The Battle of Chips and Semiconductors.

A few months ago, I realized that I needed to upgrade my laptop or at least boost its performance. While work has always kept me busy with Tech, SaaS and Customer Success, I am also an avid gamer and love producing content. Needless to say, these interests require a high degree of computational power.

Some of the questions I had in my mind when faced with an upgrade or boost options were:

How does my Intel Core i7 compare to the Intel Core i9? Should I boost my RAM from 16 GB to 32 GB? How prehistoric is my graphics processor as compared to the more recent one?

While trying to find answers to these questions, I stumbled upon questions that I realized, were being discussed at the higher offices across the globe especially the ones lagging behind the chip revolution.

Why were the processors manufactured only from Intel, AMD and NVIDIA? Couldn’t any other firms other than NVIDIA, AMD, Radeon make the graphics processors? What is the economics of the Chip Industry and the Semiconductor Industry? Why is the entire supply chain limited only to a handful of countries and dominated by Asia??

My curiosity allowed me to dive deeper into this world of semiconductors and computational power. The entire ecosystem of semiconductors, right from design, fabrication and manufacturing were limited to the US, Netherlands, China, Japan and South Korea but that was not even the most interesting fact. What was even more interesting was that there was one Taiwanese company called TSMC that is leading the manufacturing of some of the most advanced chips in the world. As per data, TSMC manufactured some 24% of the world's total chips and 90% of the most advanced chips in the world.

Right from chips on your latest phones, to cars, fighter jets and the one aboard the mars rover platform comes from TSMC. The question in my mind and probably everyone's minds will probably be “why does TSMC have such a near monopolistic stand in this ecosystem? Why is the US, the land of innovation, design, entrepreneurship not able to match up to the fabrication technology of TSMC? How does Europe fit in this entire chain? And more importantly for me, where does India stand?

The simple answer to this is that the design and manufacturing of the chips are two separate processes and it makes economic sense to keep them that way. For example, Intel designs and manufactures chips in its own facilities but it is no way close to TSMC as far as manufacturing is concerned. In-fact, Intel relies on TSMC to manufacture its chips.

Fabrication and manufacturing are complex and capital intensive businesses requiring mind boggling investments to the tune of billions of dollars. As per data, a new facility that TSMC is coming up in the US will see investments in excess of USD 40 billion provided there is sufficient talent to back up that kind of investment. As per reports, this plan of setting up this facility has been delayed by a year because the US does not have the required talent.?

This bit of news is as surprising as the word itself. Since when did the US have a shortage of skilled labour and that too in tech. Turns out that US companies are more or less focused on chip design leaving the fabrication and manufacturing to ultra hi-tech economics of Japan, Korea, China and Taiwan.

To give one a perspective on the complexity and scale at which fabrication of chip works, one must turn their attention to one of most complex engineering machines conceived by humans, the Extreme Ultraviolet Lithography (EUV) machine. This machine is as expensive as it is complex. One unit of this machine can set you back by a cool USD 200 million to USD 300 million. What this means is that, due to the high cost of acquisition, only a few handful of companies have the purchasing power and the requirement. With a market share of 67% of all the lithography machines sold worldwide, Advanced Semiconductor Materials Lithography (ASML), based out of the Netherlands, leaves the competitors way behind. The EUV is used to etch patterns on silicon wafers that deliver the final design of the chip

The EUV is regarded as one of the most complex machine ever designed by
humans        

The way the delivery is done is quite a logistical miracle. To ship one of such machines, 40 shipping containers, 20 trucks and 3 Boeing 747’s are deployed each time.

ASML ships these machines to only 5 customers, TSMC, Samsung, Intel, Micron and SK Hynix. The machines are not sold to China. The Asian countries of Taiwan, Japan, South Korea and China are the leaders of the pack in the world of chip fabrication and it seems there is no catching up with them, not even the likes of the US and countries in Europe.

Asia accounts for about 75% of chip production worldwide and the reason it is leading is because early on, it focused only on manufacturing and doing it so well that entry of new manufacturers elsewhere became impossibly expensive and complex. Not to mention, low costs and investment incentives from the government added to the rapid trajectory of the chip industrial chain. With investments worth USD 450 Billion by Korea and other massive spendings by Japan and China, it seems there is no catching up with these Asian giants.

From a different lens, Asia is home to two major economies of the world, China and India. While China has raced ahead, India has a lot of catching up to do. Infact India is nowhere in the race since it does not have any capacity for advanced chip production. The recent partnership between Vedanta and Foxconn to invest USD 20 Billion in a manufacturing set-up was announced with a lot of fanfare but Foxconn has pulled out of the deal rendering a massive blow to India’s ambition.

While India has had a few small wins like the Micron Deal to set up a testing unit in India, the MoU with Japan (hope this does not have the same fate as the Bullet Train project), these are not even a drop in the vast ocean of opportunities or rather missed opportunities. There seems to be a strong will from the government to boost up this industrial chain but much progress is needed to be seen for India to commence on this road.