top of page
  • Writer's pictureMilo Hsieh

AI is redefining Taiwan’s strength in the PC market

By Milo Hsieh and Ian Murphy


As the COVID-19 pandemic and post-pandemic economic recovery shaped supply chains and consumer behavior, businesses and consumers fear that Taiwan’s economy will not be able to handle the economic shock of lower global personal computer demand. Despite these challenges, Taiwan is well-positioned to capitalize on both the post-pandemic economic recovery and changing consumer demands. 


The Personal Computer industry saw significant growth between 2020 to 2021 as a result of the pandemic. At that time, the market saw a high demand for PCs but low PC supply due to supply chain disruptions caused by the pandemic. 


Manufacturers started building their PC inventory by the start of 2022, causing a bottleneck in the PC market. As pandemic restrictions eased, the increased inventory levels quickly turned into excess as the demand, conversely, began to dip.


In the last quarter of 2022, worldwide shipments for personal computers saw a sharp decline as a result of “global recession, increased inflation and higher interest rates”. The 28.5% decrease from the fourth quarter of 2021 was the largest quarterly shipment decline to be ever recorded since Gartner began tracking the PC market in the mid-1990s. For the entire year of 2022, PC shipments only totalled 286.2 million units, indicating a 16.2% decrease from the 2021 tally.


Notes: Data includes desktop and laptop PCs that are equipped with Windows, macOS and Chrome OS. All data is estimated based on a preliminary study. Final estimates will be subject to change. The statistics are based on shipments selling into channels. Numbers may not add up to totals shown due to rounding. (Source: Gartner-January 2023)


A surplus in supply and low consumer interest in new PCs has significantly contributed to the decline in global PC shipments. The US market for PCs fell by 20.5% in Q4 2022, with the trend projected to continue until 2024 despite vendors’ attempts to clear stock through holiday discounts.


Taiwan’s tech firms, manufacturing for big brands like Apple, produce a major share of the world’s PCs, servers, video games, and semiconductors. This high degree of integration into the global tech supply chain led to an 18.5% decline in revenue for 19 of Taiwan’s top technology manufacturers in 2023, the biggest drop in revenue for Taiwan’s tech giants since 2013. 


Taiwan’s Semiconductor Industry


Taiwan has an export-oriented economy due to its relatively small domestic market, with around 70% of its total GDP consisting of exports. Within the last four decades, Taiwan’s economy has changed from mainly producing agricultural commodities to industrial goods and technology. Having a highly specialized economy makes Taiwan a valuable part of the global supply chain, which is why it saw a 4.9% increase in exports in during the Covid-19 pandemic while the global economy contracted by 3.4%. 


As of 2020, Taiwan’s semiconductor industry contributed almost 30 percent of Taiwan’s gross domestic product. However, Taiwan's economy relies not only on TSMC but also on lower-end semiconductor nodes produced by companies like United Microelectronics Corporation, as well as original equipment manufacturers and original design manufacturers. 


Taiwan's tech manufacturers are major suppliers of personal computers and PC components to global tech industry leaders. Concerns arise as worldwide PC demand declines, casting doubt on Taiwan's integrated circuit industry's ability to withstand such a substantial drop.


American PC makers like Apple, Microsoft, Dell, and HP rely heavily on domestic integrated circuit companies such as Nvidia, AMD, and Intel for essential graphics and processor components, which are then manufactured by Asian companies, notably TSMC and Samsung. Key assembly work is also handled in Taiwan by original design manufacturers, making it a critical hub in the PC production chain. 


Any decrease in U.S. consumer electronics demand can significantly impact these Taiwanese suppliers, given their trade ties and the nation's economic reliance on technology exports, making it more vulnerable than the diversified economies of South Korea and China to the recent global downturn in PC sales.


Although the reduction in global PC demand does not only affect Taiwan, observers are particularly nervous about Taiwan’s specialized economy. While this high degree of economic specialization makes Taiwan vulnerable to global demand cycles, it also positions Taiwan to take advantage of new opportunities in the high-tech sector like AI and machine learning. 


The Long-Term Trend


Placing Taiwan’s situation in the broader context of the COVID-19 pandemic reveals new global trends in consumer behavior. 


Many families in the United States are familiar with the pandemic-era car shortage. During this time, both the supply of cars decreased, while consumers changed their behavior to favour private transportation. These changes led to a smaller selection of cars available, higher prices for trade-ins, and companies like Carvana acquiring inventory at above-average prices to satisfy consumer demand. These conditions caused an oversupply of cars by the end of the pandemic and thus a drop in prices. Just like the PC industry, the car industry is expected to recover due to supply stabilization, a return to expected consumer demand, and the release of newer, more competitive car models.

While the numbers may seem abysmal for tech companies, the decline is not expected to last for long. As suggested by Gartner, global PC demand decline is expected to continue throughout 2023, but they expect to see an improvement in the market as early as the first quarter of 2024. Gartner’s findings are confirmed by Counterpoint Research that the “muted” demand for computer shipments in 2022 reflects consumer behavior that will likely continue into this year. One of the big reasons for depressed spending is that consumers who bought new PCs during the 2020-2021 pandemic surge still find their models competitive. This is largely due to the lack of compelling new features in the latest units. 


Taiwan is ready to meet consumer demands for faster and more capable personal computer components. New PCs will take advantage of advances in AI and machine learning by integrating these services through software. Enterprises analysing large datasets and consumers who use their software products both rely on Taiwan to manufacture advanced GPUs and semiconductors. An early indicator of consumer demand for advanced PCs is the release of Nvidia’s GeForce RTX 40 Series Graphics Cards and the H100 Tensor Core GPU. These two GPUs will lead to increased global demand for PCs that can handle higher-performing graphics and language model applications. 

As much as recent months may suggest warning signs for Taiwan’s economy, the long-term outlook shows that Taiwan is still in a strong position to meet consumer expectations when demand stabilizes in late 2023 and 2024. In addition to meeting consumer demand for more advanced PCs, Taiwan’s government is also active in promoting domestic innovation and the global competitiveness of its information and digital technology industry through the New Model for Economic Development as well as export promotion through economic initiatives such as the New Southbound Policy and the US-Taiwan 21st Century Trade Initiative


These initiatives will modernize Taiwan’s trading regulations, remove non-tariff barriers, and open new markets for the island’s existing exporters. Both multinational companies and consumers stand to benefit from these initiatives as Taiwan is able to meet changing global demand after the COVID-19 pandemic.


This article was previously published on the CommonWealth Magazine on June 12, 2023.

Comments


bottom of page