How AWS Is Quietly Rewriting the Rules of the AI Server Supply Chain

Since early 2025, AWS’s Trainium orders have driven a short-term boom across Taiwan’s tech supply chain. But behind the surge lies a quiet restructuring of how that supply chain works. This piece explores how AWS is reshaping procurement and design control by delaying Trainium 3, releasing the transitional MAX version, and developing its own liquid cooling cabinet (IRHX). From chips to thermal infrastructure, AWS is extending its platform influence into the physical rhythm of data center operations. What looks like a wave of demand may, in fact, mark the beginning of a deeper shift in coordination and control.

Since late 2024, AWS has driven a notable surge across the AI server supply chain by pulling forward orders for its Trainium series. In particular, the ramp-up of Trainium 2 MAX during the first half of 2025 significantly boosted revenues for key component makers, including PCB, copper-clad laminate (CCL), and thermal module suppliers. Several Taiwanese vendors posted record-high revenues in June, leading analysts and investors to raise expectations across the sector.

Beneath this short-term boom, however, lies a deeper shift in rhythm and control. If we move the lens from “who’s placing orders” to “who’s rewriting the rules,” AWS’s actions appear less like a simple demand expansion and more like a structural reset. The delay of Trainium 3, the transitional release of Trainium 2 MAX, and the introduction of a proprietary liquid cooling system all signal a broader reconfiguration of supply chain cadence and design ownership.

The real transformation is not just about order volume. It’s about how AWS is quietly evolving from an ODM customer into the orchestrator of the entire ecosystem’s tempo.

The Delay Is Not Just Technical. It Is a Reset in Rhythm

According to Taiwan-based supply chain sources, the delay of Trainium 3 was largely due to AWS’s in-house liquid cooling system not being ready. To bridge the gap, AWS extended the lifecycle of Trainium 2 and released a transitional version called Trainium 2 MAX. This MAX version includes higher-bandwidth memory (HBM) but still uses air cooling. It was designed and manufactured by AWS’s internal Annapurna team, with former collaborator Marvell gradually stepping away.

At first, these looked like technical decisions: release a stopgap product when a delay occurs, shift the work internally when partnerships stall. But in hindsight, there is a deeper pattern. It is one of shifting control. These moves suggest AWS wasn’t just filling a timeline gap. It was quietly rewriting the operational rhythm of its entire supply chain, on its own terms.

Behind the Surge: Double Booking and the Risk of a Demand Gap

AWS’s recent surge in component orders has been impressive on the surface. But a closer look reveals a mismatch between upstream and downstream expectations. While upstream CoWoS capacity remains tight, downstream forecasts appear overly optimistic. This gap likely reflects AWS’s double-booking strategy for components such as PCBs. One key driver behind this is the ongoing shortage of high-performance fiberglass fabric, which is essential for the multi-layer boards used in AI servers. These boards rely on low-Dk and low-Df materials to ensure high-speed signal stability, but these materials are in short supply and come from only a few sources.

To secure enough inventory, AWS may have placed double orders with PCB suppliers. While this approach cannot guarantee delivery timelines, it can help AWS lock in scarce capacity when supply is constrained. However, this also passes significant risk downstream. If AWS later adjusts its demand, suppliers could suddenly face sharp order reductions, exposing the entire chain to an abrupt freeze.

Double booking has become a common tactic across the AI server space as companies race to build out infrastructure. But for suppliers, it often means committing to production without real visibility into sustained demand. The revenue spikes seen today may be built on a fragile foundation of unrecognized risk.

This raises the question: Is the current revenue growth a reflection of genuine demand, or the result of a supply rhythm out of sync with actual market needs? With Trainium 3 yet to reach mass production, the industry may be heading into a sudden demand gap between late 2025 and early 2026.

Architecture Shifts Are Redefining Component Roles and Value

The Trainium 2 motherboard was designed with two chips on a single board. For Trainium 3, AWS is expected to move toward a four-chip configuration on a single board. While this appears to double the chip count, the broader design trend points toward integration and modularization. Many components that were previously treated as separate parts, such as power systems, cooling, and rail mounts, are now being consolidated and shared across systems. This shift is compressing both material usage and pricing per component.

AWS’s push into custom water-cooling systems has accelerated this trend. As cooling modules and chassis designs move from off-the-shelf parts to fully integrated systems, components are no longer priced individually but are bundled into broader infrastructure solutions. This further reduces the unit value of each part.

As a result, suppliers who gained during the Trainium 2 phase such as PCB manufacturers, CCL providers, and rail system vendors are now under pressure as both average selling prices and content per unit are beginning to shrink in the Trainium 3 cycle. As modular designs become more centralized, the value that each supplier adds is steadily declining.

To reinforce this structural shift, AWS is also expanding its supplier base. The company is moving away from exclusive partnerships and toward a multi-vendor, open certification model. This not only helps diversify risk but also introduces more pricing competition, effectively reshaping the balance of power across the supply chain.

AWS’s In-House Liquid Cooling Signals a Fundamental Shift in Supply Chain Models

The most important shift is not the hardware upgrade in Trainium, but AWS’s decision to move forward with its own in-house liquid cooling cabinet design, known as the In-Row Heat Exchanger (IRHX). This initiative aims to address past challenges in deployment speed and water efficiency. More significantly, it allows AWS to break away from branded solution providers like Vertiv or BOYD and take ownership of the design process while outsourcing component procurement and assembly.

This is more than a cooling upgrade. When liquid cooling transitions from brand-owned to platform-led, the balance of power shifts from midstream suppliers to the platform itself. AWS is not just optimizing performance. It is reshaping the fundamental question of who designs and who assembles the infrastructure behind AI.

AWS has already expanded its influence through in-house chip development with Graviton and Trainium. But the launch of IRHX marks the first time AWS is extending control into the data center’s cooling infrastructure. This shift is not just about energy efficiency. It reflects AWS’s move toward leading the design and deployment rhythms of physical infrastructure.

This shift means AWS is no longer simply a buyer. It is becoming the coordinator of design integration, material sourcing, and assembly timing. For example, while companies like Auras don’t supply the full IRHX system, they may still participate by providing key components such as fans or manifolds, as long as they align with AWS’s design specifications.

As this transition unfolds, the competitive barrier will no longer be defined by manufacturing scale or cost. The true differentiator will lie in how well suppliers understand and adapt to AWS’s design language and deployment cadence. In the next phase of the supply chain, staying aligned with the platform’s evolving architecture will be critical for long-term participation.

The Rules of the Supply Chain Are Quietly Changing

In the short term, the Trainium build-up has boosted the revenues and market valuations of many Taiwanese suppliers. But from a medium-term perspective, this surge reflects more than just demand. It reveals how AWS is gradually internalizing control over supply chain rhythms in response to delays. This shift could lead to future shipment gaps and declining value per unit, posing structural challenges for ODMs and component makers.

What truly matters is how AWS is using this moment to redefine supply chain architecture, cadence, and decision-making authority. Rather than simply outsourcing and integrating, AWS is setting its own design and procurement processes. This includes defining system specifications, planning materials, and reshaping the roles of its suppliers. The rules of the ecosystem are being rewritten as a result.

This may not be the most visible battle in the AI infrastructure race, but it could quietly shape the next round of cost structures, deployment timelines, and power dynamics. From custom chips to cooling systems, AWS is extending its design leadership into server hardware and data center buildout schedules.

While the current order momentum may feel reassuring for suppliers in Taiwan, the more lasting shift lies in how platform companies are quietly redefining what it means to be a supplier in the AI server supply chain and determining who gets to participate in the ecosystem. If we overlook this strategic transition already underway, we risk misjudging competitive thresholds, misallocating resources, and missing the right moment to adapt and respond.

