Self-sufficiency in semiconductor chips by Western countries is impossible 🤔🧐

The following content is an article written by Howard Yu, Professor of Management and Innovation at the International Institute for Management Development (IMD) and published in The Conversation👇

Intel has the entire process of manufacturing computer chips in-house, from research to design to complex manufacturing. For much of the latter half of the 20th century, this made this California corporation an example of American ingenuity.
Gelsinger is the birthplace of Intel. After rising to Chief Technology Officer (CTO) in the 2000s, he led EMC, which handles Dell's data storage and cloud computing business, for 10 years.
The return as CEO in 2021 was seen as a savior event. He promised to regain superiority in US chipset manufacturing from rivals such as Taiwan Semiconductor Manufacturing Company (TSMC).

His vision included expanding chip manufacturing plants in New Mexico and Oregon, and investing billions of dollars to build plants in Ohio and Germany. To make this possible, the federal government promised $7.9 billion in grants as part of President Joe Biden's Chips Act 2022.
Three years later, the company is in crisis. The board pressed Gelsinger to choose: retire or be sacked. He chose the former.

The US government has always fostered the semiconductor industry, which is a small chip mounted on laptop computers and smartphones. In the latter half of the 1950s, they paid 30 times the market price to California-based Fairchild Semiconductor for transistors used in missile computers. The company's senior executives would later establish Intel.

Semiconductors continue to be the lifeblood of the military, from hypersonic missiles to defense systems equipped with AI. However, cutting-edge semiconductors, including those for US F-35 fighter jets, are mainly manufactured by Taiwan's TSMC.
It is clear that China wants control of Taiwan, which was once united. According to a 2022 US congressional committee, those who control Taiwan's semiconductor capabilities will “have an advantage in every war zone.” This means control over an industry at the center of global commerce and society.
What makes the situation more complicated is that major US semiconductor companies such as NVIDIA, AMD, and Qualcomm do not have factories and are heavily dependent on TSMC/Taiwan and Samsung/South Korea for chip manufacturing. The United States of course urged TSMC and Samsung to build factories in Arizona and Texas, respectively. However, as the last fully integrated US semiconductor manufacturer, there is no company as central as Intel in the US strategy of returning chip manufacturing back to its home country.

Intel's integrated model had established itself as the king of Silicon Valley for many years, but it missed an important opportunity to ride the wave of the mobile revolution. The company continued to focus on expensive, power-consuming CPUs (central processing units) for PCs and servers, and did not prioritize lightweight, energy-efficient processors used in smartphones. No in-house chips were introduced, and they were not manufactured for other companies by imitating the TSCM model in accordance with advice from industry participants.
As a result, sufficient funds should have been obtained to inject funds into extremely expensive research on next-generation chip manufacturing technology at an early stage. But Intel didn't feel the need. The company's CPU manufacturing business relied on deep ultraviolet lithography (DUV), which is conventional cutting-edge technology. Over the years, we haven't been able to break the temptations of profit margins and free cash flow from continuing to focus on this old technology. Many investors supported this strategy because Wall Street has always been obsessed with cash machines, even when technical momentum has declined.

Meanwhile, TSMC has built a powerful intellectual property (IP) library so that customers can design and order chipsets more easily. American chip designers have learned remote cooperation to the extent that they don't even need to make phone calls with Taiwan via Zoom. They were able to work around the clock to work out the latest technical requirements with TSMC's virtual e-Foundry.

Mass chip manufacturing for mobile devices enabled TSMC to invest faster than any rival in the mid-2010s in extreme ultraviolet lithography (EUV) used to manufacture today's most powerful semiconductors. As a result, the efficiency of TSMC was further enhanced, and new chip manufacturing standards were established that Samsung and Intel were eventually forced to comply with.

Gelsinger was keenly aware of the domino effect caused by Intel's smartphone failure. In 2021, he launched Intel Foundry Services (IFS) as an independent division providing TSCM style manufacturing services for third parties. Therefore, investments were made in additional production capacity.
Unfortunately, Intel's corporate culture blocked this strategy. A typical example of this is the resignation of board member Lip-Bu Tan in August. A former CEO of the American chip software company Cadence Design Systems, he had just arrived two years ago to support implementation of Gelsinger's strategy.
He took office as head of the manufacturing department in 2023/10, but he soon resigned due to dissatisfaction with “the company's lagging workforce, approach to contract manufacturing, and risk-averse bureaucratic culture.”

His resignation left a huge gap in the board's expertise on semiconductors. Intel's stock price fell 59% in 2024, and while the launch of IFS is struggling, the company is cutting 15% of employees to cut costs by 10 billion dollars.

But fundamentally, this is a crisis for America. The idea that has been cherished “designed in the US and manufactured in the US” is fading. Despite TSMC and Samsung creating manufacturing capacity in the US, both companies will still manufacture the majority of their products in their home countries.
Above all, TSMC has unrivaled chip manufacturing expertise and maintains a strong foundation in Taiwan. Taiwan holds key advantages in this industry: intellectual capital, skilled labor, and decades of production know-how.
Meanwhile, Jensen Huang, the Taiwanese American NVIDIA CEO who dominates the AI chip market, has found no reason to break the relationship with TSMC. And no matter how strong an American political leader is on overseas supply chains, economic facts remain. For example, Tesla relies on Nvidia chips, and those chips depend on TSMC manufacturing.

Thus, the global nature of chip manufacturing does not succumb to US nostalgia. The US may be able to persuade TSCM and Samsung to open more facilities within the US, but absolute sovereignty has been lost. The departure of Intel's last true believer underlines its solemn truth.

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