TAIPEI -- Tien Wu, chief operating officer of Advanced Semiconductor Engineering, has a problem: The brightest young people in Taiwan do not want to work in the island's signature business, chip making.
"All the college freshmen are asking, Why should I join the industry? I'd rather work for Facebook, Apple or Google," Mr. Wu said in an interview.
Taiwan, an island of 23 million people, is the world's biggest chip maker. The industry generated about $63 billion in sales here last year -- more than one-fifth of the global total, according to the Taiwan Semiconductor Industry Association. Made-in-Taiwan chips are key components in many of the world's PCs, smartphones, cameras and other high-technology gadgets.
Why, then, has chip making lost its allure? Many semiconductor companies in Taiwan struggle with low profit margins or even lose money. At the same time, Silicon Valley giants like Google and Apple, whose wizardry would be impossible without the continuing innovations of the semiconductor industry, are sitting on so much cash they do not know what to do with it.
"We're the guys in the hot room, forging the iron and taking the heat, and someone else is reaping the benefit," Mr. Wu said.
His lament was echoed by executives of other companies during a semiconductor trade show in Taiwan last week. So even as engineers toil away at the latest technological breakthroughs in chip design and manufacturing, industry leaders are also wrestling with a bigger question: How can the semiconductor business grab a bigger portion of the profits it enables?
The issue is gaining urgency because one of the old paradigms of the semiconductor business may be about to break down, putting new financial pressure on the industry. According to Moore's Law, named after Gordon Moore, co-founder of Intel, the number of transistors on a chip doubles every two years, . But the transistors are now packed so densely on chips that it may be technically impossible to go further without corrupting data, experts say.
"Everybody is coming up against this," said Pascal Viaud, chief strategy officer of Yole Développement, a consulting firm in Lyon. "The industry is going to need to find new ways of creating value."
One approach is to stack transistors on top of each other, creating so-called three-dimensional chips, rather than lining them up side by side. Samsung Electronics of South Korea announced this summer what it described as the first mass-produced 3D chips for flash memory, a key component in smartphones.
Although 3D technology and other advances promise to lower the cost and increase the performance of consumer electronics, they make chip design and manufacturing more complicated and expensive. This has prompted semiconductor companies to rethink the industry's structure.
Several business models are competing for primacy.
The giants of the industry, including Samsung and Intel, offer one-stop shopping -- designing, manufacturing and packaging chips into integrated circuits that are sold to the companies that design and assemble finished phones, cameras and other gear. Advocates of this approach, featuring chip making behemoths known as integrated device manufacturers, or I.D.M.'s, say it provides the financial scale and technological expertise to deal with the industry's challenges.
Another approach is more specialized, with separate companies handling different stages in the creation of an integrated circuit. Advanced Semiconductor Engineering, for example, packages and tests chips that have been made by so-called chip foundries and designed by others. Supporters of this approach say clients of electronics companies prefer to deal with more focused semiconductor contractors.
"Today, I can say with certainty that the I.D.M. model is dead," said Ajit Manocha, chief executive of Global Foundries, a chip maker in Milpitas, California, that was created from the manufacturing arm of Advanced Micro Devices four years ago.
Although semiconductor companies everywhere are wrestling with the question of structure, it is particularly pertinent in Taiwan because of the industry's size and its relative fragmentation. Taiwan has been less affected by multiple rounds of consolidation that have concentrated the industry in a handful of big players elsewhere.
To try to cope with the new challenges, the biggest chip maker on the island, Taiwan Semiconductor Manufacturing Company, or T.S.M.C., long considered to be purely a foundry, has recently moved to add new capabilities, like chip packaging.
United Microelectronics Corporation, the second-biggest foundry by revenue in Taiwan, has announced an alliance with IBM to develop new technology, as well as investments in other chip companies.
Despite all the maneuvering, 2013 is shaping up as a pretty good year for chip makers in Taiwan, with revenue over all expected to rise to 1.87 trillion Taiwan dollars, or about $63 billion, up 14 percent from 2012, according to the Taiwan Semiconductor Industry Association. But the business is volatile; two years ago, sales plunged 12 percent.
Some analysts say there are signs of a turnaround in one of the weakest parts of the business, memory chips. Memory prices have been weak for years, because chip makers expanded capacity just as sales of PCs, a big user of memory chips, began to slump. But consolidation has helped put capacity back in line with sales.
The sensitivity of the market to changes in supply and demand was demonstrated in early September when a fire at a plant in China that is owned by SK Hynix of South Korea, the second-biggest producer of DRAM memory chips after Samsung, caused prices in the spot market to surge as much as 20 percent.
The market for other chips, including those that serve as the brains of computers and mobile devices, has been steadier, helped by the global boom in sales of smartphones and other mobile devices.
Some executives say concerns about the structure of the industry are overblown. Instead of coveting the lavish profits of the Internet companies and mobile phone makers like Apple and Samsung, they say, chip makers ought to work on developing new markets for their products in industries like automobiles and health care.
"It's about innovation," said Jack Sun, chief technology officer of T.S.M.C. "We need to collaborate to create innovation together. Otherwise we won't be able to retire.
"So leave the software guys and the O.E.M.'s alone for now," he said, referring to the companies that assemble electronics devices, known as original equipment manufacturers.
This article originally appeared in The New York Times.