Ukraine may be the Gray-zone in the headlines right now, but Taiwan is the more significant strategic hybrid warfare battlefield, in no small part due to its global leadership in semiconductor manufacturing.  Considering the hype cycle around all things Quantum, you would think it would be positive, sound strategic news that Taiwanese leaders recently announced a strategic initiative focused on quantum computing.  The Taiwan News and Focus Taiwan (CNA English News) translations are tough, but here are the basics of the Taiwan Quantum Initiative as reported in Mandarin Chinese by the aforementioned Taiwanese local press outlets:

• It is a five-year initiative starting in 2022.
• The Ministry of Science and Technology, the Ministry of Economic Affairs, and the Academia Sinica (“the most preeminent academic institution of the Republic of China [ROC – Taiwan], Academia Sinica was founded in China in 1928 to promote and undertake scholarly research in the sciences and humanities.”
• Premier Su Tseng-chang (蘇貞昌) announced on December 2nd that Taiwan will set aside an NT$8 billion (US$288 million) budget for the development of quantum computing technology and talent nurturing.
•  A base will be established at the Shalun Green Energy Technology Demonstration Site in Tainan for the research and development of the technology.
• Premier Tseng Chang in his announcement positioned quantum computing as a “next-generation computing technology destined to bring about revolutionary changes to areas spanning information security, finance, transportation, and national defense…quantum computing, along with artificial intelligence and big data, will play a pivotal role in shaping a smart society of the future, according to CNA.

Don’t Believe the Hype

The Taiwanese Premier, it seems, believes the Quantum Hype.  We are applying a healthy cynicism to quantum lately and we are not as bullish on Quantum strategically as the Taiwanese leader.  Why?  We came out of our recent Stratigame and a recent OODA Network Member call heavily influenced by some of the more informed analyses of quantum by OODA Network Members.  We took a fresh look and in a nutshell:  Quantum is not MySpace and some elements of quantum innovation as marketed by upstarts in the space may well be straight-up vaporware slash cold fusion.   And we should differentiate between a few categories of quantum: The quantum computing marketplace of startups and unicorn valuations is what we are making reference to here.  We are not referring to Quantum Cryptography and the battle for Quantum Supremacy, which is real.   Or the ‘long view’ quantum applications that hold promise for scientists and engineers on a very long time horizon with very specialized quantum capabilities.

We have three working assumptions (blindspots really) for our analysis of this quantum strategy by Taiwan:

A) It is difficult to determine how big a piece of the Taiwanese R&D and Emerging Technologies budget is represented by this $288 million dollar commitment and how much it takes resources away from other potential technology initiatives (if any);

B) We are assuming that it will shift a percentage of high skilled workers into a quantum-focused training commitment, at the expense of other high-tech disciplines that, we argue, have more tactical importance for Taiwan than quantum computing; and

C) For now, we have no way of determining if these state-sponsored monies will be organized into a startup ecosystem with talent making the individual choices to join high risk, early-stage companies, or if the funding will lean towards the more hard science development of hardware and software applications on a much longer time horizon, with lower risk choices for a newly trained, smaller, more focused, Taiwanese quantum workforce employed in government-sponsored “skunkworks” with an eye towards “moonshot”.

ROC Quantum Focus May Cause Brain Drain and Missed Opportunities for Trusted Chip and Specialized Manufacturing Equipment Innovation

With our working assumptions in mind, the following are the three reasons we would dissuade Taiwan’s leadership from focusing too many strategic financial and talent resources on quantum computing at the expense of putting resources into a broader, more tactical in focus portfolio to address these potential black swans and/or gray rhinos:

