Rain taps against the glass facade of Taipei’s Nangang Software Park, while just a few kilometers away in Hsinchu Science Park, wafer fabs hum through the night. Taiwan’s semiconductor industry posted a stunning 29% revenue surge in Q1 2026, with full-year projections exceeding $270 billion—a figure that sounds like a victory march. But veterans of this industry know better: this is merely the eerie calm at the eye of a gathering storm.
The AI compute tsunami is reshaping everything. Indium Phosphide (InP) compound semiconductors are quietly shattering the bandwidth and power barriers that have long constrained silicon. This isn’t incremental progress—it’s a materials revolution. While Nvidia and Broadcom scramble for CoWoS packaging capacity, a select few are already betting on photonic integration and heterogeneous integration as the next frontier. But who controls InP? The answer today lies not in the U.S. or South Korea, but in overlooked European labs and Taiwan’s tightly knit academia-industry ecosystem. And once this technology becomes the “new oil” of AI infrastructure, will Washington really stand aside?
The chairman of Etron wasn’t crying wolf: the emerging U.S.-South Korea semiconductor alliance isn’t just about tech synergy—it’s about exclusionary supply chains. Seoul denies plans to distribute semiconductor tax windfalls to citizens (clearly reserving funds for industrial reinvestment) while accelerating fab linkages with Arizona. Behind this lies Samsung and SK Hynix’s strategic encirclement of TSMC—not through pricing, but geopolitical leverage. If Taiwan fixates only on revenue figures, it risks being institutionally marginalized without even noticing.
Yet Taiwan isn’t defenseless. Nan Ya PCB is aggressively targeting high-end IC substrates—the unsung “nerve endings” of AI servers. Once dominated by Japan’s Ajinomoto and Korea’s LG Innotek, this market is now yielding to Taiwanese players thanks to rapid prototyping and localized service. What does this tell us? Even as equipment and materials face choke points, Taiwan retains resilience in the capillaries of its manufacturing ecosystem.
What about mainland China? Hua Hong is pouring $6 billion into expanding its Wuxi facility, focusing on power devices, MCUs, and automotive-grade chips—segments deemed “unsexy” but forming the bedrock of genuine domestic substitution. SMIC, despite sliding operating profits due to mature-node price wars, beat margin expectations, proving its cost discipline and customer stickiness have matured significantly. Meanwhile, Applied Materials hit a 25-year high in profitability, repeatedly citing “agentic AI” in its earnings call. It turns out AI doesn’t just consume chips—it’s transforming equipment economics. When AI agents autonomously optimize etch parameters or predict chamber maintenance cycles, equipment vendors evolve from “shovel sellers” into “intelligent factory partners.”
History repeats itself. In the 1980s, Japan’s DRAM rise triggered U.S. retaliation. In the 1990s, Korea leveraged state capital to dominate memory. In the 2010s, Taiwan defined global logic chip manufacturing through pure-play foundry. Now, under AI’s new cycle, the rules have changed: technological leadership no longer guarantees security. You might lead in InP for three years—but if your fab sits on the “wrong” island, you could be ejected from the alliance tomorrow.
I judge that the next two years will accelerate the semiconductor industry’s de-globalization—not a simple U.S.-China decoupling, but the formation of multipolar blocs: a U.S.-Korea-Japan “trusted supply chain,” a China-centric internal loop, and Taiwan caught in between, struggling to maintain technical neutrality amid mounting pressure. Taiwan’s $270 billion revenue miracle, without strategic depth or diplomatic leverage, may ultimately become a gilded cage.
So as we watch the blue glow of fabs late into the night, perhaps we should ask: whose arena is this AI-driven chip feast? The algorithm engineers? The equipment giants? Or the geopolitical puppeteers? The answer might lie hidden in the defect density of the next InP wafer—where there are no borders, yet lines of power have already been drawn.