From GPU clouds that financialize compute to Wolfspeed’s capital bottleneck and now to AWS’s quiet reshaping of supply chain architecture. These are not isolated cases. They are different chapters of the same shift: power is moving closer to the platform and farther from those who only manufacture.

This article is part of our Taiwan Tech and Market Shifts series.
It explores how Taiwan’s tech industries are adapting to global shifts in supply chains, manufacturing, policy, and innovation.

See more in this category, or explore more notes here.

From NVIDIA to the Rack: The Real AI Deployment Battle Is Just Beginning

When we talk about artificial intelligence (AI), the spotlight usually stays on models, compute power, and chips. But the most critical phase, which is deployment, is often left out of the conversation. Getting from NVIDIA’s chips to a fully operational rack in a data center takes far more than engineering. It requires navigating manufacturing logistics, capital pressure, thermal limits, geopolitical shifts, and a changing platform landscape.

This article delves into four often-ignored challenges in AI deployment:

1. ODMs as Financial and Risk-Bearing Partners: Original Design Manufacturers (ODMs) like Quanta, Foxconn, and Inventec have evolved from mere assemblers to key players bearing financial and supply chain risks.
2. Liquid Cooling as a Performance Ceiling: Efficient thermal management, particularly through liquid cooling, has become essential to maintain AI server performance and reliability.
3. Geopolitical Influences on Assembly Locations: The choice of assembly locations is increasingly driven by geopolitical strategies, impacting data sovereignty and security.
4. Full-Stack Delivery Redefining Platform Boundaries: The ability to deliver integrated systems is reshaping the control and influence within AI platforms.

For product leaders, infrastructure startups, and industry analysts, understanding these factors is crucial to navigating the evolving AI landscape.

The Overlooked Challenge in AI: Deployment

While NVIDIA’s Blackwell platform, OpenAI’s GPT-5, and AWS’s Tranium processors dominate discussions, the deployment phase remains underrepresented. Before AI systems become operational, they must undergo assembly, integration, cooling, testing, and delivery into data centers.

This journey starts with a chip from NVIDIA and culminates in a data center rack. Along the way, it involves Taiwanese manufacturing facilities, assembly lines in Vietnam and Mexico, liquid cooling module designs, yield coordination, and significant capital investments in pre-purchased components. These elements are fundamental to the seamless operation of AI models like GPT.

The future of AI is not solely defined by model architectures but also by the physical infrastructure, including motherboards, thermal modules, GPU preorders, and capital turnover cycles. Control over this infrastructure equates to influence over the next wave of AI platform power.

ODMs: From Assemblers to Strategic Partners

Companies such as Quanta, Foxconn, and Inventec were traditionally viewed as low-margin assemblers. Today, they play a pivotal role in ensuring timely AI system deliveries. These ODMs not only assemble full systems but also invest upfront to secure GPUs and CPUs under buy-and-sell arrangements, assuming capital pressures and supply risks.

This evolution signifies a shift from mere manufacturing to becoming financial backbones and deployment guarantors within the AI platform supply chain.

Thermal Management: The Hidden Bottleneck

As NVIDIA’s GB200 and GB300 gain prominence, market attention often centers on GPU performance and memory bandwidth. However, the primary obstacle to rapid AI server deployment lies in thermal management. Reliable and integrated liquid cooling systems have become top priorities for Cloud Service Providers (CSPs) when selecting suppliers.

Previously under-the-radar component manufacturers like Auras and Asia Vital Components are now essential to maintaining system stability, highlighting that effective thermal solutions are as critical as computational speed.

Geopolitical Considerations in Assembly Locations

The increasing assembly of AI servers in Vietnam, Mexico, or Tennessee is not merely a cost-driven decision. It reflects strategic moves by the United States to control computing locations and define data security boundaries. Manufacturers are adapting to a new kind of infrastructure competition, driven by the need for sovereign deployment.

For many CSPs, the origin of server assembly has become a focal point in assessing the risks associated with deploying AI models.

Integrated Delivery: Redefining Platform Control

With NVIDIA stepping back from directly shipping AI servers and companies like ZT being acquired by AMD, ODMs are now engaging directly with CSPs. The capability to deliver complete systems has transformed certain manufacturers into extensions of AI platforms themselves.

This shift underscores that those who can deliver entire racks effectively control the timelines and rhythms of AI platform operations.

Navigating the New AI Deployment Landscape

The forthcoming AI battleground is not about who trains models faster or deeper. It’s about who can reliably deliver fully integrated, stable, and financially backed systems on time. The real bottlenecks now lie in cooling systems, rack integration, working capital, and strategic manufacturing site selection.

This supply chain from NVIDIA to the rack signals a broader industrial transformation driven by deployment capacity, geopolitical decisions, capital constraints, and the redistribution of platform power.

If you are:

• A Technical or Product Decision-Maker: This insight will help you understand the physical limitations of AI deployment and anticipate risks in future system designs.
• An Infrastructure Startup or Systems Architect: This perspective will reshape your evaluation of platform partnerships, module reliability, and manufacturing alignment.
• An investor or industry analyst will find in this analysis a pathway to an often-overlooked value shift from chipmakers to server integrators, cooling specialists, and manufacturing hubs positioned for the next growth cycle.

The true battleground of AI lies not just in chips but within factories, financial strategies, and the yet-to-be-delivered racks awaiting deployment.

This article is part of our Taiwan Tech and Market Shifts series.
It explores how Taiwan’s tech industries are adapting to global shifts in supply chains, manufacturing, policy, and innovation.

See more in this category, or explore more notes here.

When Tech Becomes Commodity: Lessons from the Decline of TFT-LCD

When technology stops being rare and products become interchangeable, how should companies redefine themselves? This article examines the transformation of the TFT-LCD industry through the paths taken by AUO and Innolux, offering a lens into how mid-tier tech firms might reclaim value in a world where they no longer lead the trend.

1.  When TFT-LCD Becomes a Standard Part: What It Means for the Tech Industry

TFT-LCD panels were once a showcase of innovation and capital intensity. In the early 2000s, they represented breakthroughs in display size, resolution, and the first wave of the consumer electronics boom. But that story is over.

Today, we’re looking at a different reality: TFT-LCD has become a mature technology. No longer rare or defensible, it’s just another standard component.

Brand manufacturers no longer care which fab or generation the panel came from. All that matters is cost, capacity, and delivery. Pricing has become the only real differentiator. Brands blur together. Suppliers face endless pricing pressure and capacity adjustment.

But this isn’t just a TFT-LCD problem. It’s a pattern repeating across many mid-tier segments of tech manufacturing.

These “mid-tier” technologies once had technical barriers. But today, they can’t define the rhythm of the industry, nor can they compete purely on cost. Stuck between cutting-edge innovation and low-cost mass production, they are losing narrative power—and strategic value.

TFT-LCD is simply one of the clearest examples, and sectors like DRAM, IC packaging, power modules, and optoelectronics are quietly following in part.

And in this squeezed technical middle, the strategies of AUO and Innolux offer something worth watching.

2.  AUO and Innolux: Two Paths Through the Same Trap

When differentiation by technology no longer works, companies must redefine what value they offer.

AUO and Innolux, Taiwan’s display giants, have recognized this for years. And while both are responding, they’ve made different bets on where to go next.

2.1  AUO: Building a Platform Around AI and Sustainability

AUO has focused on a dual-track transformation: AI integration and sustainability.

One track centers on large-scale smart displays and public information platforms. The other pushes into ESG-driven environments, including smart factories, energy management, and photovoltaic architecture.

