trying to understand the chip war
RWL #309
Greetings from the Last Homely House! This is my first mid-week links newsletter. I’m planning to have an essay again this Sunday with no links. I’ll be curious to hear what you think of this format. For this week I’ve aggregated some links about computer chips.
I’ve been thinking a lot about computer chips over the last year or so - maybe you have too because you wanted to buy a car or some other electronic device that was backordered because of a lack of chips. Chips are ubiquitous now in almost all of our transportation, communication, medical technology, and even household appliances and children’s toys. (Pic above is a group of my students visiting a semiconductor fabrication plant outside of Austin, Texas. One of my executive MBA students was an executive with Freescale (now NXP) at the time, and he invited my Army students to come visit the facility).
Congress passed the CHIPS and Sciences Act this past summer. It provides billions of dollars in funding for R&D to bring chip manufacturing back to the US. Most analysts I follow scoffed at the paltry sum, given that setting up a chip fabrication facility (“fab”) costs tens of billions of dollars, and it requires a highly skilled workforce to run it, a few hundred billion dollars may not help much.
My understanding is China makes a lot of the lower quality chips that are used in toys and other low-end technology. The fastest, most powerful chips that are needed to power our smart phones, but also artificial intelligence applications and cutting edge defense technologies are almost all (90% +) manufactured by one firm - TSMC in Taiwan.
Intel used to make the best, fastest chips. It was an integrated design and manufacturing (IDM) firm. As it turns out, design and manufacturing require really different corporate cultures. Trying to do both in one company is really hard. So most US firms kept the high value design function and outsourced the manufacturing… to TSMC. One of the podcasts below traces AMD’s evolution from IDM to just design and it gives a flavor of the history behind this change.
With China threatening to attack Taiwan, and with many analysts expecting that could happen sooner than later, we could be left without access to those high-end fabs. Thus the CHIPS Act. It was partially justified as a jobs act, but it really is a national defense act. But it is not just about reshoring manufacturing. The CHIPs Act also cuts off the Chinese economy from the highest quality chips. I recently heard an analyst talk about this Act as similar to our decision to cut off fuel exports to the Japanese on the eve of WWII - and we know what that triggered.
I think this CHIPS Act is much bigger than the average American realizes. So this newsletter is a bit of my effort to try to understand some of this industry and its importance. I hope you find it useful. Feel free to correct anything I have gotten wrong and send me better stuff if you have it.
Ok, that’s it from me. As usual, willing good for all of you, have a great week and I present you with the links!
Read
What: The Atlantic, Why Biden’s Block on Chips to China Is a Big Deal
Why: Good explainer on the politics of the CHIPS and Sciences Act.
The regulations block Chinese firms that are trying to develop advanced chips from accessing non-Chinese factories that rely on U.S. technology to manufacture their products, and deprive those firms of expertise by barring American citizens and companies from assisting them.
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What: McKinsey & Co., The CHIPS and Science Act: Here’s what’s in it
Why: Series of infographics explaining the CHIPS and Science Act. Quick read. Most of the funding goes to the National Science Foundation (NSF) and other Federal Agencies to fund research and development. We’ll see how efficiently that money is allocated. But the infographics are interesting.
**
Watch
What: CNBC, Inside Intel’s Bold $26 Billion U.S. Plan To Regain Chip Dominance (18 min)
Why: Story of Intel plus where they are today and what they are trying to do. While competitor AMD gave up on manufacturing chips to only focus on design, Intel continues to be an integrated design and manufacturing company (IDM). Most computer companies no longer or never did make their own chips. Apple designs phone chips, but outsources manufacturing to TSMC in Taiwan.
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Listen
What: Systematic Investor, Chris Miller, author of Chip War: The Fight for the World’s Most Critical Technology (56 min)
https://www.toptradersunplugged.com/podcast/chris-miller-ideas-lab-series-december-14th-2022/
Why: I haven’t read the book, but it is now on my list. Very good introduction to the chip competition.
**
What: Business Breakdowns, Jay Goldberg - AMD: How Chips Are Changing (52 min)
https://www.joincolossus.com/episodes/61855494/goldberg-amd-how-chips-are-changing?tab=transcript
Why: This is the story of AMD that I mentioned above, as told by an investment analyst. I remember when AMD was competing neck-and-neck with Intel to be the preferred computer chip. Now they just design the chips.
Thanks for reading and see you next week! If you come across any interesting stories, won't you send them my way? I'd love to hear what you think of these suggestions, and I'd love to get suggestions from you. Feel free to drop me a line at mark.bonica@unh.edu , or you can tweet to me at @mbonica .
If you’re looking for a searchable archive, you can see my draft folder here: https://drive.google.com/drive/folders/1jwGLdjsb1WKtgH_2C-_3VvrYCtqLplFO?usp=sharing
Finally, if you find these links interesting, won’t you tell a friend? They can subscribe here: https://markbonica.substack.com/welcome
See you next week!
Mark
“The meaning of life is to find your gift. The purpose of life is to give it away.” – Pablo Picaso