You’re probably a big fan of Taiwan Semiconductor Manufacturing Company, right? What, the name isn’t familiar? But its microchips are, without which a great many of your devices would cease to function. Sure, we have Intel, but TSMC makes smaller, more complex microchips, and far more of them. Maybe you’ve never heard of the name, but you can’t live without them.
The supply chain for cutting-edge chips like those made by Taiwan Semiconductor Manufacturing Company is no better. Producing the newest five- or seven-nanometer chip requires billions of dollars in investment in specialized factories and a highly skilled labor force. As a result, there are relatively few facilities that make them. If one of these factories goes offline, as the Samsung operation in Austin, Texas, did for weeks after the Texas grid failure, there might be no other factory able to step in.
There are problems with manufacturing, raw materials and supply chain. But there are other problems as well, problems of sustainability and focus.
This dynamic — fewer and fewer companies engaged in fierce international competition — has made it prohibitively expensive to invest in robust supply chains. If two firms produce the same chip, the more “efficient” firm — the one focused on maximizing the return on every dollar invested, rather than on making sure production won’t be interrupted — will drive the other out of business.
At the moment TSMC has a huge lead in the international microchip biz, but the United States has only one microchip manufacturer in business, and its product isn’t as good. 60 Minutes did a segment on semiconductors and it revealed the fragility of manufacturing and supply chain.
COVID showed that the global supply chain of chips is fragile and unable to react quickly to changes in demand. One reason: fabs [microchip manufacturing facilities] are wildly expensive to build, furbish, and maintain.
Lesley Stahl: it used to be that there were 25 companies in the world that made the high-end, cutting-edge chips. And now there are only three. And in the United States? – You.
[Intel CEO Pat] GELSINGER HOLDS UP FINGER
Lesley Stahl: One. One.
Today, 75% of semiconductor manufacturing is in Asia.
Pat Gelsinger: 25 years ago, the United States produced 37% of the world’s semiconductor manufacturing in the U.S. Today, that number has declined to just 12%.
Lesley Stahl: Doesn’t sound good.
Pat Gelsinger: It doesn’t sound good. And anybody who looks at supply chain says, “That’s a problem.”
What if there were a war and we were unable to get microchips from Taiwan? What about a natural disaster that disrupted the supply chain? Why can’t we make them here, just as many and just as good as the products coming out of TSMC? What if we can’t? At the moment, we can’t. At the moment, COVID sufficiently disrupted the supply chain that there is a shortage. At the moment, we are at the mercy of TSMC.
Today’s shortage may well resolve itself as consumer spending shifts from pandemic-era electronics to dining and recreation in a fully reopened economy. But the disruption could also metastasize, affecting the production of medical equipment and consumer appliances. In either case, we need a plan for dealing with all contingencies. If private business won’t do it, the government can and should.
Can private business do it? Surely, that’s the way it’s supposed to work. If we need microchips, and we most assuredly do even if we hate what they’ve done to our world, then someone should open up a fab and make tons of them, perhaps in America so we have our own supply that isn’t subject to the vicissitudes of politics and nature. But in good times, we need to sell them to the businesses that need them, and they’re buying the better, smaller, cheaper chips rather than the “made in America” chips.
Why aren’t we making the better, smaller, cheaper chips? Those are not the dominant values of our workforce or our government, and to the extent management remembers why it exists, no longer within its ability to focus on the things that keep business alive. And if our microchip supply chain fails, will someone talking about you using the “wrong” pronoun be your immediate problem?
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“It is through exchange that difference becomes a blessing, not a curse”.
Everyone wants to have robust systems with additional capabilities on the margin, to deal with uncertainties, but no one wants to pay for the marginal capacity.
It is worse than you describe, because the equipment inside the fabs is manufactured by only one company, in the Netherlands, and they are completely booked for the foreseeable future. No one else on the planet knows how to build this equipment.
But do they know how to be equitable when building this equipment?
My understanding is that marginal capacity is relatively expensive in this industry and new entry is really hard. Intel has been trying unsuccessfully to start new manufacturing in the US for years now. The US is also very concerned with other people getting their hands on advanced chips so we do our best to limit who can manufacture them. That Dutch company has been stopped from selling to the Chinese for example.
I’m sure there’s a subreddit to discuss this facet of the issue, if you catch my drift.
” the equipment inside the fabs is manufactured by only one company, in the Netherlands”
No. See, e.g., KLA Tencor (Milpitas, CA), Semiconductor Process Equipment Corp (Valencia, Ca), Zeiss (Oberkochen, Germany), Suss Microtech (Garching, Germany), Applied Materials (Santa Clara, CA), Lam Research (Fremont, CA), Tokyo Electron (guess), Hitachi (Chiyoda, Japan), etc. etc.
If the US government wants to have a fully-domestic supply of chips, all it has to do is spend ~$20B per year and do it. Market forces drive different industries different places for lots of reasons. Nothing is special about semiconductors. The US used to have the biggest three car makers in the world; the US used to be the biggest steel producer in the world; etc. etc.
And for the millionth time, this is why going down orthogonal rabbit holes is unhelpful and unappreciated.
Can’t make chips without rare earths.
There is only one mine in the U.S. producing rare earth ore, Mountain Pass, and the ore is shipped to China for processing.
Depending on the source, China produces 86% to 98% of the rare earths used today.
So even if you build the chip plants, you are constrained by the availability of your raw materials.
Odd how the geeky eng side comes out and completely ignores the fact that while our companies are fighting over social justice, we’re getting our butts kicked in critical semiconductors, without which nobody’s pronouns are going to matter. Or not odd at all.
When people see a crack where their expertise can be used, they go for it. It’s only fair.
IBM used to manufacture microchips in Endicott NY. But then they decided the good people of upstate NY were too expensive. We used to make a lot of strategic commodities inside the United States but “Muh Free market!” only cares about the next quarter’s earnings.
Economics is hard.
If only businesses could be charities for the benefit of employees, everything would be grand, comrade.
~~~What if there were a war?~~~
Jeez-Louise, you been having bad dreams again esteemed one? Or is it the Mad-Maths messing up your REM sleep?
There is only really one answer….
More wine and less electronics for you after 6 p.m.
Do it for your country….
There is no problem. You have over 1/3 of the world’s fab facilities in the USA, yet you’re not 3% of the people here on the planet. Even not having 5% of the people to cater for, you still make 12% of the chips.
Sounds like whiny white progressives complaining about their privilege as usual…
Math is hard.
So what? Just US style capitalism at work. The conditions leading to possible bottlenecks resulted from prior economic decisions which make perfect sense in our system. Even if businesses weren’t concerned with choice of pronouns we would still be in the same boat.
Does Nurse Ratched know you’re on the computer again?
I think the future of chip production is through Advanced manufacturing which limits the impact of the current producers long term.
Current production is lucky for Taiwan however because the US admin cant just let china take them without strategic impact (beyond all the death..).
The rare earth elements issue HG brought up is much more serious. Most of those are closer to us (Africa is a huge producer for example) so it is feasible we could at least prevent adversaries from controlling production if we wanted to.
We are an exceptionally rich and comfortable country which lets our elite focus on things such as pronouns and virtue signaling without pressure. The very short gas shortages last week prelude how fast the public can care when it’s comfort is disrupted. A serious chip shortage would be more than a small disruption which might cause companies and politicians to re evaluate priorities.