The money printing press that is chip maker TSMC
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The longer I've worked in tech, the more it becomes obvious why traditional business school approaches do not work in innovative fields. Between 2000 and 2016 Semi firms focused on outsourcing the expensive and high risk portion of their product to firms like TSMC, starting around 2016 a lot of companies looked at the risks and costs of further node shrinks in what they believed was a commodity business - shrugged their shoulders and decided they wouldn't chase after it.
In 2022, TSMC is effectively the only game in town for the latest generation of chips - and isn't letting up. Anyone who wants to "catch-up" is now stuck with the daunting prospect of spending ~100 billion dollars to re-create a commodity business.
Inspired by an Apple II https://en.wikipedia.org/wiki/Agat_(computer)
clone of the Intel 8086 CPU https://en.wikipedia.org/wiki/K1810VM86
The $12 billion given as the cost for TSMC's new Phoenix fab would buy you approximately 1 new Ford-class American aircraft carrier or a ~10% share in Canada's oil extraction industry.
Chip manufacturing really is the industrial big leagues.
And that's the bullshit, $30,000-toilet seat, parts-manufactured-in-every-congressional-district, Defense Contractor Special™ price. It should really buy you three or four aircraft carriers.
The last Nimitz-class carrier, CVN-77, cost $6.2 billion and was ordered in 2001, while the Ford cost $13 billion and was ordered in 2008. After adjustment for inflation in that period, it's only about 1.5x as expensive.
And yet this has to be repeated time and time again on HN. It is actually quite tiring. People used to look at Intel spending $10B in CapEx and felt the number is unsustainable. ( Part of the reason why Intel lost ), while TSMC is on track to spend ~$50B in 2023.
Perhaps some technologies are just so advanced and difficult, with so many people and specialized knowledge, that firms like TSMC are unbeatable. No one can compete and their global power is assured.
1) If they charge a lot and don't innovate, then there will be a huge reward waiting for whoever invests capital to compete with them.
2) If they are innovative and cheap, then they can fend off competition and nobody cares because they are innovative and cheap.
Except that modern chipmaking is so complicated that even one company can't contain all the specialized knowledge. My understanding is that the Dutch company ASML is the only producer of EUV lithography machines in the world, which the chipmakers depend on to make their most advanced chips.
(And capital intensive). But then again, these words could have been said about wannabe private rocket companies (SpaceX) or squeezing inside car market (Tesla), that actually turned out to be possible. So I wonder if any startup/billionaire will start to serve some niche chip market, be it capital intensive, but with some clever tactics...
Falcon 1 vs currently flying F9 rocket and potential Starship is a huge difference after all.
With TSMC i think we'll see government churning up the market the moment the US expects it to be at risk from China or the like.
until they get disrupted. For example, a wholly new approach to CPU design using lazers and light, instead of silicon, or quantum computing perhaps.
Even if quantum computers can be made to work at scale they'll always remain niche devices for running specialized algorithms. No one is ever going to calculate their income taxes on a quantum computer.
I think that Sophie Wilson said that cost-per-part is rising since we surpassed 22nm, heat is more of a problem because finfet can't dissipate as well as planar, and reliability is declining at smaller nodes. If I needed a 20-year service life, I would not choose 7nm.
Sophie addresses the cost rise at 22:00.
ASML makes the EUV etchers, and carl ziess makes the optical components needed to focus the light... both companies hold exclusive technological monopolies on their respective products.
In addition to this, Samsung and Intel are not that far behind the technology curve for making these chips... with Intel quickly shifting to include the capability of being a global foundry for making chips outside of their own designs.
Historically the landscape in the chip industry changes very quickly. I'm sure your analogy fits some technology in the world, but semiconductors is not it.
And by definition, anything that uses a chip will depend on this, I think? Cars, airplanes, game consoles, mobile phones... Heck, we have chips in pregnancy pee sticks these days.
So, I think all supply chains for "modern" things are insanely complex and effectively incomprehensible.
And this is not new, see the classic "I, Pencil"[0].
> Since only God can make a tree, I insist that only God could make me. Man can no more direct these millions of know-hows to bring me into being than he can put molecules together to create a tree.
I would imagine a smartphone for example having an unimaginably large diagram.
Seriously if you include the box, a phone touches so much of our economy it’s astounding.
