Chip War: Why semiconductors run the world
- The chip industry developed from a niche military supplier into the creator of more than one trillion devices a year used to make a broad range of products
- Despite the sector’s size, companies including ASML and TSMC play critical roles and can’t be easily replaced
- Their international supply chains make competing nations mutually dependent
Author Chris Miller photographed by M. Scott Brauer
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At first glance, Chris Miller seems an unlikely guide to a technology that’s at the heart of commerce – and geopolitical power.
Before writing about semiconductors, the American academic specialised in the history of Russia and the former Soviet Union and was only vaguely familiar with the principles behind integrated circuits and transistors.
Yet his past expertise informs Chip War: The Fight for the World’s Most Critical Technology. What emerges is an essential guide to the future, involving an exploration of why the US gained the upper hand in the Cold War, the fault lines at the centre of current US-China tensions, as well as a lively story-packed account of what may be the 20th century’s greatest invention.
We first briefly meet at a London event to celebrate the book’s release before a trans-Atlantic conversation via Zoom. Miller tells me he started thinking about the book five years ago after wondering why the Soviet Union had struggled to produce guided missiles. As he began studying the computing technology of the 1950s and 1960s, he learned that the rocket engines involved were relatively straightforward. “The complicated part,” he explains, “is the guidance computer.”
He soon grasped that the genesis of today’s computer industry stems from missile guidance systems. The US military was the first major customer for silicon-based transistors and chips when it sought a miniaturised and more robust alternative to the vacuum tubes used in early computers.
Then another point caught his attention: today’s production of chips and the equipment that makes them are concentrated in a small number of companies and countries.
“I came to realise from those two data points - one historical, one in the present - the extent to which I didn't know much about chips,” he says. “They seemed to be important in a number of IT facets of the modern world.”
What convinced Miller to refocus his research was the discovery that China spends as much money importing chips as importing oil. “I had to download the data four times from the website to make sure I was looking at it correctly. It seemed so absurd,” he recalls. “I’m used to learning about oil as a strategic commodity, but not chips. It turns out that my entire vision of globalisation was deficient because it didn’t put semiconductors at the centre, where they belong.”
The history that emerged is a contrast in scales.
On the one hand, the 1s and 0s of binary code that form the basis of digital computing are conveyed in the physical world by microscopic on-off switches called transistors. Some of these are smaller than a coronavirus, and the most advanced chips pack billions into an area the size of a fingernail.
On the other hand, this story could scarcely be bigger. These chips are everywhere, providing the computing power for everything from video calls to cars, dishwashers to data centres.
The supply chains involved weave across the globe, involving some of the brightest minds and most innovative companies in science, engineering and manufacturing.
The chip industry in numbers
Semiconductor units shipped in 2021: 1.2 trillion
Transistors in Intel’s 4004 processor in 1971: 2,300
Transistors in Apple’s M1 Ultra processor in 2022: 114 billion
Global semiconductor sales in 2021: $556bn
Increase in sales of chips to China in 2021: 27 per cent
TSMC’s annual investment budget for 2022: $36bn (estimate)
Sources: Intel/Apple/TSMC/The Semiconductor Industry Association
Consider ASML in the Netherlands. It’s the world’s only producer of the extreme ultraviolet lithography machines required to make the tiniest transistors possible today, enabling advances in computing power and energy efficiency. Apple and Samsung’s smartphones and laptops are among the products that benefit.
ASML’s massive machines require hundreds of thousands of components, some of which sound like they belong in science fiction. For example, mirrors that are so exact “they could be used to aim a laser to hit a golf ball as far away as the moon”. Costing about $150m per unit, the equipment is so complex that ASML provides its own extensively trained staff to help operate it, and they remain at the customers’ site for the duration of its lifespan.
“You can’t produce any tech at the advanced level today without ASML’s machines,” Miller adds. “None of the advanced chips we have would exist without them.”
ASML isn’t the only critical player. Miller explains how Taiwan Semiconductor Manufacturing Company (TSMC) came into being in 1987. It was the world’s first dedicated semiconductors foundry, meaning it only made chips for others at a time when other manufacturers focused on their own designs. The innovation made it possible for NVIDIA and Qualcomm, among others, to get their chips made without having to raise vast sums to build their own fabrication plants. Yet, at the same time as encouraging more entrants into the industry, it also caused things to become more centralised.
“Today, 90 per cent of the most advanced processor chips are made in Taiwan, and around a third of the additional computing power that the world produces annually comes from Taiwan,” Miller says. “Most smartphone processors come from Taiwan, a third or so of PC processors. Chips that run AI applications in data centres largely come from Taiwan. It would be very difficult to make telecoms infrastructure without chips produced in Taiwan.”
Complex supply chains
The island also has earthquakes, typhoons and a complex relationship with mainland China. President Biden has said that the US would defend Taiwan militarily if required.
But US government trade bans preventing Chinese companies from importing some of the chips manufactured by TSMC also play into tensions. Washington can impose its will because TSMC’s foundries rely on American software, equipment and intellectual properties.
“As I got deeper into the research and I realised the risk of the chip industry today, I did get more and more nervous and uncomfortable as I went on,” Miller says. “There’s a complicated interplay between our growing reliance on Taiwan, the increase of US-China geopolitical competition, the shift in semiconductor supply chains and the crucial role of chips produced in Taiwan to the future of the US and Chinese militaries. It all left me deeply worried that it could go horribly wrong... for the entire world.”
China, the US and the European Union are all trying to become more self-sufficient in chips to mitigate that risk. But Miller warns that this is an unrealistic goal for any country. It’s simply too expensive. “The reality is that the chip industry is defined by massive economies of scale at different parts of the supply chain. There’s a huge incentive to have concentration."
That’s one of the reasons, he points out, that the USSR failed to develop a competitive superconductor industry, despite the efforts of KGB spies and Soviet scientists to create its own. “It was locked out of many of the economies of scale that Western firms benefitted from,” Miller explains. And he suggests that failure may hold a clue to the sector’s future.
“The chip industry is not deglobalising,” Miller says. “The mutual interdependence of the US and the Netherlands and Japan and other countries is not going to reverse. It’s just that China is going to play a different role in the supply chain.”
Exactly what role it carves out for itself is likely to shape commerce, digital innovation and perhaps even the balance of power for years to come.
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This communication was produced and approved in December 2022 and has not been updated subsequently. It represents views held at the time of writing and may not reflect current thinking.
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