.
Nonetheless, the political tensions between China and Taiwan do not bode well for either chip makers or
OEMs, said Danny Lam, a principal at Fisher-Holstein Inc.
"Taiwan is playing with fire [by resisting re-unification with China]," he said. "At the same time, if there's a
hiccup in the supply chain, a lot of companies will be affected. A lot of products are sole-sourced in Taiwan.
It would take [chip makers and OEMs] a long time to bring up these products elsewhere.
thedewar |
