The Current Events Room
Taiwan and the Geopolitics of Microchips
Here is an interesting article about the importance of microchips and the effects of the current shortage of them.
Read the rest of the article at the link.Last week, Ford Motor Co. became the latest in a bevy of carmakers to announce production halts due to a global shortage of microchips. The Chinese military tested a sophisticated new armed reconnaissance drone and conducted a massive exercise in the South China Sea simulating an amphibious assault on Taiwan. President Xi Jinping ordered the People’s Liberation Army to “substantially increase” the use of new technologies in such exercises. The U.S., meanwhile, expanded its ban on doing business with Chinese companies linked to the People’s Liberation Army and dealt yet another blow to Chinese telecom giant Huawei. It also released new rules on securing information and communications technology supply chains. Intel Corp., the embattled inventor of the microprocessor, fired its CEO.
What these disparate events have in common is that each, in its own way, underscores the singular geopolitical importance of a single company, Taiwan Semiconductor Manufacturing Co. The company, which itself made news by announcing plans to boost spending by as much as $28 billion this year to expand capacity, has developed a stranglehold on production of the world’s most advanced chips. This makes TSMC indispensable to just about any global power aiming to, say, develop an elite arsenal of autonomous weapons systems, gobble up 5G market share or compete in just about any other emerging technologies space imaginable. TSMC’s operations also happen to be heavily concentrated less than 100 miles from China, a country intent on one day retaking control of Taiwan – and one whose vital supply of semiconductors is under assault by the U.S.
As the U.S.-China rivalry heats up, can the company give Taiwan some much-needed room to maneuver?
Flipping the Industry
Chip manufacturing is wildly complicated and just as expensive. For a long time, this allowed a handful of vertically integrated giants like Intel and Texas Instruments, which designed, manufactured and sold their own chips, to shield themselves from competition. If anyone else wanted to try their hand at designing chips, they could, but they’d be stuck contracting out to a more-entrenched competitor to get them made. The amount of investment and expertise required to build and operate an advanced chip fabrication facility was simply too high for most would-be startups to strike out on their own.
But with substantial backing from the Taiwanese government, TSMC was able to flip the industry on its head. Beginning in 1987, the company pioneered what’s known as the “pure-play foundry” model that focuses solely on manufacturing other companies’ designs. This gave rise to all sorts of “fabless” heavyweights such as Nvidia and Broadcom, and more recently allowed companies like Apple, Tesla and Alibaba to enter the chip design space. Even some established integrated device manufacturers like Intel rivals AMD and Qualcomm eventually sold off their own foundries, finding it more profitable to contract production out to TSMC and its only comparable competitor, South Korea’s Samsung. (Intel, which has fallen far behind TSMC and Samsung in the endless race to develop smaller, denser chips, is under some pressure from investors to at least partially follow suit.)
This sparked a boom in innovation and specialization as fabless chip designers could channel all their resources into pushing the boundaries in niches ignored by the likes of Intel, which focused mostly on general purpose processors. But it also replaced one chokepoint – the dominance by a small number of vertically integrated giants – with another. This is because building cutting edge factories has become only more expensive; a next-generation chip fab is estimated to cost more than $20 billion. It’s also become increasingly technologically sophisticated, requiring expensive, highly specialized materials and tools that themselves are made by a very small number of companies.
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Originally Posted by Tahuyaman
