The global chip shortage is battering everyone - automakers, tech giants and reaching out to everyday individuals. Goods we rely on are getting scarce and prices are going up.
So why can’t we just make make more? The usual and simple answers - build more foundries, hire more people, give tax incentives to chip makers and loosen regulations - just won’t work. Chip manufacturing is a complex and high risk proposition. Bloomberg has an excellent article on why the semiconductor industry is so hard to break into and expand:
The more complicated answer is that it takes years to build semiconductor fabrication facilities and billions of dollars—and even then the economics are so brutal that you can lose out if your manufacturing expertise is a fraction behind the competition. Former Intel Corp. boss Craig Barrett called his company’s microprocessors the most complicated devices ever made by man.
This is why countries face such difficulty in achieving semiconductor self sufficiency. China has called chip independence a top national priority in its latest five-year plan, while U.S. President Joe Biden has vowed to build a secure American supply chain by reviving domestic manufacturing. Even the European Union is mulling measures to make its own chips. But success is anything but assured.
Manufacturing a chip typically takes more than three months and involves giant factories, dust-free rooms, multi-million-dollar machines, molten tin and lasers. The end goal is to transform wafers of silicon—an element extracted from plain sand—into a network of billions of tiny switches called transistors that form the basis of the circuitry that will eventually give a phone, computer, car, washing machine or satellite crucial capabilities.
Yield—the percentage of chips that aren’t discarded—is the key measure. Anything less than 90% is a problem. But chipmakers only exceed that level by learning expensive lessons over and over again, and building on that knowledge.
The brutal economics of the industry mean fewer companies can afford to keep up. Most of the roughly 1.4 billion smartphone processors shipped each year are made by TSMC. Intel has 80% of the market for computer processors. Samsung dominates in memory chips. For everyone else, including China, it’s not easy to break in.
The amount of resources required and the time frame for profits to emerge is just to vast of a risk for the private sector to bear. The only way a country can guarantee chip independence with direct partnership chip manufacturers. Each country is going to have to treat its chip supply chain just as important to invest in as its defense industry.