1. Why compete for chips?
Chip manufacturing has become an increasingly volatile business. The new factory, which costs as much as $20 billion, will take years to build and will need to run 24 hours a day to be profitable. The scale required has reduced the number of companies with leading technology to just three — TSMC. (TSMC), South Korea’s Samsung Electronics Co. and Intel Corporation. America’s. Chipmakers have come under increasing scrutiny over what they sell to China, the largest chip market. Shifts in global supply chains and recent shortages have prompted governments to scramble to subsidize new factories and equipment, from the U.S. and Europe to China and Japan.
2. Why is the chip so important?
They make electronics smart. Made of material deposited on a silicon disk, the chip can perform a variety of functions. Memory chips that store data are relatively simple and trade like commodities. The logic chips that run programs and act as the brains of the device are more complex and expensive. Semiconductors are becoming more commonplace in the modern world as the technologies that run devices — from space hardware to refrigerators — become smarter and more connected. The explosive growth has led some analysts to predict that the industry will double in value within this decade and become a trillion-dollar market.
3. Does the world lack computer chips?
Pandemic lockdowns and supply chain shortages made many types of chips scarce for about two years. The event helped usher in a new era of growing awareness of their strategic importance. Now that PC and phone demand has cooled post-pandemic — most of the world is in recession — the cycle has turned. While some customers, including automakers, are still struggling to get enough supplies, chipmakers are warning of oversupply in some areas. However, for political reasons, chipmakers are still poised to add capacity amid erratic demand — a move that could further upend the industry.
4. How did the game go?
• In October, the US imposed tighter controls on the export of some chips and chip-making equipment to China to prevent it from developing capabilities that could become a military threat, such as supercomputers and artificial intelligence.
• China is trying to catch up, but is facing more moves by the US to restrict access. Notably, China’s Huawei Technologies Co., which once led the mobile phone infrastructure market and competed with Samsung as one of the largest smartphone makers, was cut off from its main supplier. In any case, China still has a long way to go and the task is getting more and more arduous.
• TSMC has been announcing bigger budgets, while Samsung is ahead of its rivals with cutting-edge technology. TSMC’s revenue is expected to grow 40% this year. In 2021, Samsung surpassed Intel to become the world’s largest chip maker; this year, TSMC is expected to surpass Intel.
• US politicians have decided they need to do more than stop China. The Chips and Science Act, signed into law in August. 9. $50 billion in federal funding will be provided to support U.S. semiconductor production and develop the skilled workforce the industry needs.
• EU officials are exploring ways to build advanced semiconductor factories in Europe, with help from Intel and possibly TSMC, as part of their goal of doubling chip production to 20 percent of the global market by 2030.
5. How does Taiwan fit into all this?
Part of the reason island democracies dominate outsourced chip manufacturing is the government’s decision in the 1970s to boost the electronics industry. TSMC almost single-handedly created the business of making chips for others, a business that was embraced as the cost of building a factory soared. Large customers such as Apple. Giving it enormous volume to build industry-leading expertise, the world now relies on it. Matching its size and skill set will take years and cost a fortune. Politics, however, have made the race more than just money, and the U.S. has said it will continue efforts to limit Chinese access to U.S. technology used by Taiwanese foundries. China has long claimed the island, just 100 miles off its coast, as a renegade province and threatened to invade to prevent its independence. China’s recent military exercises have reignited concerns about the world’s reliance on Taiwan for chips.
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