This isn’t just about upgrading the panel. It’s about becoming a platform provider with a story that goes beyond pixels and specs.

2.2  Innolux: From General Displays to Scenario-Based Solutions

Innolux, by contrast, emphasizes human-centered applications. It’s pivoting from general-purpose panels to industry-specific, high-integration use cases, like automotive, healthcare, and intelligent display systems.

It’s not about leading in raw technology. It’s about seamless integration into how things are actually used. The panel becomes part of the system, not just a part number.

2.3  When the Product Isn’t Enough: Creating New Value Space

Neither company can dictate industry pace anymore. But both are trying to escape the low-margin component trap by moving closer to the end application.

Their common vision? A future where panels aren’t just selected, but shape the solution. A role that earns a seat at the value chain, not just a line in the BOM.

3.  From Survival to Redefinition: What Mid-Tier Tech Needs Now

For companies without brand power, platform control, or direct customer access, the question becomes: how do you find your place in the value chain again?

The TFT-LCD story is a mirror. Once a high-value, innovation-driven sector, it has shifted to low-margin, over-supplied territory. Firms are forced to reorient how they operate and how they matter.

That’s why AUO and Innolux are worth studying. They’re not yesterday’s news but they’re today’s test case.

Both chose to root down and reach up. From the far end of the supply chain, they’re moving closer to where value is made: integration, usage, and systems.

They may not reshape the industry. But they are redefining themselves. And that, for mid-tier tech companies, might be the most important survival skill of all.

Conclusion: Staying Is a Strategy

We love a story of reinvention, of disruption and fast pivots. But sometimes, the more admirable move is to stay. To keep walking, even when the wind stops blowing.

What can a company do when it can’t outrun its competitors on speed, scale, or novelty?

Maybe it leans closer to the people it serves. Maybe it integrates deeper into real problems. Maybe, instead of leading trends, it learns how to create quiet, necessary meaning.

This isn’t glamorous. But it might be how real transformation starts.

Here are four ways companies are doing just that:

1.  Become an Irreplaceable Partner, Not Just a Supplier

When you can’t define the product, define the relationship. Deep, long-term partnerships, like AUO and Innolux building with auto and medical OEMs, reduce replaceability and increase insight into what customers actually need.

2.  Add Non-Physical Value to the Product

A panel is always a panel. But can it become an interface, a service, a trusted layer?

AUO is integrating AI, content platforms, and sustainability systems. Innolux is embedding its displays into contextual, critical environments. What they’re selling is no longer just the screen but reliability, insight, and trust.

3.  Serve a Small, Sticky, Essential Niche

When scale stops rewarding you, go small and specific. Some firms survive by making high-value displays for lab tools, military gear, or industrial design.

Not many customers, but ones that stay.

Not fast growth, but stable demand.

4.  Build Narrative and Identity, Even in B2B

This may be the hardest but it matters. Some of the most profitable companies in the world don’t have the best tech. They have the strongest trust.

Trust comes from quality, yes. But also from clarity of voice. From standing for something. From knowing how to tell your story to your customers, to your ecosystem, to the world.

Final Thought

For mid-tier tech companies, survival may not depend on being the fastest, biggest, or most advanced. It may depend on becoming irreplaceable or indispensable to others.

TDK did it in Japan. Schneider Electric did it in Europe. Illumina did it in biotech.

They didn’t get bigger. They changed their position.

Not by out-innovating everyone. But by redesigning their place in the chain.

Not by selling more things. But by becoming something others couldn’t go without.

And through AUO and Innolux, we can see that rebuilding value might not guarantee success.

But it gives you a reason to stay.

And sometimes, that’s where transformation really begins.

This article is part of our Taiwan Tech and Market Shifts series.
It explores how Taiwan’s tech industries are adapting to global shifts in supply chains, manufacturing, policy, and innovation.

See more in this category, or explore more notes here.

How Tariffs Reshaped Asia’s Supply Chains: Taiwan’s Emerging Role

The U.S.-China trade tensions may have sparked the conversation, but a deeper shift is underway in Asia’s supply chains.

Driven by geopolitical risks, rising costs, and the need for greater resilience, companies are rethinking where and how they produce.

As Southeast Asia grapples with infrastructure gaps, Taiwan, quietly equipped with mature logistics and processing networks, is emerging as a critical safe haven.

This transformation is not a temporary detour. It marks a structural reconfiguration that will reshape regional trade patterns for years to come.

The tariffs imposed during the Trump administration were intended to curb China’s manufacturing dominance and encourage industries to return to the United States.

Yet in practice, whether this tariff strategy has directly revitalized American manufacturing remains uncertain.

In the short term, it has instead heightened global awareness of the risks of supply chain concentration and accelerated a large-scale shift toward regionalization and diversification, leading to a new phase of Asia’s supply chain restructuring.

Across Asia, particularly in Southeast and Northeast Asia, countries have begun to build their own supply chain networks.

Taiwan, with its unique geographical advantages, strong trade position, and mature infrastructure, is quietly becoming a critical node in Asia’s ongoing supply chain restructuring.

This shift is not merely a relocation of export hubs. It reflects a deeper transformation in supply chain logic, industrial mapping, and regional market structures.

1.  Supply Chain Restructuring Is Driven by More Than Just Policy

What started with tariffs and US-China tensions has evolved into a long-term trend fueled by multiple structural forces:

• Rising geopolitical risks between the US and China
• Continually increasing manufacturing costs in China
• Intensified pressure on companies to diversify supply chains and meet ESG expectations
• The growth of local-for-local consumption models across Asia

These forces have combined to create a momentum that will not easily reverse.

Even if trade policies ease, the underlying drivers of supply chain restructuring will remain firmly in place.

2.  Once Companies Move, They Rarely Turn Back

Shifting a supply chain is far more complex than adjusting purchase orders. It involves:

• Building factories, leasing warehouses, and redesigning logistics routes
• Restructuring supplier and logistics networks
• Hiring and training local talent

These supply chain shifts require significant investment and time.

Once new operational bases are in place, returning to previous models becomes not only difficult but often impractical.

In Taiwan, Vietnam, and India, new manufacturing and export centers are already taking shape.

Japanese and Korean firms are similarly reshaping their regional supply chain footprints to strengthen resilience across Asia.

The process has created substantial sunk costs, making a return to the old structure highly unlikely.

3.  Market Demand and Production Logic Are Shifting Together

In the past, global supply chains followed a logic of centralized, large-scale manufacturing to achieve lower costs, followed by worldwide distribution.

Today, under the reshaping forces of geopolitics, supply chains are shifting toward regionalized, flexible production models, moving closer to market demand and enabling faster local response.

This shift from “scale maximization” to “market proximity” forces companies to rethink supply chain layouts.

Relying on a single mega-factory, such as those along China’s coastline, is no longer viable.

While policy changes may cause short-term turbulence, they cannot undo the deeper forces that are reshaping post-tariff trade networks across Asia: geopolitical fragmentation, shifting cost structures, corporate risk management needs, and the rise of regional markets.

Even if US-China relations improve, the era of hyper-centralized supply chains is unlikely to return.

4.  Southeast Asia’s Infrastructure Limits Its Short-Term Role

At first glance, Southeast Asia seems well-positioned to replace China as the global export powerhouse.

In reality, apart from Singapore, countries like Malaysia, Vietnam, and Indonesia still face challenges in port modernization, transshipment efficiency, and inland logistics development.

Southeast Asia’s current infrastructure limits its ability to absorb large-scale supply chain shifts quickly.

