Them's the ones to watch out for.
Baaaa
From War on the Rocks, June 11:
Controlling advanced chip manufacturing in the 21st century may well prove to be like controlling the oil supply in the 20th. The country that controls this manufacturing can throttle the military and economic power of others. The United States recently did this to China by limiting Huawei’s ability to outsource its in-house chip designs for manufacture by Taiwan Semiconductor Manufacturing Company (TSMC), a Taiwanese chip foundry. China may respond and escalate via one of its many agile strategic options short of war, perhaps succeeding in coercing the foundry to stop making chips for American companies. If negotiations fail, China might take drastic measures, turning the tables on the United States. On the more modest end of the spectrum, China might start some type of trade war with Taiwan to ensure access, following the playbook Beijing used to coerce Korea over Terminal High Altitude Area Defense (THAAD) or Australia over its recent decision to lead a call for investigating the origins of the novel coronavirus. On the more extreme end, these Taiwanese chip foundries might be subject to an aggressive campaign of sabotage. And even though observers of the region might downplay the risk, it is not impossible that this could be used as a part of a casus belli for China’s long-held desire to reunify by force. Such is the importance of chips in this era.....MUCH MORE
Either way, Washington should be worried. If the United States were to be deprived of access to these foundries, the U.S. defense and consumer electronics industries would be set back for at least five years. Moreover, because China is investing in its own chip foundries, it could become the world leader in technology for the next decade or more. That’s why it was encouraging to see Republicans and Democrats in the House and Senate propose $25 billion to help America’s semiconductor industry. But this should only be the start.
There are two types of semiconductor manufacturing companies in the chip industry. Some (like Intel, Samsung, SK Hynix, and Micron) design and make their own products in factories that they own. There are also foundries, which fabricate chips designed by consumer and military customers; TSMC is the largest of these in the world. The chips that TSMC makes are found in almost everything: smartphones, high-performance computing platforms, PCs, tablets, servers, base stations, game consoles, internet-connected devices like smart wearables, digital consumer electronics, cars, and almost every weapon system built in the 21st century. About 60 percent of the chips TSMC makes are for American companies.
In 2012, a bipartisan committee of the U.S. House of Representatives investigated whether the Chinese company Huawei had put backdoors into its equipment that enabled it to spy on data therein. The committee found that Huawei could not or would not explain its relationship with the Chinese government and did not comply with U.S. laws, but it did not reach a conclusion as to whether such backdoors exist. Still, most observers agree that the company is not careful with security. The report recommended that no government or contractor systems include Huawei systems. In 2019, the U.S. Department of Commerce’s Bureau of Industry and Security added Huawei to its Entity List, effectively limiting the sale or transfer of American technology to the company, though a series of licenses have been granted to waive the restrictions in some cases.
This month, the Commerce Department required overseas semiconductor firms that use American technology and equipment to apply for a license before selling to Huawei. The order was targeted at TSMC, which is Huawei’s main supplier of advanced chips; without these, Huawei will be at a competitive disadvantage against Apple or Samsung in the smartphone industry, and against Cisco and others in the market for network equipment. (Some analysts have pointed out the order has potential loopholes.) Next up, it’s likely Washington will prohibit sales to China of the equipment used to make chips, which comes from companies like Applied Materials, KLA Corporation, and Lam.
TSMC Chose America’s Side, For Now
In May 2020, TSMC announced it was going to build a $12 billion foundry in Arizona to make some of its most advanced chips. Foundries take at least three years to build and are the most expensive factories on earth. Construction on TSMC’s facility is planned to start in 2021, but actual chip production will not start until 2024.
While the announcement is welcomed, if and when the Arizona foundry is built it will only be able to process about a quarter of the chip productions of TSMC’s largest semiconductor fabrication plants and would amount to just 3 percent of the manufacturing capability that TSMC currently operates in Taiwan. There they have four major manufacturing sites, each of which have six or seven foundries producing 13 million wafers — thin slices of semiconductors — a year. Compare that to the quarter of a million wafers they intend to process in the United States in 2024. If the United States lost TSMC to China, one new American plant would not make up the difference in capacity.
China’s Semiconductor Industry
A decade ago, China recognized that its initial success as the world’s low-cost factory was going to run its course. As the cost of Chinese labor increased, other countries like Vietnam could fill that role. As a result, China needed to build more advanced and sophisticated products on par with the United States. However, most of these products required custom chips — and China lacked the domestic manufacturing capability to make them. China uses 61 percent of the world’s chips in products for both its domestic and export markets, importing around $310 billion worth in 2018. China recognized that its inability to manufacture the most advanced chips was a strategic Achilles heel....
If interested see also last week's:
"AI chips in 2020: Nvidia and the challengers"
"50 Future Unicorns"
