‘Impossible':TSMC founder Morris Chang on US dreams for onshoring chip supply chain
https://www.taiwannews.com.tw/en/news/4327937
Morris Chang spent 25 years (1958–1983) at Texas Instruments.He knows US very well.
https://www.taiwannews.com.tw/en/news/4327937
Morris Chang spent 25 years (1958–1983) at Texas Instruments.He knows US very well.
Anytime someone says "impossible", I would take that opinion with a grain of salt.
Manufacturing Equipment (12%):
US: 40%
Japan: 32%
EU: 18%
S Korea: 4%
Taiwan: <1%
Wafer Fabrication (19%):
Taiwan: 20%
S Korea: 19%
Japan: 17%
China: 16%
US: 12%
EU: 9%
[1] https://www.semiconductors.org/wp-content/uploads/2021/09/20...:
Or to quote Arthur C Clarke:
> When a distinguished but elderly scientist states that something is possible, he is almost certainly right. When he states that something is impossible, he is very probably wrong.
In their ongoing series on supply chains, the Odd Lots podcast had episodes on both TSMC and ASML:
* https://podcasts.apple.com/us/podcast/the-story-of-how-tsmc-...
* https://podcasts.apple.com/us/podcast/asml-the-obscure-power...
It’s essential to TSMC survival for their production to physically stay focused in Asia.
It is impossible with respect to current cost structure, without substantial government money, while getting the same margin. Of course it is entirely possible to throw money at the problem and succeed. Which is what Intel is trying to do right now with the help of US government.
He can be "exceptionally clear" and still biased in favor of TMSC.
> It is impossible with respect to current cost structure
Well, we'll have to pay a few cents (or dollars) more per chip then. It is infeasible for us to continue to depend on TMSC in the long term - it will be taken over by our largest geopolitical adversary by 2030 at the latest. We do not have a choice but to either on-shore, or shift production to countries with far less geopolitical risk.
How will the USA ensure that?
It's debatable to what extent USA is willing to fight for that, but if it chooses to do so, then now and at least until 2030 USA has enough military might to enforce a stalemate/status quo across the Taiwan strait, no matter how much it gets escalated. China can force Kinmen and Matsu islands, but invading Taiwan proper requires either USA not joining the war or a stronger China.
So IMHO the fate of Taiwan in this century depends on how much USA will be willing to intervene to protect it; and the physical location of semiconductor factories is a big factor influencing that willingness.
Chinese antiship weapons are significantly better than the US. Without immediately inducing Kessler syndrome and still being very lucky, I don't see how a US carrier is going to survive two dozen DF-21 missiles simultaneously, a couple hundred supersonic cruise missiles, and whatever submarines or UUVs the Chinese have got lurking there.
The US fleets most advanced weapon, SM-6, still can't reliably intercept MRBMs or SRBMs(https://www.defensedaily.com/mda-conducts-sm-6-missile-raid-..., https://www.reuters.com/business/aerospace-defense/us-fails-...) and has never intercepted a single IRBM. I struggle to see how it can possibly defend against dozens of IRBMs with advanced countermeasures that aren't on a predefined trajectory if it can't even hit a single one with no countermeasures. And by the way, they're building over 100 missiles a year. They could realistically have 1000 antiship IRBMs in a few year - more antiship IRBMs alone than the combined amount of interceptors of all carriers the US could hope to deploy within 8000km of Taiwan.
Right now the best the US can do is try to jam the missiles and deploy smoke, and hope they miss, which they probably won't.
A US carrier group in Taiwan's territorial waters is 100% getting absolutely wiped. The US will never risk getting their carriers that close to Chinese weapons, they'll stay thousands of kilometers away and hope for the best.
The US's best hope is to keep its assets far away from the theater and cooperate with Taiwan to try to whittle away the Chinese fleet and prevent them from setting up a beachhead, and hope the Chinese air defences, low-frequency radars, and signals intelligence platforms can't stop the counterattack.
The Chinese also won't need a million soldiers. They just need to get a few dozen thousand on the shores with air superiority and disable the Taiwanese military then take as much time as they want pacifying the island.
Prediction: Taiwan will be retaken by China by 2030 and the US will do bupkis about it other than saber rattling. It can't even do sanctions, since that'd be sort of like US imposing sanctions on its own manufacturing base. Xi knows this. He will use our weakness to his advantage. It would seem that business establishments are already acknowledging this, hence this massive investment in the US. On the other hand, this is also forcing China's hand - they can't afford to wait until it becomes feasible for the US to impose effective sanctions. Their colossus too has legs of clay. Except the legs are not as weak.
The US will have to leave the Taiwan strait waters to China and attempt to strike as many Chinese boats there as they can from a distance in the air.
Watch the YT video linked in the article. China is in the position of strength now. They're on an upward trajectory. We're on a steep downward one. And that won't change until we at least acknowledge the realities of our present predicament, and begin the serious, careful work to rectify it. I see no signs of that even being possible the way things are right now, let alone likely.
Probably. But It wasn't that TSMC doesn't want to move, he made it clear the maths doesn't work out. Giga Fabs operate at scale and efficiency is precisely why you could make a $30 M1 Die.
>Well, we'll have to pay a few cents (or dollars) more per chip then.
That is easier for mature node. But most of the time we are not talking about mature node but leading edge.
