Over the holidays, I listened to this fascinating video blog on the history and composition of the semiconductor industry. If you have a free hour to spare and are interested in how the building blocks of smartphones, AI, smart cars and appliances, and automated factories came to be controlled by a handful of companies, I’d highly recommend it. If not, my high level takeaways are:

 

• Moore’s Law (the doubling of computer processing capacity every two years) is driven by doubling the amount of transistors on a chip, which means that chip design is all about who can make transistors smaller than their competitors;
• Numerous technologies have evolved over the past 50 years to make chip design smaller, but the capital and time required to advance Moore’s Law is getting larger and longer as computer processing ability increases, which could decelerate this advance (as well as concentrating control of the industry in a few key players who have the capital and R&D capabilities to continue its advance);
• At this time, the most advanced chip-making (at scale) is Taiwan Semiconductor’s which can build chips with transistors that are only 5 nanometers apart (though IBM has recently announced a chip with 2nm spacing). To put this in perspective, an atom of silicon is only 0.2 nm in diameter, so each transistor is separate by about 100 atoms of silicon(!);
• Taiwan Semiconductors (the world’s largest chip manufacturer) and the Dutch lithography company ASML N.V. are in a very strong strategic position in the semiconductor industry’s value chain, as are electronic design software companies like Synopsys and Cadence Software. Nvidia has recently vaulted into a strong strategic position through its acquisition of ARM Holdings (and the proliferation of the GPU use in server farms);
• The architecture of most of the internet is built on x86/CPU (the workhorse of most servers, controlled by AMD/Intel), ARM (which has low power requirements, making it ideal for portable devices like smartphones), GPU (graphic processing units, which was brought to market by Nvidia and enhances the rendering of images, which makes it perfect for gaming/video but has become critical in allowing servers to increase their bandwidth to support AI), and Risk5, a new open source competitor to ARM (which is in the process of being acquired by Nvidia);
• While, at first glance, the industry is concentrated in a handful of companies, it operates more as an ecosystem, as each of the parts in the value chain are closely connected to both its customers and its suppliers (one could argue that they are integrated in the operations of both their customers and suppliers), thwarting monopolistic behaviour;
• The U.S. has used its dominant position in the IP of semiconductors to political ends, including preventing companies from sharing their IP with Huawei because of their business connections with Iran (a move that could put Huawei “10 years” behind key competitors like Cisco, Samsung and Apple). Escalating tensions between China and Taiwan have raised concerns about the geographic vulnerability of Taiwan Semi’s chip foundries, as well as the access to key rare earth minerals used in chip design, which are primarily mined in mainland China.

 

The biggest takeaway I had was how dependent the world is on these little chips. The speakers repeated several times that if there were a catastrophic event at one of the main players, it could set the world back 10-15 years. While these might be idle threats, I would point out that this vlog was published a year ago, before the supply chain issues in the semi industry (including a fire at Japanese chip manufacturer Renesas Electronics) slowed down access to cars and other major appliances, which has likely touched all of our lives in some way over the past year.

 

https://www.youtube.com/watch?v=r6NUO_bymuA
 

 

 

 

 

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