Chip War by Chris Miller: A Riveting Look at the Geopolitics of Computer Chips

Why the Future of Innovation and Global Power Depends on these Tiny Chips

Chip War: The Fight for the World’s Most Critical Technology by Chris Miller

With so much demand for computer chips, why don’t we see new entrants to satisfy demand?

Turns out, it’s really hard to make chips. The tools, chemicals, and software are produced by a handful of companies, capital expenditures are in the billions, and replicating decades of expertise doesn’t happen overnight. Even the Pentagon’s $700B budget isn’t big enough to afford new facilities in the US for defense purposes.

Chip War discusses the history, current situation, and geopolitics of one of the world’s most valuable resources.

Chip History and the Founding of Silicon Valley

The book starts with the history of Silicon Valley.

A group of engineers and entrepreneurs including William Shockley, Bob Noyce, and Gordon Moore would create revolutionary inventions such as the transistor and the integrated circuit and go on to found legendary companies such as Fairchild Semiconductor and Intel. Early sales of chips went to the military and space programs. Eventually, businesses bought as many chips as the military and a new industry (and Silicon Valley) was born.

For more information about the history of Silicon Valley, this PBS documentary is a good one.

The Rise of Asia

Sony of Japan was one of the first Asian companies to recognize that electronics were the future of the global economy so it produced consumer electronics that drove semiconductor consumption.

Samsung of Korea, backed by cheap bank loans and government support, rose up as a competitor to Sony. Eventually, Taiwan Semiconductor Manufacturing Company (TSMC), supported by the Taiwanese state, became a player by predicting that “fabless” companies would emerge and won by achieving economies of scale. By 2020, only two companies, TSMC and Samsung, could manufacture the most cutting-edge processors.

Currently, 75% of the world’s computer chip manufacturing is concentrated in East Asia.

Lithography and Specialized Software

The tools to produce chips are controlled by a few companies.

Extreme-ultraviolet lithography (EUV) is a key technology in building chips. Advanced Semiconductor Material Lithography (ASML) is a Dutch multinational corporation that has a monopoly on EUV. Developing and commercializing one of ASML’s EUV machines took 3 decades. The software used to design chips is controlled by 3 firms: Cadence, Synopsys, and Mentor (owned by Siemens).

To unravel this control would be extremely difficult.

US and China Geopolitics

Computer chips are as important to China as Oil.

To emphasize its importance, China’s import of chips in 2017 was $260B, an amount larger than Saudi Arabia’s export of oil. Unlike oil, chips are monopolized by China’s geopolitical rivals: Taiwan, Japan, South Korea, and the United States. Domesticating the supply chain and gaining independence would take over a decade and cost well over a trillion dollars.

Computer chips are equally important to the US.

Its military requires computer chips for tanks, fighter planes, and ships. America’s military will significantly weaken without this valuable resource. The US already lost its technological lead in fabrication, lithography, and other fields. Now it has to buy the majority of chips from countries located off the coast of China and a supply chain disruption in East Asian could be devasting to the US.

The future of warfare will be more reliant than ever on computer chips.

While Taiwan could be the future battleground, peace in the Taiwan Strait is to every country’s benefit. A disaster in Taiwan would mean losing 37% of computing power production, which could be more costly than the COVID economic lock-downs, and would take half a decade to recover the production capacity. If China were to seize TSMC factories, it might not get materials and software updates for the machines that produce computer chips since those materials must be acquired from the US and its allies. China would also be worse off since the US could still get chips from Korea and Japan.

At least for the time being, there is motivation for peace.

Conclusion

Chris Miller does an outstanding job of taking this complex subject and making it accessible to the general public.

The world learned how critical computer chip supply chains are from COVID and Chip War expands that knowledge by outlining the history, the key players, and the geopolitics behind the industry.

Nearly every chip in the world uses software from at least one of three U.S.-based companies, Cadence, Synopsys, and Mentor (the latter of which is owned by Germany’s Siemens but based in Oregon). Excluding the chips Intel builds in-house, all the most advanced logic chips are fabricated by just two companies, Samsung and TSMC, both located in countries that rely on the U.S. military for their security. Moreover, making advanced processors requires EUV lithography machines produced by just one company, the Netherlands’ ASML, which in turn relies on its San Diego subsidiary, Cymer (which it purchased in 2013), to supply the irreplaceable light sources in its EUV lithography tools.

With all the capacity and technological constraints in the chip industry today, semiconductor stock prices might stay high for some time.

Chris Miller, Author of ‘Chip War’