During this transitional period, air freight, high-value cargo transportation, and Taiwan’s processing and export capabilities, highlighting its growing supply chain role in the region, will likely become the most reliable short- to medium-term solutions.

5.  A New Invisible Supply Chain Is Forming Across Asia

While it may appear that tariffs are simply blocking China’s exports, a deeper shift is underway.

Across Southeast and Northeast Asia, a new, more autonomous trade flow is quietly emerging.

Taiwan’s role as a processing and transshipment center is rising.

Rather than focusing solely on final-product exports, Taiwan is increasingly engaged in semi-finished product processing and re-exporting.

This emerging supply chain is defined by:

• Small-batch, fast-turnaround production
• A balanced mix of processing and transshipment
• A high reliance on regional supply chain density

It stands in stark contrast to the older, scale-driven export models.

Many still view the market through the old lens of “China to America,” missing the rise of Asia’s internal trade flows and Taiwan’s pivotal position.

Major logistics companies across the region are already adjusting, repositioning themselves as flexible infrastructure providers rather than traditional transporters.

This is not a temporary reaction. It is the beginning of a structural reconfiguration of Asia’s supply chains.

Even if US tariffs are lifted, the new supply chain model will not revert to the past.

6.  Taiwan Is Quietly Becoming One of the World’s Supply Chain Safe Havens

Compared with Southeast Asian countries where infrastructure development remains incomplete, Taiwan offers a fully established system of ports, warehousing, and light-processing capabilities.

As global supply chains continue to rebuild, Taiwan is steadily emerging as a hidden yet critical supply chain hub within this evolving landscape, strengthening its role as an emerging center in Asia’s new logistics ecosystem.

While trade negotiations between Taiwan and the United States are still evolving, the structural shifts in Asia’s supply chain dynamics have already taken on a life of their own.

This shift may become one of the most underestimated yet strategically valuable forces in the next wave of Asia’s supply chain transformation.

Conclusion

This restructuring is not simply a relocation of production hubs.

It marks a fundamental rethinking of how Asia’s markets and industries operate.

Even as short-term policies fluctuate, the reconstruction of Asia’s supply chains is already irreversible, marking a new phase in the region’s supply chain transformation. And Taiwan is quietly emerging as a new core node within this transformation.

This article is part of our Taiwan Tech and Market Shifts series.
It explores how Taiwan’s tech industries are adapting to global shifts in supply chains, manufacturing, policy, and innovation.

See more in this category, or explore more notes here.

Trump’s Tariff Revival: Can Taiwan’s ICT Industry Withstand the Supply Chain Reset?

In 2025, President Donald Trump’s announcement of a 32% tariff on Taiwanese exports sent shockwaves through the global supply chain. Although Taiwan remains one of the most trusted manufacturing partners for U.S. tech brands, its heavy reliance on these relationships—and its limited pricing power—have left it highly vulnerable. This article explores the structure of Taiwan’s exports to the U.S., how global brands are responding, and the strategic logic behind Trump’s policy. More importantly, it examines whether Taiwanese manufacturers can evolve from executors to architects in the next era of supply chain redesign.

Our Perspective

1.  Taiwan’s Export Exposure and the Strategic Rationale Behind U.S. Tariffs

According to 2024 trade statistics, the United States remained Taiwan’s largest export destination, accounting for 23.4% of total outbound trade. This level of dependence highlights the strategic importance of the U.S. market to Taiwan’s economy and its tech-driven export sector.

On April 2, 2025, President Donald Trump announced a sweeping tariff expansion—imposing a 32% “reciprocal tariff” on all imports from Taiwan, in addition to a 10% baseline tariff on goods from other countries. Although semiconductors were temporarily exempt, most other categories—including ICT end products, components, and communication technologies—were subject to the new duties. This situation not only drives up export costs for Taiwan’s ICT sector, but also heightens the risk of deferred orders, customer migration, and a fundamental restructuring of supply chain strategies.

While the official justification centered on reciprocal trade fairness and alleged currency manipulation, the underlying motivation runs deeper.

Taiwan represents one of the most efficient non-U.S. manufacturing ecosystems in the world—precisely the kind of globalized structure that stands in contrast to Trump’s push for “Made-in-America” industrial sovereignty. His policy aims to pull brands, jobs, and production back into what he considers “U.S.-friendly” territories, while Taiwan holds a dominant—and, in his view, overly influential—position in today’s global production networks.

In Trump’s logic, Taiwan also symbolizes offshoring’s downside. As a key manufacturing base for U.S. tech giants like Apple and Amazon, Taiwan is seen as capturing a large share of the value chain without contributing to domestic U.S. employment.

Finally, Taiwan’s partial supply chain entanglement with China—such as components routed through Chinese assembly or logistics—places it in a politically ambiguous zone. This makes Taiwan an expedient target within a broader trade realignment strategy.

In this light, the 32% tariff on Taiwan is not merely an economic measure. It is a geopolitical tool aimed at forcing global brands to reorganize their manufacturing footprints—and at reshaping the control structure of global supply chains.

2.  Taiwan’s Tech Export Structure to the U.S.: A Closer Look

According to Taiwan’s customs export data (based on HS two-digit classifications), total exports to the U.S. in 2024 reached NT$11.1361 trillion. ICT-related products made up a significant portion, concentrated in three primary categories:

• HS Code 84 (Machinery, Computers, Servers, etc.): Exports totaled NT$64.17 billion, accounting for roughly 5.8% of Taiwan’s exports to the U.S. These include servers, laptops, and other end-user devices that power U.S. enterprise computing and cloud services—making them prime candidates for tariff exposure.
• HS Code 85 (Electrical Equipment, ICs, Power Modules, etc.): Exports totaled NT$238 billion, or approximately 21.4% of total U.S.-bound exports. This category covers core electronic components such as ICs, PCB modules, and power controllers. These products are tightly linked to downstream tech demand and highly sensitive to global procurement shifts.
• HS Code 90 (Optical and Precision Instruments): With exports valued at NT$21.1 billion, this segment is smaller in volume but includes high-value items such as medical sensors and precision optics—key areas with high technical barriers and added value.

Combined, these three categories represent over 40% of Taiwan’s total exports to the U.S., highlighting the country’s heavy reliance on ICT-related shipments. Any shift in U.S. policy toward these categories carries the potential for asymmetric shocks to Taiwan’s industrial structure.

3.  Taiwan’s Structural Strength and Its Strategic Role in Brand Partnerships

3.1  More Than Hardware: Engineering Integration as a Strategic Asset

Although most of Taiwan’s ICT exports appear to be traditional hardware products, their true value lies in the deep engineering collaboration and supply chain integration with global brands. From server system architecture and thermal management to cable routing and compatibility validation, Taiwanese manufacturers are far more than executors—they are active co-developers of end products.

While global brands technically have the flexibility to shift orders, in practice it’s difficult to replicate the industry-specific know-how and collaborative efficiency that Taiwanese firms have built over decades. This explains why, in the face of tariff shocks and regulatory shifts, U.S. brands typically choose to work with their Taiwanese suppliers to adapt, rather than simply replace them.

3.2  What Brands Are Tied to Isn’t Geography—It’s Taiwan’s Engineering Capacity

Since the pandemic, U.S. tech brands have accelerated their push for “manufacturing sovereignty.” Yet rather than being excluded, Taiwanese companies have become even more embedded in this transition. From TSMC’s advanced fab in Arizona to Inventec’s HP assembly operations in Mexico, and Quanta and Foxconn’s expansions in Vietnam—many so-called “localized production” sites are ultimately powered by Taiwan’s engineering and supply chain expertise.

