Review: Chip War

 I checked out Chip War from the library expecting to be underwhelmed, and to some extent I was --- I was already familiar with the Silicon Valley origin story (Shockley, Fairchild, Intel), but what was interesting to me was the happenings outside Silicon Valley, such as the story of what role Texas Instruments played,  not to mention how Korea, Japan, and Taiwan ended up dominating chip manufacturing. In particular, the Asian countries weren't shy about using government money and their country's banking systems to underwrite their entry into chip manufacturing:

In the early 1980s, Japanese firms invested 60 percent more than their U.S. rivals in production equipment, even though everyone in the industry faced the same cutthroat competition, with hardly anyone making much profit. Japanese chipmakers kept investing and producing, grabbing more and more market share. Because of this, five years after the 64K DRAM chip was introduced, Intel—the company that had pioneered DRAM chips a decade earlier—was left with only 1.7 percent of the global DRAM market, while Japanese competitors’ market share soared. (kindle loc 1314)

 I also enjoyed the section on why Intel fumbled its future in phone microprocessors:

Intel could sustain high prices because of the optimized design processes and advanced manufacturing that Grove had honed and bequeathed to his successors. The company’s leadership consistently prioritized the production of chips with the highest profit margin. This was a rational strategy—no one wants products with low profit margins—but it made it impossible to try anything new. A fixation on hitting short-term margin targets began to replace long-term technology leadership. The shift in power from engineers to managers accelerated this process. Otellini, Intel’s CEO from 2005 to 2013, admitted he turned down the contract to build iPhone chips because he worried about the financial implications. A fixation on profit margins seeped deep into the firm—its hiring decisions, its product road maps, and its R&D processes. The company’s leaders were simply more focused on engineering the company’s balance sheet than its transistors. “It had the technology, it had the people,” one former finance executive at Intel reminisced. “It just didn’t want to take the margin hit.” (kindle loc 2664)

By contrast, TSMC's founding chairman came back out of retirement when his successor took a conventional tack in a recession:

 Amid the financial crisis, Chang’s handpicked successor, Rick Tsai, had done what nearly every CEO did—lay off employees and cut costs. Chang wanted to do the opposite. Getting the company’s 40nm chipmaking back on track required investing in personnel and technology. Trying to win more smartphone business—especially that of Apple’s iPhone, which launched in 2007 and which initially bought its key chips from TSMC’s archrival, Samsung—required massive investment in chipmaking capacity. Chang saw Tsai’s cost cutting as defeatist. “There was very, very little investment,” Chang told journalists afterward. “I had always thought that the company was capable of more…. It didn’t happen. There was stagnation.” So Chang fired his successor and retook direct control of TSMC. The company’s stock price fell that day, as investors worried he’d launch a risky spending program with uncertain returns. Chang thought the real risk was accepting the status quo. He wasn’t about to let a financial crisis threaten TSMC in the race for industry leadership. He had a half-century-long track record at chipmaking, a reputation he’d honed since the mid-1950s. So at the depths of the crisis Chang rehired the workers the former CEO had laid off and doubled down on investment in new capacity and R&D. He announced several multibillion-dollar increases to capital spending in 2009 and 2010 despite the crisis. It was better “to have too much capacity than the other way around,” Chang declared. (kindle loc 2965)

I'm writing this in the midst of a bunch of Silicon Valley layoffs, and its quite clear that none of the existing crop of Silicon Valley CEOs have the aggressiveness coupled with the vision that the CEOs from Andy Grove's generation had. The author of the book attributes this to companies replacing engineering CEOs with MBA type CEOs.

I also enjoyed the story about ASML's EUV system. It's incredibly complex, and the machines cost $100 million per machine, with the next generation machines expecting to cost $300 million. ASML's a Netherlands company, but it's CEO too is also pretty aggressive:

The company had no choice but to rely on a single source for the key components of an EUV system. To manage this, ASML drilled down into its suppliers’ suppliers to understand the risks. ASML rewarded certain suppliers with investment, like the $1 billion it paid Zeiss in 2016 to fund that company’s R&D process. It held all of them, however, to exacting standards. “If you don’t behave, we’re going to buy you,” ASML’s CEO Peter Wennink told one supplier. It wasn’t a joke: ASML ended up buying several suppliers, including Cymer, after concluding it could better manage them itself. (kindle loc 3085)

The book indicts the various administrations between the end of the cold war and now for neglecting to preserve the USA's lead in semiconductors:

 “Unilateral action is increasingly ineffective in a world where the semiconductor industry is globalized,” the Obama administration’s semiconductor report declared. “Policy can, in principle, slow the diffusion of technology, but it cannot stop the spread.” Neither of these claims was backed by evidence; they were simply assumed to be true. However, “globalization” of chip fabrication hadn’t occurred; “Taiwanization” had. Technology hadn’t diffused. It was monopolized by a handful of irreplaceable companies. American tech policy was held hostage to banalities about globalization that were easily seen to be false...Many officials worried that China’s leverage over the world’s critical technology systems was growing. They also presumed China would use its position as the world’s key manufacturer of electronics to insert back doors and to spy more effectively, just as the U.S. had done for decades. Pentagon officials devising weapons of the future began to realize how reliant they’d be on semiconductors. Officials focused on telecom infrastructure, meanwhile, worried that U.S. allies were buying less telecom equipment from Europe and the U.S. and more from Chinese firms like ZTE and Huawei. (kindle loc 3973-3985)

So we now end up with the majority of advanced chip manufacturing in Taiwan across the strait from China. Someone once asked me if I really thought that the US would defend Taiwan in case of a war. This book makes a cogent argument:

Beijing knows that Taiwan’s defense strategy is to fight long enough for the U.S. and Japan to arrive and help. The island is so small relative to the cross-strait superpower that there’s no realistic option besides counting on friends. Imagine if Beijing were to use its navy to impose customs checks on a fraction of the ships sailing in and out of Taipei. How would the U.S. respond? A blockade is an act of war, but no one would want to shoot first. If the U.S. did nothing, the impact on Taiwan’s will to fight could be devastating. If China then demanded that TSMC restart chip fabrication for Huawei and other Chinese companies, or even to transfer critical personnel and know-how to the mainland, would Taiwan be able to say no? (kindle loc 4505)

Usually if a book has one new idea, it's worth reading. This book has multiple ideas that are new to me, and gave me the context to understand them. It even explains that the new fabs that are being built in Arizona are a generation behind what's in Taiwan, and so by the time they're finished they will already be two generations behind. It certainly sounds like the globalized supply chain is well on its way to another shock if China does indeed try to seize TSMC:

Looking at the role of semiconductors in the Russia-Ukraine War, Chinese government analysts have publicly argued that if tensions between the U.S. and China intensify, “we must seize TSMC.” (kindle loc 4583)

This book is worth reading if you want to understand current events. Recommended.