Two ‘Pseudo-Facts’ About Semiconductors That Could Distort The CHIPS Act (Part 4)

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  • “Demand for computer chips already far exceeds supply, a problem that will intensify, [Commerce Secretary] Raimondo told reporters… ‘We are wasting time, precious time every day that the CHIPS Act was not passed and appropriated in Congress.'”
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The policy debate over what the federal government can, or should do, about “chip shortages” has crystallized in the “Chips for America” ​​act passed by the Senate in June. Whatever the specifics—the draft bill is rather vague, both vague and over-specific—there could soon be $50 billion up for grabs. Let the lobbying begin.

The challenges facing the semiconductor industry are highly complex, highly technical and subject to conflicting “expert” interpretations. Most people – and legislators in particular, by nature – will instinctively seek some “bottom line”, a radical simplification that will focus on the “key facts” that will explain the choices we face. These “facts” become headlines in the media, and bullet-points in advocacy briefs and PowerPoint slides—and, after a time, through the force of repetition, they turn into “common sense.”

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All such “facts” are questionable, even those that are more or less true. They are by definition over-simplification, stripped of nuance and detail. But some of them are simply wrong. “Pseudo-facts” confuse public opinion, and mislead policy-makers – but can be quite hard to leave out of the discussion.

Two prime examples of pseudo-facts that confuse and confuse semiconductor policy discussions are:

  1. The idea that China is an active threat to US technological superiority in trade is operating from a position of strength
  2. The idea that technical superiority – the “leading edge” – is defined by the so-called “process node” score – that is, the scale of individual circuit elements etched into the silicon wafer – the player with the lowest number wins.

These two pseudo-facts are often tangled together, as testified here by Commerce Secretary Gina from April raimondo,

  • “It is no exaggeration to say at the moment that we have a crisis… America once led the world in manufacturing leading-edge semiconductor chips. Today we produce 0% of those chips in the US, 0%! It is a national security risk and an economic security risk. The Defense Department has been warning us for years…[We have to] protect yourself We are completely dependent on Taiwan and China for vital supplies.”

It sounds terrible. Has the US lost its lead in this important technology? Are we somehow “dependent” on China now? Does China have the upper hand? Secretary Raimondo’s analysis is deeply pessimistic: “We have seen an incredible decline in … semiconductors ….”

Wrong. Based on misconceptions and gross misunderstandings of the nature of the industry. Here is the counterargument.

China: “Trailing Edge”

The idea that China has mutated from a supplier/partner, to a rival, to a hostile adversary, has been a widespread subject of pdf geopolitical commentary over the past half-decade or more, and may be accurate. The Chinese economy is huge and has grown very rapidly. China produces more economic power than it did twenty years ago. But it is not correct to assume that China enjoys a position of strength in semiconductor technology. It is the opposite: China is exceptionally weak in this critical area for the modern global economy. The weakness is both quantitative and qualitative, and it is not a problem that China has figured out how to fix.

Quantity shortage

China today imports about $380 billion in semiconductors – 90% of its needs – more than it spends on oil. Chinese customers for semiconductors (eg, its huge electronics industry) are extremely vulnerable, as the Huawei episode has shown. (The world’s largest wireless company has been crippled by the denial of US chip technology just a few years ago.)

Beijing has announced big plans to achieve self-reliance. Specifically, they want to be able to supply 70% or more by 2025. success seems not likely,

  • “Semiconductor market research company IC Insights estimates that semiconductors made in China will account for slightly less than 20% of semiconductors sold in China in 2025, well short of the Chinese government’s target of 70%. China’s IC production of Chinese companies Contributing only $8.3 billion, or 37%, the rest is being produced by local silicon wafer fabs (semiconductor factories) of TSMC, Samsung, SK Hynix, Intel.
    and other foreign companies. ,
  • ,[Indigenous Chinese firms accepted for] Only 6% of China’s IC market and only 2% of the global market. The total value of semiconductor production by Chinese companies in 2020 was lower than that of AMD, which ranked 15th in the industry with estimated sales of $9.5 billion. The top three companies – Intel, Samsung and TSMC – are estimated to have sales of $73.9 billion, $60.5 billion and $45.4 billion, respectively.”

lack of quality

It even exaggerates China’s position. Indigenous producers are technically on the “back edge”. They also cannot successfully compete for the “free market” customer segment inside China:

  • “The Chinese military is the primary consumer of Chinese chips, as export controls prevent it from accessing major non-Chinese chips. Non-Chinese chips, particularly American chips, dominate China’s civilian sector.”

These firms remain in business mainly because of government support, and show little evidence of being able to win in open competition.

  • “Although China’s [firms] Look strong, much of that potential is on aspirated (suffering from low yields and usage) and older nodes. Many of these fabs stay online with the help of state support, receiving far more subsidies as a percentage of revenue than any other major fab. Foreign chip makers operate the most advanced and reliable fabs in China and generate more revenue than the country’s chip makers. ,

The US Semiconductor Industry Association (SIA) summarizes China’s position:

  • “The Chinese are chip firms The market for high-end logic, advanced analog and leading-edge memory products is notably absent. China’s indigenous semiconductor supply chain less developed. This lags far behind in advanced logic foundry production, EDA equipment, chip design IP, semiconductor manufacturing equipment, and semiconductor materials, Chinese foundries currently focus on more mature nodes, and China’s supply chain capabilities at the equipment and materials level are currently limited to older technologies. ,

No presence in high value industry segments

As described in several previous columns, the “semiconductor industry” should be understood as a fragmented ecosystem, in which certain segments (chip design, core IP, semiconductor manufacturing equipment) generate most of the value-added. China has essentially no share in any of these high-value segments.

The inadequacy of the Chinese government’s efforts

Those who uphold the legitimacy of China’s threat are often reduced to the argument that even if China is no longer strong, Beijing can mobilize massive investments to catch up. As again from Secretary Raimondo:

  • “China [is] Don’t wait. They are incentivizing and subsidizing the production of chips right now, and they have been for a long time.”

False facts. In truth, Beijing’s efforts to build an indigenous chip industry have failed for two decades. The announced plans for the coming years did not match the large investments made by private sector players in the US and its Asian allies (Korea, Taiwan). Also, keep in mind that Intel, TSMC, Samsung et al have a significant advantage:They know what they are doing, The same cannot be said for CCP bureaucrats, whose main idea appears to be headhunting Taiwanese officials to run their chip enterprises.

Korea alone has dwarfed China’s plans. Between the private and public sector, Koreans will spend nearly half a trillion dollars to build their chip industry in the next decade,

  • South Korea is going all out to bolster its critical semiconductor industry, the government said on Thursday, with a 510 trillion won ($451 billion) investment by companies to boost the competitiveness of chipmakers amid a critical global shortage of key components. The corporate outlay through 2030, which includes the ₹171 trillion announced by Samsung Electronics alone, comes as the country faces serious challenges from competitors including Taiwan Semiconductor Manufacturing Co., which is involved in the production of foundry chips. Leads the world – what other companies are made for. ‘Our government will unite with companies to build semiconductor powerhouses,’ President Moon Jae-in said. ‘We will support the companies solidly.'”

Korea’s initiative is three times bigger than China’s. As stated in the title of a recent article – “Get Real Information About the Chinese Semiconductor Industry.”

process node yardstick

A2Ra The pseudo-fact is the notion that technology leadership in the chip business is all about reducing “node size” in the chip manufacturing process. Measured in nanometers, the scale of individual circuits engraved in silicon has become a one-dimensional metric of success…


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