This division of labor—brands set the strategy, and Taiwan executes it—is emblematic of the new global manufacturing paradigm. While Taiwanese firms may outwardly appear to be contract manufacturers, in reality they hold a central role in enabling production, managing risk, and redesigning supply chains. Their influence is quiet but critical—an irreplaceable force behind the scenes.

4.  How U.S. Tech Brands Might Respond to Trump’s Tariff Policy

U.S. tech brands are unlikely to respond to Trump’s tariff policy with a full-scale return to domestic manufacturing. Instead, their real strategy is one of manufacturing re-coding—a deliberate reshuffling of production geographies and supply chain design to mitigate political and cost risks. While the rhetoric may emphasize “Made in America,” actual decisions are driven by cost efficiency, speed, risk management, and origin compliance.

Given the absence of mature ICT manufacturing ecosystems in the U.S.—combined with high labor costs and complex regulatory constraints—mainstream consumer electronics production remains impractical within the U.S. for the foreseeable future. As a result, brand strategies may involve:

• Dual BoM and supply chains: Creating U.S.-specific Bills of Materials and parallel supply chain flows to allow for flexible country-of-origin declarations and customs compliance.
• Leveraging USMCA for tariff optimization: Establishing final assembly or packaging operations in Mexico to qualify as North American origin under the U.S.-Mexico-Canada Agreement (USMCA).
• Co-developing risk mitigation frameworks with suppliers: Tariffs and geopolitical uncertainty become selection criteria; only suppliers that can rapidly establish new facilities, manage compliance, and shift orders flexibly will remain in the game.

Taiwanese manufacturers—backed by decades of engineering strength and deep supply chain integration—are well-positioned to navigate this reset. Those that prove agile and resilient in this new reality won’t be marginalized; they are likely to move even closer to the center of brand strategy and supply chain decision-making.

5.  Conclusion: Short-Term Pain, Long-Term Realignment

In the short term, the 32% tariff on Taiwanese ICT products will inevitably impact export momentum—particularly for high-value end products whose production remains geographically concentrated. Even with close brand partnerships, Taiwanese companies will struggle to fully pass on the sudden cost burden to clients. Limited bargaining power, coupled with the policy uncertainty surrounding Trump’s tariffs, puts pressure on pricing strategies, order visibility, and customer negotiations—ultimately weighing on profit margins.

Moreover, relocating supply chains takes time, investment, and coordination. Whether companies can reconfigure production footprints, build tariff-optimized routing, and maintain delivery stability within a tight window will determine who survives—or even gains—from this disruption.

Over the long term, if these tariffs persist, they could serve as a catalyst for broader realignment across the global ICT supply chain. Taiwanese firms must accelerate efforts to build regionally diversified production networks, strengthen compliance and tax-risk engineering capabilities, and deepen integration with brand-side technical ecosystems. Only then can they shift from passive manufacturers to proactive designers and executors of the next-generation supply chain architecture.

This article is part of our Taiwan Tech and Market Shifts series.
It explores how Taiwan’s tech industries are adapting to global shifts in supply chains, manufacturing, policy, and innovation.

See more in this category, or explore more notes here.

How Taiwan’s supply chain reshapes the global laptop manufacturing landscape

Amid the U.S.-China trade war, global supply chain restructuring, and tightening environmental and social responsibility regulations, Taiwanese laptop ODMs have steadily shifted production from China to Vietnam, Thailand, and other countries—driving a structural shift in the global supply chain from a “China-centric” model to a more diversified, multi-polar framework. While Taiwanese factories in China still hold irreplaceable technological advantages in the short term, the real competitive edge lies in the industrial clusters built by Taiwanese companies—quietly taking root and thriving in new locations. Though supply chain relocation is often framed as a brand-led initiative, the true driving force comes from Taiwan’s supply chain players, proactively reshaping the global laptop manufacturing landscape through a strategy of “small steps, rapid progress.

Over the past 20 years, Taiwan’s ODM laptop manufacturers have been the unsung heroes behind the scenes. Today, they are transitioning from invisible leaders to key architects of the global supply chain. From design and production to strategy, nearly every laptop in consumers’ hands bears a mark from Taiwanese companies. Over the last two decades, Taiwan’s supply chain has handled massive orders from brands like Apple, ASUS, Dell, and HP, helping China become the world’s primary laptop manufacturing hub. However, with the U.S.-China trade war, global supply chain restructuring, and stricter environmental and social regulations, Taiwanese companies—such as Quanta, Compal, Wistron, Pegatron, Foxconn, and Inventec—are shifting production out of China and focusing on new bases in Southeast Asia and Latin America.

In this shift, Taiwanese companies are redesigning the global laptop manufacturing map, determining which countries will become the next manufacturing hubs. Taiwan is no longer just an ODM player but is acting as a supply chain architect, transitioning from a “China-centric” to a “multi-polar” model. This change marks a structural shift from single-base production in China to regional manufacturing. It is not merely a short-term “risk diversification” strategy, but a long-term restructuring of the global supply chain. Taiwanese manufacturers are creating a multi-center supply chain model based on geopolitical risks, ESG (Environmental, Social, Governance) factors, and tariff policies.

Our Analysis

1. Hanoi, Vietnam: A new hub for laptop manufacturing

(1-1) Quanta and Foxconn

In response to the U.S.-China tech war and ESG requirements, Vietnam is emerging as a key laptop manufacturing hub, with Apple playing a central role. Quanta and Foxconn have set up production bases in Vietnam, each with a planned monthly output of 500,000 units, mainly transferring production lines from China.

Quanta, which previously assembled Apple’s high-end laptops in Shanghai with a monthly capacity of 1 million units, plans to move part of its production to Hanoi, initially targeting 200,000 units per month, with a medium-term goal of 500,000 units.

Foxconn, which previously produced Apple’s high-end laptops in Chengdu with a capacity of 1.5 million units per month, is shifting production to Hanoi, targeting 500,000 units per month.

However, Quanta and Foxconn’s production bases in China remain critical. Quanta’s plants in Shanghai, Chongqing, and Changshu have a combined monthly capacity of 6 million units, while Foxconn’s factories in China remain essential for laptop production. Despite this, neither company is likely to expand capacity in China moving forward.

(1-2) Compal and Wistron

Compal and Wistron are also relocating production to Vietnam. Compal, in partnership with Dell, has established a new factory in Hanoi, with planned production increasing from 200,000 units per month in 2023 to 400,000 units. Wistron is also relocating production for other brands, establishing large-scale production in Hanoi in 2023. By year’s end, Wistron reached a monthly capacity of 300,000 units, with plans to expand to 1 million units.

However, both companies retain major production bases in China. Compal’s factory in Kunshan, with a monthly output of 4 million units, remains a key hub. Its factories in Chengdu and Chongqing, with monthly outputs of 700,000 and 600,000 units respectively, serve Dell and Acer. Wistron also retains significant capacity in Chengdu, with a monthly capacity of 2 million units.

(1-3) Pegatron

Pegatron is expanding its Hanoi base to produce laptops for Microsoft, targeting 50,000 units per month. Meanwhile, its production base in Suzhou, China, remains stable, producing 1 million laptops per month, mainly for ASUS.

2. Thailand emerges as a new supply chain option

(2-1) Quanta and Inventec

To reduce supply chain risks in Europe, Quanta has set up a factory in Ban Bueng, Thailand, specializing in ODM services for HP and Microsoft, with a monthly capacity of 300,000 units. This move highlights Thailand’s potential as a stable and efficient manufacturing hub in the Asia-Pacific region.
Similarly, Inventec has expanded its factory in Samut Prakan, Thailand, to meet increasing demand from HP.

