What history can tell us about our position in high-tech.
New Chinese restrictions on the technology, including processors, permitted in equipment procured by government agencies are the latest move in the global battle for influence in the semiconductor industry; itself a part of a larger struggle for economic power.
US-based companies have more than 46% share of the $574 billion global semiconductor market (in 2022, according to a report by Citigroup), although China is the largest end-market, representing some 31% of sales. Semiconductor exports earn more for the US economy than any other products except oil, gas and aircraft. So of course, it's important.
We have all become heavily reliant on advanced semiconductors in every aspect of life and work, driving the machines we use to get things done: the IoT applications managing our homes, businesses and infrastructures; the AI powering interactions from photography and customer service to medical decision-making; even our mobility, which is increasingly electrified, automated and connected.
The Semiconductor Industry Association has noted a new upward cycle in the semiconductor market, beginning in late 2023, powered by trends such as AI and ongoing automotive electrification. It's natural that the world's largest economies want to guard their share of the action. China's move can be seen as a response to the Chips and Science Act, itself a response to global pressures threatening the US' relative strength. The European Chips Act has similar goals to its US counterpart and India also has ambitious plans to strengthen its indigenous high-tech sector. Although relatively few understand the technology, the power and influence associated with a strong semiconductor industry are clear for all to see.
I've said many times that making chips is part of an even bigger picture. That a strong high-tech sector needs more than the $40 billion in government funding allocated for building new semiconductor factories alone. All chip companies know the semiconductor business is risky. Building a new fab is a huge undertaking; a bet on the future, which can be derailed and devalued by unexpected technical developments.
There is history of investments that went awry as companies gambled on future chip geometries linked to specific technologies. When the tech changed, much of the investment became obsolete before the building was even completed. Intel's Fab 42 in Ocotillo, AZ, provides a lesson. Begun in 2011, demand for its 14nm technology had become uncertain by the time construction was completed and the plant lay unused. After receiving another few billion dollars to re-equip the plant for 7nm manufacturing, the plant finally entered service in 2020 equipped to make 10nm chips. There are similar examples from across the world, including the UK, where plans to build a wafer fab in Dunfermline, Scotland, in the early 2000s ended after seismic changes in the mobile phone industry.
So, as the tech superpowers start to finance their ambitious plans, some caution is warranted. Government commitment to the health of high-tech industry is welcome and needed. On the other hand, the impressive spending pledges that express the commitment so emphatically must be directed wisely to avoid waste and, ultimately, strategic losses.
Advanced technologies such as AI and digital twins could provide some assistance here, by helping plan and build factories more quickly and cost-effectively, entering service within a shorter timeframe. I'm a great believer in the power of these technologies. although they alone cannot guarantee success.
We are seeking to solve problems brought about by the globalization trend pursued in previous decades, itself driven by commercial pressures. The pandemic and current geopolitical tensions have exposed the vulnerabilities in that model, particularly the difficulties in controlling long and fragile supply chains.
The Chips and Science Act recognizes the importance of supply chain to some extent by referencing the supply of chip-making equipment, as well as the ICs themselves. In China, too, the importance of factory equipment to chip manufacturing capacity is recognized. The US has sought to restrict China's access to advanced chip-making equipment. In response, China is looking to increase production and advance the technology of tools made and designed locally by companies such as Shanghai Micro Electronics Equipment (SMEE), China's most advanced lithography scanner manufacturer. Chinese chipmakers like SMIC have used European equipment to build 7nm smartphone processors, although threats to technology access for further process shrinks has driven collaborations with other local companies.
While countries around the world look to increase resilience in supply chains by prioritizing local production, it is intriguing to see that some geographical pinch points remain. Chip manufacture depends on a supply of high-purity quartz used to make the crucibles for growing high-quality silicon ingots. The highest purity quartz comes from just one place on earth: the Spruce Pine quartz mine in North Carolina. It's sobering to consider the potential for problems at this one facility to disrupt a global industry. There are sources of fully synthetic quartz, which could expand to replace the quartz from Spruce Pine, but this would take time to scale up and would also increase costs.
After the recent global pandemic, and its effects in so many aspects of our lives, we are all understandably motivated to Build Back Better. That spirit is at the core of our nature. We should be careful with our ambitions and our spending power, however. As we have become adept at doing with AI, we should use the experiences from previous good and bad examples to train our responses, to ensure that all in this world can have a secure future.
Alun Morgan is technology ambassador at Ventec International Group (ventec-group.com); This email address is being protected from spambots. You need JavaScript enabled to view it.. His column run monthly.
