The Semiconductor Wars

On occasion I like to remind everyone that the current political and media propaganda about America’s ability to compete against China in world markets is not to be believed. 

Politicians and the media report breathlessly on a new Foxconn factory in Wisconsin and on a pharmaceutical plant in Rochester-- but then we do not hear much about them.

We have high self-esteem and think the world of ourselves, but we cannot compete in the semiconductor wars. Of course, Congress just passed a new Chips act, dedicating $50 billion to research and development. Are we now going to dethrone Taiwan and South Korea in the world of high end chips? 

According to Morris Chang, not hardly?

Interestingly, no one has paid much attention to what Morris Chang told Nancy Pelosi on her latest trip to Taiwan. It does not fit the narrative, so we ignored it. And yet, Chang undoubtedly knows more about semiconductor manufacturing than just about anyone. He founded and grew Taiwan Semiconductor. 

According to Chang, $50 billion is a good start. Politico has the story:

With Taiwan’s president, Tsai Ing-wen, looking on, the billionaire entrepreneur pressed Pelosi with sobering questions about the CHIPS law — and whether the policy represented a genuine commitment to supporting advanced industry or an impulsive attempt by the United States to seize a piece of a lucrative global market.

Chang said he was pleased that his company could benefit from the subsidies; TSMC already had a major development project underway in Arizona. But did the United States really think it could buy itself a powerhouse chipmaking industry, just like that?

That very question now hangs over the Biden administration as it prepares to implement the semiconductor spending in the CHIPS and Science Act. The next phase is due to begin this month with the unveiling by the Commerce Department of a detailed process for awarding subsidies. The law already looks like a useful political trophy for Biden, claiming a prominent spot in his State of the Union Address.

Of course, this makes us feel good. But it is not reality:

As Chang told Pelosi, there is a long distance between the cutting of government checks and the creation of a self-sustaining chips industry in the United States.

His candid concerns represent a rough guide to the challenges Biden’s semiconductor policy will have to address if it is to succeed, long after the immediate political fanfare has abated — and well past the point that its generous subsidies for big business have run out.

Over lunch, Chang warned that it was terribly naïve of the United States to think that it could rapidly spend its way into one of the most complex electronics-manufacturing markets in the world. The task of making semiconductor chips was almost impossibly complicated, he said, demanding Herculean labors merely to obtain the raw materials involved and requiring microscopic precision in the construction of fabrication plants and then in the assembly of the chips themselves.

It gets worse:

The industry evolves at incredible speed, Chang continued. Even if the United States managed to build some high-quality factories with the spending Pelosi championed, it would have to keep investing more and more to keep those facilities up to date. Otherwise, he said, Americans would in short order find themselves with tens of billions of dollars’ worth of outdated hardware. A once-in-a-generation infusion of cash would not be enough.

Was America really prepared to keep up?

Now, Taiwan Semiconductor is building a massive plant in Arizona. Yet, Chang is concerned that America does not have the talent to run the plant. One suspects that we can always import it from Taiwan or from China. 

So, temper your enthusiasm.