Despite Thailand’s competitiveness as a manufacturing hub, Inventec’s Chongqing base in China remains a critical production site for HP. Its Juarez, Mexico factory focuses on business laptop production for HP, with a monthly capacity of 50,000 units for fast delivery to the U.S. market. Inventec’s Taoyuan factory in Taiwan supports global markets with a monthly capacity of 200,000 units.

Summary: How Taiwanese companies control of the global laptop manufacturing narrative

For over a decade, China has been the heart of global laptop manufacturing. However, this large-scale production shift is not simply a relocation. Taiwanese companies have been leading the charge in technology transfer and production line planning. While supply chains continue to diversify, Taiwanese companies still control critical technological nodes in laptop production, particularly for high-end products and testing, which will likely remain in China for the short term. The Chinese government’s policies and subsidies continue to impact the pace of Taiwanese companies’ production shifts.

While China remains the largest manufacturing base, its early advantages are diminishing due to geopolitical risks, the U.S.-China trade war, rising labor and land costs, and stricter environmental regulations. In contrast, Vietnam and Thailand offer competitive labor costs, efficient infrastructure development, and advanced technologies through partnerships with local governments and investments.

Although much attention is given to labor costs in Vietnam, the country is rapidly adopting automation technologies. Taiwanese companies can transfer mature automation technologies from China to Vietnam, significantly shortening factory ramp-up times. This indicates that Vietnam is no longer just a low-cost production hub but may soon become a global leader in laptop manufacturing.

Mexico, despite facing political and infrastructure challenges, benefits from its strategic location near the U.S. market, attracting businesses. As U.S.-China trade policies evolve, Mexico is emerging as a potential hub for supply chain diversification.

Moreover, Taiwanese companies hold a significant edge in supply chain management and logistics. Production bases in Vietnam and Thailand are no longer limited to assembly; Taiwanese manufacturers are also building factories to produce relevant components and parts. For example, Taiwanese companies are establishing LCM factories in Vietnam, improving supply chain integration, reducing costs, and shortening delivery times. This industry cluster is a key advantage for brands that require high supply chain efficiency.

Taiwan’s hidden influence in global supply chains is immense. The decision to relocate global laptop production capacity is not led by brands themselves but is quietly driven by Taiwan’s supply chain. Taiwanese companies, such as Quanta and Compal, often develop multi-location production solutions before brands present their requirements. Taiwanese manufacturers continue to supply key components like enclosures, PCBs, batteries, and thermal modules. Taiwan’s supply chain also drives the transfer of manufacturing technologies, advancing the global diversification of laptop production through training and management systems with local partners.

While the narrative often credits brand companies with leading the supply chain migration, the true driving force is Taiwan’s supply chain, which is strategically positioning itself through proactive measures. Taiwan’s supply chain is rewriting the global laptop manufacturing landscape with a “small steps, quick moves” approach—a strategy likely to persist until 2030. The ultimate goal is not just to avoid tariffs or geopolitical risks but to establish a new global manufacturing model based on ESG compliance, localized production, and a diversified supply chain.

This article is part of our Taiwan Tech and Market Shifts series.
It explores how Taiwan’s tech industries are adapting to global shifts in supply chains, manufacturing, policy, and innovation.

See more in this category, or explore more notes here.

Q1 2025 semiconductor market decline: Seasonal adjustment or sign of technical recession?

Major semiconductor companies generally expect revenue to decline, with an average drop of approximately 9%, significantly exceeding the historical average of 5%. To determine whether this is a temporary adjustment or a sign of a deeper downturn, we reviewed past semiconductor market troughs and believe that demand in Q1 2025 remains stable. Key factors influencing the semiconductor industry this year include demand for AI servers, corporate IT spending, and developments in the Chinese market. Overall, while the global semiconductor market may face growth deceleration, it is expected to maintain an upward trajectory. Even in a worst-case scenario, a full-scale recession is unlikely.

According to SemiWiki, the global semiconductor market reached $170.9 billion in Q4 2024, showing a 17% year-on-year growth and a 3% quarter-on-quarter increase. The total market size for the year is projected at $628 billion, up 19.1% compared to the previous year. Looking ahead to Q1 2025, major semiconductor companies are expecting a general decline in revenues due to seasonal factors, inventory excess, and economic uncertainties, with an average decrease of around 9%. Nine companies, including SK Hynix, Qualcomm, and AMD, expect revenue growth, while seven companies, including Infineon and Renesas, anticipate declines. Furthermore, the market growth forecast for 2025 ranges from 7% to 15%, with AI servers being the primary growth driver. However, weak demand from smartphones, PCs, automobiles, and industrial sectors, along with global economic risks (such as potential U.S. tariff hikes), could further impact market performance.

Our Analysis

Historical data shows that in the past decade, the global semiconductor market has experienced a decline in Q1 nine times, with an average decrease of around 5%. However, the expected 9% decline in Q1 2025 far exceeds the historical average, suggesting that this downturn may not just be a seasonal adjustment but could signal the onset of a technical recession in the semiconductor industry.

To better assess whether the Q1 2025 downturn is a short-term adjustment or a sign of deeper recession, we will review several recent semiconductor market downturns, analyzing the primary factors and demand shrinkage patterns. As shown in Table 1, we have summarized semiconductor market recession scenarios from key periods such as 2011-2012, 2015-2016, 2018-2019, and 2022-2023, along with their underlying causes and demand trends, providing a comprehensive basis for judgment.

Table 1   Key factors and demand patterns behind recent semiconductor market downturns

Source: Researcher and Research

Based on this analysis, we believe that the Q1 2025 downturn is more likely to be a short-term demand contraction. The key drivers for the future development of the semiconductor industry will be AI server demand, corporate IT spending, and the Chinese market, which are crucial factors influencing industry trends in the coming year.

Key factors for 2025 Q1 semiconductor industry demand and future development:

1. AI server demand

AI server demand will be the key driver of semiconductor industry growth in 2025. In 2023 and 2024, AI server demand supported growth in the wafer foundry and overall semiconductor industries. However, if the growth rate of demand drops below 10%, it could negatively affect the supply chain for wafer foundries and servers, possibly leading to a price downturn in the DRAM and NAND markets.

This means that the continued large-scale investment in AI servers by cloud service providers like AWS, Google Cloud, Meta, and Microsoft will be a critical indicator for the future of the semiconductor industry. If these companies’ IT capital expenditures slow down, orders for high-end HPC GPUs (such as NVIDIA’s H100 and B100) could decrease, reducing the utilization rate of TSMC’s CoWoS advanced packaging capacity.

Currently, Amazon, Microsoft, Google’s parent company Alphabet, and Meta are expected to spend over $320 billion in capital expenditures, a 30% increase over the $246 billion estimated for 2024. Although Microsoft has recently canceled some data center leases, it still plans to invest more than $80 billion in FY 2025 (down from an originally planned $85 billion). Additionally, NVIDIA’s data center business is still showing strong growth, and TSMC’s CoWoS capacity demand remains tight, suggesting that the AI server market demand remains optimistic. Therefore, AI server demand will be the pillar of the semiconductor industry in the short term and will determine whether Q1 2025 will experience a temporary decline.

2. Global corporate IT spending

Global corporate IT spending is another key factor influencing semiconductor industry development in 2025. Corporate IT spending directly impacts demand for servers, PCs, enterprise SSDs, and enterprise GPUs, thus driving the overall semiconductor market. Server chips (e.g., Intel, AMD, Ampere), enterprise SSDs (e.g., Micron, Samsung, SK Hynix), and networking equipment (e.g., Broadcom, Marvell, Cisco) are all affected by fluctuations in corporate IT budgets.

