Greetings from Taipei! Im Cheng Ting-Fang, your host for this week's edition of TechAsia.

Over the past two weeks, supply chain executives and managers have experienced a tumultuous period as the world's two largest economies, the United States and China, have engaged in fierce trade disputes. The imposition of tariffs exceeding 125% on various goods traded between these nations has sent shockwaves through global supply chains, prompting the U.S. to threaten reciprocal tariffs against many of its other trading partners. Additionally, the tightening of export controls on AI chips further complicates the already strained economic landscape.

Key suppliers across Asia, who are responsible for everything from essential components to final assembly for giants such as Apple, Samsung, HP, Dell, Amazon, and Meta, have been on high alert, often responding to urgent demands around the clock. In a candid conversation with a manager at a component supplier, I learned just how intense the situation has become. I might need to see a psychiatrist for my mental health, he confided. Just last night, customers instructed us to halt all shipments to the U.S., but when I awoke, another urgent message had arrived, demanding we double our efforts and prioritize all third-quarter orders to leverage a temporary 90-day pause on tariffs.

This scenario exemplifies the chaos that many in the industry are facing. The relentless pace of policy changes is not only exhausting but also creates a sense of profound uncertainty and pressure among those tasked with navigating these challenges.

Fang Leuh, the chair of Vanguard International Semiconductor, an affiliate of TSMC, openly expressed the difficulties posed by the current climate. He noted that prior to the imposition of tariffs under the Trump administration, his company had anticipated mild growth for the year 2025. However, due to the current state of affairs, they now feel compelled to reassess their growth outlook. When questioned about potential growth drivers for this year, Fang candidly remarked that there was nothing to write home about.

In a conversation with another industry colleague whose firm supplies major PC manufacturers, I learned of newly emerging challenges: even products manufactured in China intended for markets outside the U.S. require materials sourced from American companies like 3M and DuPont. These crucial components have seen their prices soar by 125% overnight due to retaliatory tariffs imposed by China. Compounding this issue, certain tech brands have hinted at the possibility of asking suppliers to lower prices in the latter half of 2025 as the transition of supply chains cuts into their profit margins.

For over two decades, consumers around the globe have come to expect the timely delivery of high-end tech products, such as iPhones and MacBooks, at reasonable prices, all thanks to a robust and efficient electronics supply chain operating tirelessly. However, this golden era appears to be drawing to a close.

I am reminded of a beloved childrens book from my youth called Monty, where an alligator named Monty ferries a rabbit, frog, and duck across a river to school each day. The trio relies heavily on Monty but often criticizes his swimming skills and speed. One day, Monty takes a vacation, leaving them stranded. They attempt various ways to cross the river on their own but ultimately fail, coming to realize just how essential Monty is to their daily lives. The current situation echoes this narrative; by undermining the hyper-efficient global supply chain, the U.S. may be facing its own Monty moment, with repercussions that will reverberate across the globe.

TSMC's Innovations in Chip Technology

Amidst this complex geopolitical backdrop, technology companies must innovate to stay afloat. Nikkei Asias Cheng Ting-Fang reports that TSMC is nearing completion on the first design of its next-generation chip packaging technology. This innovative approach involves a significant alteration in the shape of the substrate, which will assist leading AI chip developers, such as Nvidia, Amazon, and Google, in enhancing computing performance.

TSMC aims for small-volume production of this novel panel-level packaging by 2027, with the initial pilot development line located in the Taiwanese city of Taoyuan. Sources reveal that the first generation of this packaging will utilize a 310-mm-by-310-mm square substrate, which serves as the foundation upon which chips are constructed. If successful, TSMCs pivot to this new chip packaging method could dramatically reshape the product and research-and-development strategies of numerous equipment manufacturers. Chip tool makers from the U.S., Japan, and Taiwan have already begun reengineering their machinery to accommodate this new substrate format, which is capable of integrating more AI superchips than traditional round wafers, thereby enabling even more advanced AI computing capabilities.

TDKs Breakthrough in Optical Technology

In another major development, Apple supplier TDK has announced a significant breakthrough in technology aimed at accelerating data processing and addressing a critical bottleneck in the advancement of generative artificial intelligence. According to the Financial Times Harry Dempsey in Tokyo, TDK has developed a world-first spin photo detector that merges optical, electronic, and magnetic components, a development that could revolutionize data transmission while simultaneously reducing the power consumption of data centers.

A demonstration conducted in partnership with Nihon University showcased a remarkable response time of just 20 picoseconds, or 20 trillionths of a second, which is ten times faster than conventional semiconductor-based photo detectors. Although it may take up to five years for commercial applications to materialize, requiring collaboration with integrated circuit designers, TDK's innovation underscores the necessity of efficient data transfer between processing units as a vital component in the evolution of generative AI.

Other industry frontrunners, including the world's largest chipmaker TSMC, are also allocating resources towards tackling the data transfer challenges through next-generation silicon photonics, which utilize optical technologies to overcome the existing limitations of electronics.

The Market Response to Tariff Uncertainty

The shares of major Chinese and Taiwanese tech suppliers have experienced significant declines in the wake of Trump's announcement regarding reciprocal tariffs, providing a clear indication of the anticipated supply chain disruptions these policies will sow. Some executives have expressed that the present uncertainty surpasses what was experienced during the COVID-19 pandemic, as noted by Nikkei Asias Lauly Li and Cheng Ting-Fang. One manager at a supplier candidly shared that they are operating as if there is no tomorrow due to the exceptionally low visibility concerning future demand.

With a 90-day pause on most reciprocal tariffs and a temporary exemption for smartphones and laptops, tech brands such as HP, Dell, and Meta are pressuring suppliers to ramp up production for the U.S. market. Concurrently, Apple has been urging its suppliers to increase output since earlier this year, driven by tariff uncertainties, and is also auditing the production facilities of its suppliers located outside of China. Moreover, Apple has asked its suppliers to prepare for the assembly of more than 90% of its upcoming iPhones in India, which are intended for the U.S. market.

However, game consoles have not been as fortunate, as they do not fall under the U.S. tariff exemptions. This means that units shipped from China could face tariffs as high as 145%. This situation poses a significant hurdle for Nintendos eagerly awaited Switch 2, as a substantial portion of its production is currently based in China, as reported by Li and Cheng.

Collaborative Efforts in Automotive Technology

In a move reflecting the adage that two heads are better than one, Japanese automakers such as Toyota, Nissan, and Honda have joined forces to create a standardized design for next-generation automotive chips, with a target completion date of March 2029. This initiative, spearheaded by the Automotive Software Platform and Architecture (ASRA) consortium, seeks to bolster Japan's automotive industry leadership while enhancing its competitiveness against Chinese rivals like BYD, which have gained significant market share thanks to their more affordable and electrified offerings.

Key chip and component suppliers, including Denso and Renesas Electronics, are participating in this consortium. By standardizing automotive chips, these companies aim to enhance their bargaining power and increase production volumes with leading contract chip manufacturers like TSMC, who may otherwise prioritize more profitable AI chip orders over those intended for the automotive sector.

For more insights and updates, stay tuned to TechAsia, coordinated by Nikkei Asias Katherine Creel in Tokyo, with contributions from the Financial Times tech desk in London.

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