From Forbes:
How much silicon is there in Silicon Valley? Not much, if we are talking super-pure monocrystalline silicon, which is the high-end material driving the digital revolution.
As with countless other advanced materials these days, most of the world’s semiconductor-grade silicon comes from Japan. By far the world’s largest producer is Tokyo-based Shin-Etsu Chemical. Meanwhile the only other significant source globally is SUMCO, also a Japanese company. These companies produce so-called silicon ingots, huge silvery carrot-shaped items that are then sliced into silicon wafers by countless other manufacturers around the world, not least various manufacturers in the United States.
Though you have probably never heard of Shin-Etsu, its silicon ingot division is a remarkable business – the ultimate survivor in a grueling winnowing-out process that has been going on for two generations. The industry was pioneered in the United States, and for a time such U.S. corporations as Raytheon and Monsanto played a leading role. But they could not keep up and eventually exited. For a time Munich-based Wacker Chemie was a significant player, but it too fell by the wayside. (Wacker remains in the silicon business but only as a producer of so-called polysilicon, a lower grade material that has various humbler applications in electronics.)
It is fair to say that if a bunch of Mutant Ninja Turtles wanted to get Planet Earth’s attention, they could hardly opt for a smarter opening gambit than to knock out Shin-Etsu. The resulting silicon shortage would make the notorious Arab oil embargo of the mid-1970s seem like a picnic.
By any standards, Shin-Etsu’s monocrystalline silicon division is a classic instance of Warren Buffett’s precept that “a truly great business must have an enduring ‘moat’ that protects excellent returns on invested capital.”
Shin-Etsu’s economics are based on Moore’s Law, the proposition that the number of transistors on a silicon wafer is preordained to double every two years. Each succeeding generation of computer chip has required a higher grade of purity in Shin-Etsu’s silicon ingots and, as of 2015, this has meant an almost unbelievable 99.999999999% – or no more than one extraneous atom in one hundred billion....MORE