When corporate IT budget growth is below 3%, semiconductor market demand typically slows down. Therefore, while market research firms provide forecasts, these data may not immediately reflect changes in corporate IT spending. Observing the capital expenditure growth rate of major cloud providers is a key indicator; if this growth rate drops below 5%, it may signal a conservative approach in corporate IT spending, negatively impacting the semiconductor market.

According to Gartner’s forecast, global corporate IT spending will grow 9.8% year-on-year in 2025, reaching $5.6178 trillion. At the same time, the capital expenditure growth rate of major cloud providers is expected to continue at 30%. These figures suggest that while there may be some uncertainty in the short term, global corporate IT spending remains at a high level, helping to support semiconductor market demand.

3. China Market

The China market plays a critical role in global semiconductor demand, especially in sectors like PCs, smartphones, and servers. As one of the main markets for these products, the recovery of China’s market will be a key factor influencing the global semiconductor industry in 2025. If the Chinese economy recovers, demand in consumer electronics and cloud markets could significantly rebound, driving semiconductor demand. However, a continued economic weakness in China may lead to a market downturn similar to the 2015-2016 period.

Key indicators to observe include China’s GDP growth rate, the manufacturing PMI (Purchasing Managers’ Index), and whether the government introduces large-scale infrastructure or subsidy policies. Additionally, changes in the local smartphone market and capital expenditure growth among Chinese cloud companies (such as Alibaba, Tencent, and Baidu) are crucial reference points.

China’s PMI for January 2025 was 49.1, below the expected 50.1 and the previous 50.1, indicating weakness in the manufacturing sector. Although the National Bureau of Statistics has not yet released GDP forecasts for 2025, the IMF predicts China’s economic growth will reach 4.6%. The World Bank has also raised its forecast for China’s growth in 2025 to 4.5%, an increase of 0.4 percentage points from earlier projections.

Although a PMI below 50 and a GDP growth forecast under 4.5% typically indicate soft consumption in the Chinese market, the Chinese government’s proactive measures to promote semiconductor self-sufficiency and investments in related fields are expected to stimulate market demand, especially in telecommunications, industrial, and automotive sectors. Therefore, despite uncertainties in China’s economy, the semiconductor market still holds growth potential under the right policy-driven conditions.

Summary

Given current market trends, AI server demand remains strong, global enterprise IT spending stays high, and Chinese government support policies will drive semiconductor market growth. Considering these factors, the semiconductor market demand in Q1 2025 is expected to remain stable.

Despite uncertainties such as global economic fluctuations and policy changes, demand-side growth, particularly in AI servers and enterprise IT spending, suggests the semiconductor market will continue to develop steadily. China’s market, under policy leadership, may maintain some growth momentum, further supporting global semiconductor demand. Although growth rates may slow, the overall market still holds potential for growth.

Looking at the full year outlook, even in the worst-case scenario, the global semiconductor market may face challenges with slower growth, but it will continue to experience positive growth.

Outlook

Market demand remains highly uncertain. On the supply side, the U.S. “America First” policy will push governments worldwide to increase support for their domestic semiconductor industries, fostering regional development of the global semiconductor sector.

Historically, the semiconductor industry has relied on globalized supply chains to increase efficiency and reduce costs, with clear divisions of labor in design, manufacturing, and testing across countries. However, as nations enhance policy support for their domestic semiconductor industries (such as subsidies, tax incentives, and infrastructure support) to ensure the autonomy of key technologies, semiconductor production may increasingly cluster within regions, altering the traditional global supply chain structure.

This shift may disrupt traditional industry cycles, leading to longer supply chain adjustments, increased costs, and changes in market competition. For example, companies that once relied on overseas foundries may be forced to find new production partners or even establish domestic production capabilities, increasing the pressure on technology and capital investments. Furthermore, regional development could raise trade barriers, further impacting market liquidity and increasing business risks.

This article is part of our Taiwan Tech and Market Shifts series.
It explores how Taiwan’s tech industries are adapting to global shifts in supply chains, manufacturing, policy, and innovation.

See more in this category, or explore more notes here.

The graphics card market enters a golden era: AI and gaming demand driving growth

This year, the graphics card market is experiencing a rare opportunity, especially after the mining boom, with market dynamics becoming increasingly attractive. Key drivers include the upgrade to NVIDIA’s RTX 50 series, a surge in AI inference demand, the launch of major gaming titles, and supply chain shifts. The RTX 50 series significantly enhances performance, particularly in gaming and AI-generated imagery, driving the growth of the graphics card market. Additionally, with advancements in AI technology, especially the rise of the DeepSeek open-source series, graphics cards are playing an increasingly critical role in AI inference, further accelerating demand. The gaming market is also thriving with the release of several major titles, boosting demand for graphics cards in the PC platform.

From the perspective of Taiwan’s supply chain, the booming graphics card market is expected to bring three major changes to the global tech industry: a shift of the gaming market to the PC platform, accelerated growth in graphics card demand, and the blurring of boundaries between AI and gaming. The widespread adoption of AI technology is becoming a key driver of graphics card demand, marking a new stage in the market’s development.

In summary, the graphics card market is undergoing a pivotal transformation. The surge in AI inference demand has made graphics cards not only essential for gamers but also critical hardware for AI developers and businesses. As market demand diversifies, supply chain issues continue to have a significant impact, but the strong growth in graphics card demand signals the ongoing development of the market.

According to the Traditional Chinese version of the Industrial and Commercial Times, following the launch of NVIDIA’s next-generation RTX 50 series graphics cards, a shortage occurred, primarily due to performance issues with the RTX 5070 and 5060 chips, which required debugging. This delay pushed the mass production schedule to mid-March or late April. Additionally, the Tainan earthquake disrupted TSMC’s wafer production, further exacerbating the supply crunch.

The RTX 50 series features a new Blackwell architecture with enhanced AI and neural rendering capabilities, leading to a surge in demand for the RTX 5090 and 5080 models. Despite strong demand, supply remains unstable due to technical challenges and natural disasters.

Furthermore, the development of DeepSeek’s language models has broken through the bottleneck in large model computing power, enabling more companies to run deep learning models with the NVIDIA 4090D GPU at a low cost of around NT$100,000, while maintaining low power consumption. This has led to structural growth in AI computing power demand and boosted the need for high-end graphics cards.

In an exclusive interview, NVIDIA CEO Jensen Huang emphasized that AI will become an essential tool for learning in the future, expanding the AI ecosystem and further driving demand.

Our Perspective

This year marks a rare opportunity in the graphics card market, especially after the mining boom. Several key factors explain why the graphics card market is so intriguing this year:

1. RTX 50 series upgrade and AI performance boost

The significant performance upgrade of NVIDIA’s RTX 50 series graphics cards is the biggest market driver. Specifically, DLSS 4.0 and the shift from CNN models to Transformer models not only enhance gaming performance but also boost the demand for AI-generated imagery and computing. For gamers, the cost-performance ratio of graphics cards has significantly improved. For businesses and developers, the rise in AI model demand brings new opportunities, further propelling global graphics card market growth.

2. Explosion in AI inference demand

With the rapid growth of AI, particularly the rise of the DeepSeek open-source series, demand for graphics cards has surged. Powerful graphics card performance supports efficient AI inference operations, and demand is rapidly increasing in markets like China. AI technology has penetrated various fields, from entertainment to enterprise applications, continuing to drive the demand for high-performance graphics cards.

3. Launch of major gaming titles

With the release of several highly anticipated games, the demand for graphics cards will rise significantly. The improved visual quality of games increases gamers’ need for powerful graphics cards. These releases not only directly boost graphics card sales but also indirectly heighten awareness of GPU technology, further driving market demand.