If the maths were a few cents or even a few dollar things would have been done already. In US, for TSMC having the same margin would probably put M1 close to $50, while having higher initial R&D cost, meaning more volume to amortise the cost, or higher final retail price depending on sector.
So Morris's question to TSMC's client, are you willing to pay 50% to double for US made silicon. As far as all major US players, that is Qualcomm, Nvidia, AMD and Apple. The answer has been a simple no. They want it cheaper! ( Looking at Nvidia's constantly moaning )
Of course there is another path, forcing TSMC to operate in US while lowering their Net Profit margin. Which is likely what is happening here. The only good thing is that US is finally understanding the risk of its supply chain. For some people like me who has been crying about it for nearly a decade.
For a $3K Laptop you are looking at M1 Pro or M1 Max, those would cost at least $50 to $100 more BOM cost. Excluding other factor. That translate to roughly $125 to $250 retail price increase at the same margin.
For a labour of $20 to $30 increase per iPhone unit, would equate retail price increase of $50 to $75. Excluding other factors. Not to mention I seriously doubt labour would be an increase of only $20-30 per unit. The different in cost / productivity is likely higher than 3x.
And I'd like to understand how it is that an M1 Pro die, which is manufactured _solely_ by robots, and can't even use human labor would cost $100 per unit more here than anywhere else in the world. Heck the chip itself likely costs less than that to manufacture (do remember that we're excluding the design cost, which is the same).
This is quite literally the case of big businesses selling their (for some tenuous definition of "their" - they don't much care where they are situated as long as they have access to US market) country out for a buck.
I was not aware that there were no employees in modern chip fabs. They must require some sort of maintenance cycle, how often do humans come to modern chip fabs?
I'd like to pose a better question: why do you voluntarily carry water for Apple? If you are in the US (or in one of its allied countries), on-shoring advanced semiconductors, and other types of advanced manufacturing is 100% beneficial to you no matter from which perspective you consider it.
Unfortunately at the same time for Taiwan, once the West's reliance on that area of the world for production becomes less of an issue, China's timeline gets accelerated much faster to the "No but really you're part of the PRC" point. Similar to how the PRC ratcheted up control over Hong Kong in 2020 when the rest of the world was basically "Sorry HK we got COVID issues k'bye"
Little more complicated than that - with HK there wasn't much the west could really do, or any obligation to do anything at all. There were no treaty obligations, as far as I'm aware of.
Obligations to Taiwan have been covered since 1979, and there's the whole matter of the PRC needing to do am amphibious invasion against a prepared foe.
I'd argue they are not similar at all, really. Similar only in PRC's ambitions.
I'd pay double right now for GPUs directly from the source, not from some sketchy third party.
Right now our EV/auto, space and even AR/XR industries as well as gaming and everything that requires chips, we are at the mercy of an external market that has a slant against the West. It will take some years to get out but we'll never not expect that in the future again. If costs go up costs go up, but availability should never be allowed to be used as leverage again, that is too risky and too costly long term.
Availability that is reliable is always more important than efficiency or cost, because right now lack of availability is costing lots of extra time that has the potential to lose entire industries, that is not acceptable in any way.
Very little margin and too much optimization/efficiency is bad for resilience. Couple that with private equity backed near entire market leverage monopolies/duopolies/oligopolies that control necessary supply and you have trouble.
HBS is even realizing too much optimization/efficiency is a bad thing. The slack/margin is squeezed out and with that, an ability to change vectors quickly. It is the large company/startup agility difference with the added weight of physical/expensive manufacturing.
The High Price of Efficiency, Our Obsession with Efficiency Is Destroying Our Resilience [1]
> Superefficient businesses create the potential for social disorder.
> A superefficient dominant model elevates the risk of catastrophic failure.
> *If a system is highly efficient, odds are that efficient players will game it.*
Hopefully that same mistake is not made in the future. It will take time to build up diversification of market leverage in terms of chips for availability. Hopefully we have learned our lesson about too much concentration, with that comes leverage and sometimes a "gaming" of the market.
This chip shortage, and all the supply chain problems during the pandemic as well, will hopefully introduce more wisdom and knowledge into business institutions that just because things are ok while being overly super efficient, that is almost a bigger risk than higher prices/costs. Competition is a leverage reducer. Margin is a softer ride even if the profit margins aren't as big.
> a full chip supply chain in the country
(emphasis mine)
TSMC is, after all, ALSO building a fab in the country, so it's not like TSMC doesn't believe in onshoring chips to the US. The fabs are {high capital expense/high recurring expense/high skilled labor} operations so the US is very competitive due to the labor value-add. Not every part of the full supply chain is like that.
To serve (aka reduce risk to) US supply chain interests in the short term, you also don't need access to the full stack domestically. You could potentially send a lot of activites that need low-skilled-labor to, say, Mexico, which is a much lower supply chain risk that Asia (aka thailand, vietnam, china). National security onshoring, which possibly has less tolerance for even outsourcing to Mexico, is likely a different story and more aligns with Morris' statement.
Depends on what the dream is. Bulk onshoring? Probably not while the geopolitical situation stays on the status quo.
But I don't think that's the attempt we're seeing here anyway. I think what we're seeing is the foundations built for the capability to bootstrap more robust manufacturing in the West if/when China decides that Taiwan really should stop claiming independence, and perhaps at the same time exerts its local power over that entire region of the world and thus South Korea as well.