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Chip War – why our future will be determined by semiconductors

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Chip War – why our future will be determined by semiconductors

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Forget oil. Our future will be determined by semiconductors.

Philip Löpfe
Philip Löpfe

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In his epoch-making book The Price, Daniel Yergin showed how the geopolitics of the 20th century were largely shaped by the struggle for oil. Fossil fuels will remain important for a long time. But who will call the shots in the 21st century will be decided by the outcome of the war over semiconductors. Chris Miller shows this in his book “Chip War”, a book that was named “Business Book of the Year” by the “Financial Times”.

The importance of semiconductors or chips cannot be overstated. From children’s toys to cruise missiles – nothing works without chips. And this dependency will only increase exponentially. In the Internet of Things and Smart Grids, more and more devices will be linked and controlled by high-performance chips.

FILE - Gordon Moore, the legendary Intel Corp. co-founder who predicted the growth of the semiconductor industry, smiles during a news conference, Thursday, May 24, 2001, in Santa Clara, Calif. Moore, ...

One of the fathers of the semiconductor industry: Gordon Moore.Bild: keystone

Gordon Moore, one of the fathers of the semiconductor industry, formulated the law back in the 1960s according to which the performance of each new generation of chips doubles every other year. This law is still valid today and has not only given us the deadliest weapons, but also the rapid advances in the field of artificial intelligence.

The chip business has become extremely complex. A distinction is made between the designers and the manufacturers. Most of the time the two are separate. Only Intel is trying to do both, and that’s probably why it has fallen behind.

In most industries, the designers are the bright minds who claim the lion’s share of a product’s profits, and the manufacturers are the poor, low-paid workers on the conveyor lines. Not so with semiconductors. In order to produce chips, you need the most complex factories – called fabs – that there are at all. “It takes a factory that costs twice as much as an aircraft carrier and will still be at the top for just a few years,” Miller said.

Taiwan Semiconductor Manufacturing Company (TSMC) is the current leading fab. It does not design its own chips, but manufactures them according to the plans of clients such as Apple, AMD, Qualcomm or Nvidia. It doesn’t have a secret formula like Coca-Cola, but rather a network of highly specialized suppliers, such as ASML, a Dutch manufacturer of lithography systems. And ASML, for its part, relies on the German optics company Zeiss. To illustrate this with a number: the laser supplied by Zeiss for ASML’s most modern lithography machine consists of almost 500,000 individual parts. No wonder the machine costs well over $100 million.

A chip fab is therefore inevitably dependent on a global supply chain. “In an industry with such a multinational supply chain and technical dependencies, independence remains an illusion,” says Miller. “This also applies to the USA, which is still the most important player in the field of semiconductors.”

The US and China are both caught in a chips trap. The Chinese market is vital for American designers to survive. For Micron, a leading fab in the USA, it is therefore a hard blow when – as just happened – the Chinese suddenly block their market access. They sell around a third of their production there.

mutual dependence

Micron’s ban from the Chinese market is the latest skirmish in the US-Chinese chip war. This war has steadily intensified in recent times and is becoming a problem not only for the fabs but also for the designers. Jensen Huag, CEO of Nvidia, currently the most valuable semiconductor company in the USA, warns against completely excluding the Chinese from supplying the most advanced chips. “If the Chinese can no longer buy the American chips, they will simply make them themselves,” Huag told the Financial Times. “That’s why the US has to be careful. China is a very important market for the tech industry.”

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Conversely, however, it also becomes a shoe. Although they invest almost unlimited money in research, the Chinese cannot technically keep up with the Americans. “China‘s leaders have identified dependence on foreign chipmakers as a critical vulnerability,” notes Miller. “That’s why they want to buy foreign chip makers and steal their technology, and that’s why they give millions of dollars in subsidies to their own makers.”

Taiwan plays a central role in the Chip War. As mentioned, TSMC is currently the most important fab. Therefore, the thesis circulates again and again that China also wants to conquer Taiwan in order to gain possession of TSMC. This is nonsense. Physical ownership of the factories alone would do China little good. The associated global supply chains and the know-how of the engineers are decisive. Neither can be achieved with military force. Tsai-Ing, President of Taiwan, has therefore also stated in “Foreign Affairs” that the chip industry is a “silicone sword” that allows Taiwan to protect itself from aggressive takeover desires.

epa10353076 Apple CEO Time Cook delivers remarks before the appearance of US President Joe Biden at Taiwan Semiconductor Manufacturing Company (TSMC) in Phoenix, Arizona, USA, 06 December 2022. Biden  ...

Apple CEO Tim Cook celebrating the start of construction of a TSMC fab in the United States. Bild: keystone

The Chip Wars are the result of the increasing estrangement of the two superpowers. As mentioned, China wants to use all its power to catch up technologically. The US, for its part, wants to reduce its dependence on the Chinese market. That’s why the Biden administration smuggled legislation through Congress that would give the domestic semiconductor industry $50 billion in support. Partly with success. TSMC also wants to set up a factory in the USA, and Apple has just concluded a supply contract worth several billion dollars with the American manufacturer Broadcom.

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However, neither superpower will achieve semiconductor independence any time soon — and that’s a good thing. Interdependence also allows for the option of cooperation. For example, the possibility of using the chips to combat the most pressing issues of the present, such as climate change.

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