4. Supply chain shifts and graphics card shortages

The shortage of graphics cards reflects strong market demand, especially for new models like the RTX 50 series. This supply gap has intensified consumer purchasing desire and driven up prices, making the market more dynamic. Supply chain changes are affecting pricing and supply conditions, potentially altering the competitive landscape.

5. Changes in PC gaming and console marketsShare

The growing share of the PC gaming market reflects increased consumer demand for high-performance hardware. Gamers now expect to run games on PCs while multitasking, which further drives the demand for graphics cards. While the shift in PC gaming market share contributes steadily to graphics card demand, its impact is secondary compared to the AI inference demand.

6. Recovery of the Chinese market

With the recovery of graphics card demand in China, especially after the easing of policy restrictions, the global market is expected to experience further growth. The simultaneous launch of the RTX 5090 China edition, along with AI performance discounts, will further stimulate demand in the Chinese market and contribute to global market expansion.

In conclusion, this year’s graphics card market presents a unique opportunity. With the release of major games and the steady growth of the PC gaming market, graphics card upgrades will be a top choice for many players, especially driven by the demand for higher resolution gaming.

From our observation of Taiwan’s supply chain, we believe the hot trend in the graphics card market will bring three significant changes to the global tech industry:

1. Gaming market shifting to PC platforms

With major game releases like Monster Hunter Wilderness, the gaming market is gradually shifting towards the PC platform. This will encourage global game developers to invest more in PC gaming, potentially sparking innovation targeted at this market.

2. Accelerated graphics card demand

The launch of NVIDIA’s RTX 50 series and AMD’s RX 7000 series has not only boosted graphics card performance but also sparked strong demand among gamers and AI developers. This wave of interest has attracted not only gaming enthusiasts but also accelerated hardware upgrades in sectors like AI research and data centers, which rely heavily on GPU resources. As a key hub for global graphics card manufacturing, Taiwan will play a crucial role in meeting this surging market demand.

3. Blurring boundaries between AI and gaming

From the rise of DeepSeek’s open-source models to the performance boosts brought by RTX 50 series for AI productivity, we see the boundaries between AI and gaming gradually blurring. This not only increases the demand for graphics cards but also highlights the strong need for graphics cards in hardware technology. Taiwan’s graphics card suppliers will become key partners in the global AI inference and game development sectors.

Conclusion

The graphics card market is undergoing a critical transformation. While gaming remains a key demand driver, the surge in AI inference demand has expanded the role of graphics cards beyond gaming, positioning them as essential hardware for AI developers and enterprises. The increasing overlap between gaming and AI applications is diversifying the demand for graphics cards.

Supply chain issues also have a significant impact, particularly in the high-demand graphics card sector. The shortage and price hikes reflect the sharp rise in market demand, especially for high-performance models like the RTX 50 series, driven by both gaming and rapidly growing AI inference needs.

As AI technology continues to rise, particularly with the DeepSeek open-source series, powerful graphics card performance becomes critical for efficient AI inference. This shift aligns with the changing dynamics of the graphics card market, where AI technology is now a primary driver of demand. The soaring need for GPUs to support AI computing is opening new opportunities for the graphics card market’s growth.

This article is part of our Taiwan Tech and Market Shifts series.
It explores how Taiwan’s tech industries are adapting to global shifts in supply chains, manufacturing, policy, and innovation.

See more in this category, or explore more notes here.

The impact of U.S. tariffs on the high-tech industry and TSMC’s potential response

The Trump administration’s tariff threats against TSMC and Taiwan’s semiconductor industry reflect the U.S. strategic goal to reduce its reliance on foreign-made chips. However, the global semiconductor supply chain is complex, and U.S. companies depend heavily on TSMC’s advanced manufacturing processes. Even with increased tariffs, it will be difficult to change the supply chain structure in the short term, which could impact the competitiveness of U.S. tech companies and present challenges for the global semiconductor industry. We suggest that TSMC might consider acquiring Intel’s U.S.-based semiconductor fabrication plants to accelerate local production. This tariff dispute will reshape the future of the global chip industry.

According to a report by the Financial Times, Taiwan and TSMC are actively responding to Donald Trump’s tariff threats on foreign-made semiconductors. Trump’s goal is to bring semiconductor production back to the U.S. and cancel the subsidy plan for TSMC’s U.S. investments, which could significantly affect TSMC’s operations. Taiwan’s Deputy Minister of Economic Affairs, John Deng, is in negotiations with U.S. officials, while TSMC is holding meetings in Arizona to discuss possible responses. Analysts suggest that the U.S. may have misunderstood the dynamics of the semiconductor supply chain, and this tariff threat has raised concerns among Taiwan’s exporters and tech companies. The report highlights two main issues: the U.S. government’s tariff threats on semiconductor imports and how TSMC plans to respond.

Our Perspective

To understand the current situation: TSMC holds over 50% of the global foundry market share, with its share in advanced processes exceeding 90%, making it critical to the global high-tech industry. Although Taiwan’s direct chip exports to the U.S. account for less than 5%, these exports are vital to industries such as defense technology, advanced medical equipment, precision instruments, aerospace, and smart automotive, all of which rely on advanced semiconductor technology. If the U.S. imposes higher tariffs, the cost will be passed on to these companies and their supply chains, directly affecting these industries.

Furthermore, the core supply chain of the U.S. high-tech industry still depends heavily on TSMC’s advanced process technology. For instance, companies like Apple, NVIDIA, AMD, Qualcomm, Broadcom, and Marvell rely on TSMC for their Surface-Mount Technology (SMT) production. Even if the U.S. imposes a 100% tariff on Taiwanese chips, these companies would still need to import chips through overseas supply chains, making it unlikely that the “local supply” policy can be achieved. Moreover, rising costs in SMT and Printed Circuit Board (PCB) production could undermine the competitiveness of U.S. companies.

Now, let’s look at the feasibility of U.S. companies shifting orders. The conclusion is that the feasibility of moving advanced orders is low. If U.S. companies decide to shift production, it typically takes 1 to 2 years to adjust for mature processes. It is more likely that production will be shifted to U.S.-based GlobalFoundries (GF) or TSMC’s Arizona facility, or to wafer fabs in Singapore operated by TSMC, UMC, or GF. European Integrated Device Manufacturers (IDMs) are less likely to benefit from such shifts due to technological and capacity limitations.

As for advanced processes, the difficulty in shifting orders is even greater. While Intel has secured some defense semiconductor projects and owns Altera FPGA technology (used primarily in industrial instruments and defense sectors), it is constrained by technical capabilities, research and development resources, and a shortage of process engineers. In the short term, Intel will not be able to fill TSMC’s supply gap, further reducing the likelihood of such shifts benefiting other companies.

Finally, let’s consider TSMC’s possible response strategies. Beyond expanding its U.S. investments or seeking a compromise with the U.S. government, we propose another perspective: In the event that the U.S. enforces semiconductor supply chain localization, TSMC could consider acquiring some of Intel’s advanced process wafer fabs. Although this would involve high costs and face challenges such as technological differences, corporate culture integration, and regulatory scrutiny, it would allow TSMC to quickly meet U.S. government demands. Acquiring existing plants would be faster and less risky than building new plants from scratch. However, this strategy would still need to account for the stability of U.S. government policies and the future direction of the global supply chain. In any case, this tariff dispute will significantly influence the future development of the global chip industry and should be closely monitored.

This article is part of our Taiwan Tech and Market Shifts series.
It explores how Taiwan’s tech industries are adapting to global shifts in supply chains, manufacturing, policy, and innovation.

See more in this category, or explore more notes here.