1. The Quantum Bubble and Talent:  We are bearish on the broad quantum marketplace of QaaS platforms in the U.S. coming to market anytime soon and anticipate the Quantum innovation space hueing to the usual metric that nine of ten startups fail. There will be implications for the U.S. of this quantum marketplace failure and post-mortem which applies to Taiwan’s potentially misguided Quantum strategy as well.  It comes down to the development of talent, or as ZDnet reports, Quantum computing is just getting going. But the hype could bring everything crashing down.  The concern for both the U.S and Taiwan is that too high a percentage of the future workforce will pursue quantum, when their talents are needed elsewhere in a more sophisticated portfolio of strategic technological challenges (semiconductor design, fab and packaging innovation, information warfare, cybersecurity workforce development, high-performance computing, AI, ML, disinformation research and solutions development and deployment, etc).
2. The Future of Trusted Chips and a Resilient Global Chip Supply Chain:  China is making a formal bid for global dominance of the semiconductor supply chain, including poaching IP and talent from Taiwan.  As recently as April of this year, China flanked Taiwan with military exercises in air and sea and in November a US warship was deployed in the sensitive Taiwan Strait.  Semiconductor manufacturing and supply chain security are central to all strategic scenarios for Taiwan.  Strategic partnerships and global supply chain innovation should be the focus,  in the areas of chip provenance, supply chain transparency, and trusted satellite, RFID, and GPS tracking (or new tracking technologies and standards with customers like the U.S. Government) that need all three innovations in place for the future of national security-driven semiconductor supply chain resilience.   Has the Taiwanese Premier and his leadership team explored global supply chain innovation – with a future-forward curriculum to match – over prioritizing quantum computing technology and nurturing talent in quantum?  If not, they should be concerned about the brain drain in this innovation space as well brought on by the hype around quantum.
3. Specialized Manufacturing Equipment (SME) – Small Company R&D, Government Subsidy and “Made in Taiwan”: Taiwan should be looking at its native SME R&D and production capabilities in the short and long term, as every 2-3 years a new technology generation requires advances in the industry’s highly specialized production equipment by relatively small equipment firms.  Cost-sharing and government intervention will be needed for the increase in demand for small SME companies, bridging the R&D monies necessary for the development of the next generation of equipment. Companies with less than 250 employees account for 9% of manufacturing R&D spending with an R&D to sales ratio of 7.5%. (1, p. xvii).  According to Focus Taiwan, with data from a recent SEMI report, Taiwan ranked as the world’s largest semiconductor equipment spender in Q3 of 2021:

“Taiwan was the largest buyer of semiconductor equipment in the third quarter of this year, as domestic firms expanded production capacity and upgraded technologies to improve global competitiveness…Taiwan purchased US$7.33 billion worth of semiconductor equipment in the July-September period.  Among the Taiwanese semiconductor suppliers gearing up to expand, Taiwan Semiconductor Manufacturing Co. (TSMC), the world’s largest contract chipmaker, which commands an over 50 percent share in the global market, has set out plans to invest US$30 billion in capital expenditure in 2021 as it develops its advanced 3-nanometer process with the aim of starting commercial production in 2022.  Over the next three years, TSMC’s investments are expected to total US$100 billion.

In the third quarter, the total spending in semiconductor equipment worldwide hit a record high of US$26.8 billion, up 8 percent from a quarter earlier and also up 38 percent from a year earlier. The third quarter marked the fifth consecutive quarter of record-breaking global spending. China was bumped down into second place in the spending rankings after purchasing US$7.27 billion in semiconductor equipment in the third quarter, down 12 percent from a quarter earlier but up 29 percent from a year earlier.  South Korea came in third, unchanged from a quarter earlier, as its semiconductor equipment spending reached US$5.58 billion, down 16 percent from a quarter earlier, SEMI added.  North America and Japan claimed fourth and fifth place in the third quarter, respectively, after they purchased US$2.29 billion and US$2.11 billion in semiconductor equipment in the third quarter, up 36 percent and 19 percent from a quarter earlier, according to SEMI.  In a research report released in July, SEMI forecast semiconductor equipment shipments will hit a new record high of US$95.3 billion in 2021, up 34 percent from a year earlier.  SEMI said South Korea, Taiwan, and China will be the top three equipment spenders in 2021.”

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About the Author

Daniel Pereira

Daniel Pereira is research director at OODA. He is a foresight strategist, creative technologist, and an information communication technology (ICT) and digital media researcher with 20+ years of experience directing public/private partnerships and strategic innovation initiatives.