TAIPEI (TVBS News) — Taiwan's manufacturing output surged to an all-time high in July. But the record numbers mask a deeper strategic calculation: officials and industry leaders are positioning the island to capture the next wave of artificial intelligence. Not the software kind that generates text and images, the physical kind that powers robots.
The manufacturing production index jumped nearly 27 percent year on year, marking 29 consecutive months of growth. Computer and optical products, which include AI servers, posted an even more striking gain. Production rose nearly 96 percent from the same period last year, the longest growth streak on record at 37 months.
Three seemingly disconnected trends are converging. The first is this manufacturing surge itself, driven largely by AI-related demand. Chen Yu-fang (陳玉芳), deputy head of the Ministry of Economic Affairs' Department of Statistics, attributed July's stronger-than-expected output to robust demand for wafer foundry services and AI servers.
The second trend emerged Wednesday (Aug. 26) at the 2026 Smart Taichung Forum. There, Taichung Mayor Lu Shiow-yen (盧秀燕) and industry executives made an explicit case for "Physical AI" — artificial intelligence that operates in the real world through robots and autonomous systems.
"AI robots are a once-in-a-century opportunity for our industry and economy," Lu said. "Once in a century, or even several centuries, you won't encounter an opportunity like this. We must seize it."
The third trend is geopolitical. A report released last week by the Research Institute for Democracy, Society and Emerging Technology (DSET) warned that technology democracies have a "golden but narrowing" three-to-five-year window to build robotics supply chains outside China.
Chinese vendors accounted for 85 percent of global shipments of humanoid and quadruped robots in 2025, according to Smart Analytics Global. Only about 10 percent of humanoid robots have been deployed in real-world applications, meaning the market remains contestable.
Taichung's case for capturing this opportunity rests on its existing industrial base — the machine tool makers, precision component suppliers, and mechanical systems producers that robots require.
"Taichung has a good ecosystem in the robot, in the mechanical industrial," Pua Khein-seng (潘健成), founder and CEO of Phison Electronics (群聯電子), told TVBS at the forum. "AI basically is a logic, it's a brain. But go to the robot, you need a lot of components."
"Tunghai University happens to be located right in the heart of Taichung's most important technology and industrial supply chain," said Chang Kuo-en (張國恩), president of Tunghai University (東海大學), which co-hosted the forum. "There are many hidden champions here — precision manufacturing, TSMC, and more. From the brain to the limbs, everything can be integrated."
DSET identified around 180 Taiwanese entities involved in the robotics supply chain. The report cited three strengths: electronics manufacturing services companies, a precision component ecosystem, and advanced semiconductor manufacturing led by Taiwan Semiconductor Manufacturing Co.
But Nathanael Cheng (鄭秉信), a DSET policy analyst, identified two main barriers in an interview with the Central News Agency: "limited awareness among U.S. startups of what Taiwan can offer" and the fact that most American robotics companies have yet to begin mass production.
Taiwan's component makers also face a structural challenge. Sales to China have been declining as domestic Chinese suppliers expand. This means Taiwanese companies "need to pivot to other markets not just to survive, but to thrive," Sunny Cheung (張崑陽), a DSET research fellow, also told the Central News Agency.
U.S. policy is creating incentives. The Federal Communications Commission has added foreign-produced advanced robots to its Covered List, signaling regulatory scrutiny of Chinese-made systems. The DSET report urged Washington and Taipei to begin bilateral discussions on Physical AI supply chains.
At the forum, Kathy Yang (楊秋瑾), Hon Hai Technology Group's (鴻海科技集團) head of AI software business, offered a glimpse of how Physical AI might scale. The company operates 242 campuses globally, some housing up to 400,000 people, which it uses as testing grounds for smart city applications before deploying them externally.
The stakes echo a decision Taiwan made several decades ago, when the government bet heavily on semiconductors — a gamble that paid off spectacularly and now underpins the island's geopolitical leverage. But the window is narrowing. With Chinese vendors dominating current shipments and U.S. companies still in early production stages, Taiwan's opportunity lies in the gap. Whether the pivot to Physical AI succeeds will depend on whether Taichung's machine shops can become robot factories. ◼