0x05 Chokepoints >> National Champions
Mark Liu interview, Japan's Plans for Manufacturing, The Myth of Self-reliance, and Revenue stats
TSMC on the Frontfoot
Contract manufacturers of semiconductors prefer to stay in the background, allowing the design companies or Original Equipment Manufacturers (OEM) their place under the sun. That preference is no longer tenable because semiconductors have become a major domain in the US-China confrontation. As another indication of this change, TSMC Chairman Mark Liu appeared in a rare interview with CNN’s Fareed Zakariya (Part 1 & Part 2).
In the interview, Liu categorically says that if China were to take over Taiwan, it would find TSMC’s facilities unusable because their secret ingredient is human capital and real-time international collaboration with companies for materials, software, hardware, and know-how.
I share this view. I wrote in Jan this year that:
Invasion directly implies TSMC's downfall. If such an action is being debated, the costs of losing TSMC will be assumed by China, regardless of a scorched-earth strategy. That's because a China-controlled TSMC would still be dependent on ASML for EUV machines, on Japanese companies for photoresists, and on many US firms for other critical manufacturing equipment. In case of an invasion, all these lines are highly likely to be cut off. Thus, China's decision to invade will rest on the assumption that TSMC becomes a diminished entity in the semiconductor space. If anything, the status quo works better for China where it can poach TSMC engineers to build its own manufacturing industry. A scorched-earth strategy doesn't change China's payoffs from invasion.
It is really interesting to see a business leader—let alone someone from the semiconductor industry—talk about the China challenge openly. Perhaps a sign of a new wave of impeded globalisation.
Winter is Coming?
The US semiconductor industry body, Semiconductor Industry Association, has released worldwide semiconductor revenue data on its website.
While the increase in revenue continues to rise, the rate of change is negative compared to the previous year. Some people speculate slowing semiconductor chip demand is a leading indicator of a recession. Let’s see if that holds.
Japan’s Siliconpolitik Play
Japan’s semiconductor plans were the subject of a recent New York Times opinion piece. Ben Dooley and Hisako Ueno write that Japan is looking for an insurance strategy to shield against geopolitical disruptions by China. Here’s a quote from the article that caught my eye:
“The era where the world is at peace and it doesn’t matter who supplies our semiconductors is over,” said Kazumi Nishikawa, a director at Japan’s Ministry of Economy, Trade and Industry, or METI, in an interview.
Chokepoints 1 - Self-sufficiency 0
If there’s just one article you want to read on semiconductor geopolitics today, read this piece from a week ago. In The resilience myth: Fatal flaws in the push to secure chip supply chains, the authors explain why plans to achieve semiconductor self-sufficiency are highly likely to fail. There are far too many chokepoints and dependencies to be eliminated using a national industrial strategy. That apart, it was interesting to note the name of Gujarat Fluorochemicals, a fluoropolymer company based in India, which can be used to make semiconductor-grade valves and tubes for chemical handling.