The CHIPs Act and the US semiconductor exposure
Master of Useless Information, 15 Apr 2023 5 min read
What is good for you to know
The CHIPS and Science Act: Aiming to Strengthen the US Semiconductor Industry
The CHIPS and Science Act has been introduced with the aim of increasing the competitiveness of the United States in the semiconductor and research sectors. The Act focuses on lowering costs, creating jobs, strengthening supply chains, and countering China's influence. By investing billions of dollars in domestic semiconductor manufacturing, R&D, and workforce development, the Act seeks to support American innovation and maintain the country's global leadership in technology.
The global semiconductor shortage, increasing competition from China, a decline in the U.S. market share in semiconductor manufacturing, the need for technological innovation, and workforce development have all contributed to the need for the CHIPS and Science Act. In response, the Act aims to increase domestic semiconductor production, bolster supply chain resilience, maintain U.S. technological leadership, and create jobs in the industry.
A Closer Look at Taiwan's Semiconductor Dominance
Taiwan is responsible for 90% of the manufacturing of the most advanced semiconductors, which are found in smartphones, PCs, automobiles, and data centers. This concentration of production is significantly higher than that of the oil industry in the 20th century when Saudi Arabia, the dominant producer, was responsible for only 10% of the world's petroleum. Oil once wielded the most power and had the biggest influence over geopolitics. Many believe that semiconductors have taken that seat in the 21st century.
Taiwan's dominance in semiconductor manufacturing can be attributed to the government's strategic investment in the industry, primarily through Taiwan Semiconductor Manufacturing Company (TSMC). TSMC is now the world's largest dedicated independent semiconductor foundry and has become a crucial player in the global semiconductor supply chain, partnering with leading technology companies such as Apple, NVIDIA, and Qualcomm.
Intel's Struggles and the US CHIP and Science Act
Intel, once a dominant force in the semiconductor market, failed to invest in new technologies, missing the smartphone wave and falling behind in the more recent AI wave. NVIDIA, in partnership with TSMC, is now viewed as the heir apparent to Intel for the emerging market of selling chips to data centers for training large AI systems.
The US CHIP and Science Act aims to equalize the cost gap of manufacturing chips in the US and lessen dependence on a single supplier. However, change in the industry is slow, and it will likely take at least a decade before any significant shifts occur. With TSMC investing $33 billion annually in R&D and production capacity, the $39 billion provided by the Act for investment in domestic semiconductor production appears to be a drop in the ocean.
The high cost of building a single foundry can be attributed to the expensive tools and engineering feats required to produce advanced semiconductor chips. Think of a new iPhone. The primary chip in that phone will have 15b transistors carved on it.
Only a few companies worldwide can produce these tools, which can cost over $100 million each. For example, these tools contain the flattest mirrors ever invented. They need to produce and sustain constant explosions producing heat at 40 times the temperature on the surface of the sun.
The CHIPs Act is a start, and it has already generated investment from the private sector, but China remains a potential threat to disrupt supply chains surrounding Taiwan.
What Makes You Interesting
The chip in your iPhone has 15 billion transistors carved into it.
The tool that makes these chips needs the flattest mirrors ever invented.
It perpetually produces chemical reactions violent enough to generate heat 40 times hotter than the sun.
The recent US effort to reduce our exposure to semiconductor supply is like a drop in the ocean when put in perspective.
Sources: The Prof G Pod with Scott Galloway, Episode 244, "Chip War: The Fight for the World's Most Critical Technology" by Chris Miller, The White House (whitehouse.gov)
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