The global electronics industry was badly shaken when a 7.3 Richter scale earthquake hit Taiwan in September 1999. In Silicon Valley, the center of technology and product innovation for the industry, there was widespread concern about lengthy interruptions in the supply of computers, semiconductors, and other key components. The concern was well founded: Taiwanese companies produce the majority of the world's notebook computers, motherboards, monitors, optical scanners, power supplies, and a range of other electronics-related products. In addition, the island's semiconductor foundries account for two-thirds of global foundry output (see Figures 7.1 and 7.2).

The impact of the earthquake was quite limited as most Taiwanese manufacturers returned quickly to prequake production levels. However, the earthquake scare revealed the importance of this small island to the global information technology (IT) industry. As late as 1980, Taiwan served primarily as a source of low-cost labor for foreign consumer electronics corporations. In the following decades, indigenous producers of personal computers (PCs) and integrated circuits (ICs) emerged as key players in international production networks. By 1999 Taiwan ranked as the world's third largest producer of IT hardware, following only the United States and Japan (see Figure 7.3 and Table 7.1).

Information technology production fueled Taiwan's impressive economic growth in the past two decades. Taiwan's IT output grew from less than $100 million in 1980 to more than $5 billion in 1989 and grew over 20% annually in the 1990s (when GDP growth hovered around 6–7%) to reach $21 billion in 1999.