Reflections on 'The Battle of Chips' at the World Economic Forum 2024

A few months ago, I watched an insightful discussion on YouTube titled "The Battle of Chips", which took place at the 2024 World Economic Forum in Davos. The session was moderated by Nicholas Thompson, CEO of The Atlantic, and featured distinguished panelists, including Ashwini Vaishnaw, India’s Minister of Electronics and Information Technology. While Vaishnaw spoke eloquently about the Indian government’s recent and future focus on VLSI, it was the points raised by Chris Miller, Associate Professor at The Fletcher School of Law and Diplomacy and author of the book Chip Wars, that resonated most with me. So impactful were his insights that I immediately purchased Chip Wars after watching the discussion and completed it a few weeks ago. Though I intend to write about the book itself at a later date, I want to share my thoughts on some of the key points raised during the discussion.

The Role of Semiconductors in the Information Revolution

Arthy Prabhakar, Director of the Office of Science and Technology Policy (OSTP) in the Biden Administration, made a striking observation:

"Semiconductors are the underpinnings for the entire information revolution. So, every time you hear about artificial intelligence here at Davos, you're hearing about something that's been enabled by the semiconductor revolution."

Years ago, while working in a software firm, I heard a few people speculate that the age of software and computers was nearing its end—a notion that sounded to me like a doomsday prophecy. Even then, technology had become so integral to our lives that I could not envision a future without it. The only possible explanation for such a belief might have been that these individuals felt everything needed from software and hardware had already been invented. However, this perspective was as unacceptable then as it is now. Just as living organisms have evolved over millions of years, so too will software and hardware continue to evolve.

Artificial intelligence, which has existed for decades, has only recently become accessible to the average user. This suggests that AI applications are still in their infancy, and we can expect many innovations in the coming years. Historical trends indicate that advancements in software inevitably drive demand for new hardware, specifically newer chips. Moreover, developments across various domains are increasingly reliant on software and hardware. The ongoing quest to simplify and improve our lives ensures that innovation and development in these fields will never cease, solidifying the VLSI industry’s critical role in creating new chips that enhance our quality of life.

The Understated Importance of Chip Design

Chris Miller highlighted a common misconception among political leaders:

"A mistake that many countries make, which is that most political leaders want a picture of themselves in front of a big manufacturing facility. Most of the money in the chip industry accrues to people who design chips and don't manufacture them. So, in general, we all collectively overstate the importance of manufacturing, which is very important, but understate the importance of design."

Before entering the VLSI industry, I, too, had the stereotypical image of the industry: people in bunny suits walking around factory floors with silicon wafers in their gloved hands. However, I have since realized that this only constitutes about 20% of the chip manufacturing process. The remaining 80%—including design, simulation, and verification—is done using software. Since the chip manufacturing process is expensive, it is meticulously designed and verified using software before being taken to the costly manufacturing facilities.

This approach significantly reduces the cost of chip development, as the bulk of the process requires only an office equipped with networked computers and specialized software, rather than an expensive manufacturing setup. Consequently, many leading chip companies focus exclusively on design and verification, outsourcing the manufacturing process to specialized facilities. This model democratizes chip creation, opening the field to a broader range of innovators and leading to the development of many novel chips.

The Geopolitical Risks of Chip Manufacturing Concentration

Miller also underscored the geopolitical risks associated with the concentration of chip manufacturing:

"90% of the most advanced processor chips are made in Taiwan, that is, your smartphone processor, your PC processor, almost every single AI processor. So, to talk about concentration, this is vastly more concentrated than the oil market and unlike oil, chips aren't fungible. You need the exact specific type of chip. So, if there were a disruption in Taiwan, a blockade, or a war, Bloomberg last week estimated the cost at $10 trillion. Even if they're 10 times in the right number, it's still vast."

Today, Taiwan manufactures over 60% of the world’s chips, making it a crucial player in the global semiconductor industry. However, Taiwan's proximity to China and their uneasy relationship poses significant risks. Should China decide to interfere with Taiwan, as it has with other countries, the global chip manufacturing industry could be severely disrupted. This would have far-reaching consequences, as our lives are increasingly dependent on electronic devices.

The automotive industry’s struggles following the COVID-19 lockdown offer a glimpse into what could happen if Taiwan's chip production is disrupted. During the pandemic, car manufacturers, anticipating a decline in sales, reduced their chip orders. Consequently, chip manufacturers diverted resources to meet the rising demand for consumer electronics. Once the lockdowns lifted, car manufacturers faced significant delays due to the long lead time required to produce automotive chips. This experience highlights the potential economic fallout if Taiwan’s chip manufacturing capabilities are compromised.

The Ubiquity of Chips in Modern Life

Nicholas Thompson’s endorsement of Miller’s book was a key factor in my decision to purchase Chip Wars:

"Chris, let me ask you this. One of the things I love about your book is how vivid your descriptions of the manufacturing of chips are and how well you describe different systems in the evolution."

Thompson’s assessment is spot-on. The book is indeed vivid and compelling, making it a must-read for anyone associated with the VLSI industry. It provides a detailed history of the chip industry and offers insights into the current geopolitical landscape. I may revisit this book in a few years to refresh my understanding.

During the discussion, Miller also addressed the ubiquity of chips:

"What we learned during the pandemic was that it's not just smartphones that require chips; it's in everything—cars, dishwashers, coffee makers, refrigerators. I think that the auto industry is the best case study for this. There were car companies that had 999 of the chips they needed for their cars, but they didn't have the last one, and they couldn't produce their car as a result. So, the car industry alone lost half a trillion dollars."

Chips have become integral to almost every piece of equipment we use today. A shortage of chips necessitates redesigning these devices, a process that is often time-consuming and may not be feasible at all. Moreover, any such changes could compromise the device’s features and functionality.

Our growing reliance on smartphones further exacerbates this issue. Whether we use smartphones frequently or sparingly, it is difficult to imagine life without them. Thus, a scenario involving chip shortages is as alarming, if not more, than the prospect of dwindling oil reserves.

Conclusion

The 45 minutes I spent watching "The Battle of Chips" was an enriching experience that led me to read Chip Wars, a book that is not only informative but also thrilling. The narrative flows like a page-turner, making it a compelling read. Over the coming weeks, I plan to share my insights from the book, which I believe will be of great interest to anyone in the VLSI industry.

Watch the full discussion here:https://www.youtube.com/watch?v=QjK0Cxamog0