49 “Everything We Are Competing For”
A former Obama administration official expressed concern: “This $250 billion fund will bury us.” [Illustration] He referred to the subsidies promised by the Chinese central and local governments to support domestic chip manufacturers.
However, the two pillars of U.S. technology policy (embracing globalization and ‘running faster’) are deeply entrenched, not only due to industry lobbying but also because of the consensus among Washington think tanks.
A person involved in this work recalled that the Obama administration made slow progress on semiconductors because many senior officials did not consider chip issues to be significant. [Illustration]
But the ‘globalization’ of chip manufacturing has not occurred; instead, it has been replaced by ‘Taiwanization.’
Many governments, especially in Asia, actively support their chip industries. However, U.S. officials find it easier to overlook the efforts of other countries to seize valuable shares of the chip industry and instead choose to simply mimic platitudes about free trade and open competition. Meanwhile, the U.S. position is declining.
Both companies sell competitive telecommunications equipment; ZTE is a state-owned enterprise, while Huawei is a private company, but U.S. officials allege that Huawei has close ties to the government.
In this process, decades of technology policy have been abandoned. Pottinger later became Deputy National Security Advisor in the Trump administration.
Semi-conductors are not only the ‘cornerstone’ of ‘everything we are competing for’ but could also be a devastatingly powerful weapon.
50 Fujian Jinhua
In Fujian, the historic port of Xiamen Bay is home to Kinmen Island.
However, when the Fujian provincial government decided to establish a DRAM chip manufacturer named Jinhua and provided over $5 billion in government funding, Jinhua determined that cooperation with Taiwan was the best path to success. [Illustration] Although Taiwan does not have any leading memory chip companies, it possesses DRAM equipment purchased by Micron in 2013.
Around the same time, U.S. semiconductor manufacturing equipment manufacturer Veeco filed an intellectual property lawsuit against Chinese competitor AMEC in U.S. courts, while AMEC counter-sued in Fujian courts, where Micron’s competitors are located.
51 Targeting Huawei
“We should accept that China will become a global technology powerhouse in the future and manage risks from now on, rather than pretending that the West can ignore China’s technological rise.” [Illustration] Many Europeans believe that China’s technological progress is inevitable and therefore not worth trying to stop.
U.S. Republican Senator Ben Sasse announced in 2020: “The U.S. needs to strangle Huawei. Modern warfare is fought with semiconductors, and we are still allowing Huawei to use our designs.” [Illustration]
Almost every chip in the world uses software from at least one U.S. company, namely Cadence, Synopsys, and Mentor.
Except for chips manufactured internally by Intel, all advanced logic chips are produced by Samsung and TSMC.
“Protecting U.S. national security by limiting Huawei’s ability to design and manufacture semiconductors abroad using U.S. technology and software.”
Even China’s most advanced chip manufacturer, SMIC, heavily relies on U.S. tools.
52 China’s Artificial Satellite Moment?
One factory stands out, which is Yangtze Memory Technologies Co. (YMTC) located in Wuhan. It is China’s leading NAND flash memory producer, a type of chip ubiquitous in consumer devices like smartphones and USB drives.
There are five companies in the world producing competitive NAND chips, but none have their headquarters in China. Many industry experts believe that China’s best opportunity to achieve world-class manufacturing capability lies in NAND production. Unisoc, along with China’s National ‘Big Fund’ and provincial governments, has provided at least $24 billion in funding support for Yangtze Memory.
China is willing to do anything in its fight against COVID-19, but building a semiconductor industry is a top priority.
Wuhan is not only home to Yangtze Memory, which represents China’s greatest hope for achieving parity in NAND chip production, but it is also the site of China’s largest recent semiconductor fraud case.
In an industry with a multinational supply chain, technological independence has always been a daydream, and the U.S. is no exception.
To achieve complete technological independence, China needs to acquire cutting-edge design software, design capabilities, advanced materials, and manufacturing technologies.
The global chip industry has annual capital expenditures exceeding $100 billion. In addition to filling the current gaps in expertise and facility infrastructure, China must also consider these expenditures. Establishing a cutting-edge, nationwide supply chain will take at least a decade, and the costs during this period will far exceed $1 trillion.
This is why China is not actually pursuing a fully domesticated supply chain. China recognizes that this is fundamentally impossible. China aims to establish a non-U.S. supply chain, but due to the influence of the U.S. in the chip industry and its extraterritorial export regulations, a non-U.S. supply chain is also unrealistic, although it may be achievable in the distant future. For China, reducing dependence on the U.S. in certain areas, increasing its overall influence in the chip industry, and shedding bottleneck technologies as much as possible is feasible.
x86 is dominated by two U.S. companies (Intel and AMD). Arm is based in the UK and licenses its architecture to other companies. However, there is now a new instruction set architecture called RISC-V, which is open-source, allowing anyone to use it for free.
Currently, anyone who must pay licensing fees to Arm would prefer the free alternative.
“Profit and going public… is not Yangtze Memory’s top priority.” Instead, Yangtze Memory focuses on “building China’s own chips to realize the Chinese dream.” [Illustration]
53 Shortages and Supply Chains
However, in 2021, as the world economy and its supply chains were rocked by disruptions caused by COVID-19, people around the world began to realize how much their lives, often their livelihoods, depended on semiconductors.
Data centers’ demand for servers is also increasing as more people go online.
For the automotive industry, its revenues suffered massive losses, providing ample reason for them to rethink how to manage their supply chains.
The extraordinary rise of Taiwan indicates that a visionary company with financial backing can reshape an entire industry.
Meanwhile, Taiwan continues to take measures such as depreciating its currency to enhance TSMC’s competitiveness.
54 Taiwan’s Dilemma
Taiwan produces 11% of the world’s memory chips and, more importantly, manufactures 37% of the world’s logic chips. Computers, smartphones, data centers, and most other electronic devices rely on these chips.
Given China’s investments in the semiconductor industry and the fact that most of the chip manufacturing capabilities relied upon by the U.S. are within range of PLA missiles, the competition between the U.S. and China in the semiconductor field will be a less than unbalanced contest.
Conclusion
The story of Silicon Valley is not just a story about science or engineering. Technology only advances when it finds a market. The history of semiconductors is also a story about sales, marketing, supply chain management, and cost reduction.
Today, the price of transistors is far below one millionth of what it was in 1958, thanks to the spirit expressed by the now-forgotten Fairchild employees in exit interviews: “I… want… to… get… rich.” [Illustration]
In the future, whether China can achieve its goal of semiconductor dominance, its massive investments will profoundly reshape the semiconductor supply chain.
“We have not exhausted atoms; we know how to print single-layer atoms.”