The Taiwane semiconductor industry's position is becoming increasingly important in the global technological matrix as US and European firms outsource more and more of their requirements to businesses in Asia, the ratings agency said in a report.

"The key issues that shape the competitiveness of Taiwan's technology companies, which are particularly adept at manufacturing made-to-order chips, include their large scale of production and high technological expertise, which together attract global outsourcing orders," said Ken Chan, a Moody's analyst and author of the report.

"Furthermore, the island's electronics and semiconductor industry is highly diversified and integrated, providing flexibility to outsourcers," Chan said.

"Competition from China, however, is now challenging Taiwan's unique position. The industry on the mainland is replicating, but with lower costs, the Taiwan model," he added

Although China currently lags in technology levels, it is catching up very fast, according to the report.

Furthermore, China possesses a large domestic market with strong demand for integrated circuits and semiconductor products, it said.

Another point of concern, Moody's said, is that Taiwan's companies, like their US and European peers, rely on various international firms for supplies of certain raw materials and patented technologies, a situation that inflates and adds volatility to the cost structures for technology players.

Nevertheless, Moody's said it believes Taiwan will remain competitive in global electronics and semiconductors, given its long-established customer relationships, the capabilities of its electronics companies, as well as the diversified and mature nature of its industry structure.

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