It is impossible for the end-consumer, and even a lot of producers to know the provenance of every component in the supply chain. Even if every American consumer is against the destruction of rainforests, connecting the dots to palm oil cultivation and understanding the scale of ubiquity of palm oil in supermarket products is impossible. The only way out of this is government regulations.
Historically, the landscape of the chip industry has had many leading node players.
Now, it has ~1.75. TSMC & Samsung. With Intel and SMIC behind them.
The reduction to those 4 players, coupled with demand from mobile, GPUs, and ML accelerators, is pretty unique since the earliest days of the industry... when pretty obscene profits were also made for a long time (Intel, late 80s to 2000).
I'd call a decade of dominance a pretty stable industry.
I never said this at all.
All I am saying is that the supply chain is complex and that to say TSMC is the sole monopoly holder of semiconductors is very very inaccurate.
This also makes me somewhat sympathetic towards the lack of ip protections in China and other developing economies. Too often the patent system is used to kick away the ladder once one party has gained an advantage.
Semiconductors is as close as we've ever come to a natural monopoly. Aircraft are second. Boeing and Airbus are the only games in town.,
That being said, my main point wasn't to say that ASML has an exclusive monopoly over EUVs and therefore all chips... far from it. I was only illustrating the complexity of the supply chain. Many different entities have monopolies and the landscape constantly shifts.
Just like the short scene spoken by the Bene Gesserit in the 2021 film:
B.G: "..our plans are measured in centuries; we have other prospects if he fails his promise." .. "On Arrakis we have done all we can for you. The path has been laid, let's hope he doesn't squander it."
Or are you saying less power in manufacturing? Like I said, at some point cheap enough is cheap enough.
The lesson from Dune is that even the widest moat can be crossed.
Herbert spent years improving Dune since no one wanted to publish it. He shined it to a perfect diamond.
When Dune was published, it was a good enough success to warrant sequels. Herbert wrote those sequels quickly, and they did not get any polish. They are not diamonds, and no one ought to extract lessons from them.
They're supposedly working on it with Xe-HPG DG2. But knowing Intel and their shenanigans, I'll believe it when I see independent coverage and benchmarks.
We will see how Xe GPU will turn out.
Yet, if history is any guide, then at some point a tech disruption will turn everything on its head and there is no guarantee that the incumbent players survive.
Quantum / optical / bio chips? Nothing on the horizon anywhere close to market, but there is no fundamental reason to think silicon is the end game.
Well ... its' the company that develops power in the value chain, gets the big profit margins!
In this case, probably the 'hardest problems' are solved by ASML, in the Netherlands the sole provider of the key equipment TSMC uses to make their gear.
TSMC is the operating entity that uses their various bits of operational advantage, know-how and positioning to great effect.
It's almost like TSMC and ASML should be both talked about in every article, and that both Europe and US should be contemplating strategic initiatives in the operational part of leveraging the fact that their is a lot of money being left on the table in their home turf.
Edit: one of the hard parts about saying 'let's make the chips here' ... is that the 'stuff' that uses the chips are often made in China and Taiwan! Not always, but often.
You can see the effects of China 'creeping up the value chain' - it's hard to displace certain things if they control 'all the other moving parts, even the not very profitable one's' ...
Is this cause for concern given the risk of China taking Taiwan?
Are you sure about that math? Total NATO spending is 1.2T.
Critical equipment, which are difficult to manufacture, is a huge part of the equation.
Intel and Samsung are only a couple nodes behind, it would be expensive and annoying to change over but we'd manage it. I mean, go back 5 years, right? Computers have not massively changed since then.
As a consumer, I just hope we stabilize with two or three leading competitors, such as TSMC, Intel, and Samsung.
ASML & EUV is a stronger example of a high risk gambit in an innovative field locking down the market.
And I can almost garuentee it's better for the environment if I continue using my device or an old one rather than upgrading to the new iphone soon.
https://www.tsmc.com/english/aboutTSMC/executives
Having diverse experiences and educational background on the team is usually helpful in avoiding groupthink and strategic errors.
Maybe the fact that TSMC files around 1000 patents a year has also something to do with the lack of competition.
https://www.taipeitimes.com/News/biz/archives/2021/03/15/200....
They're both trailing TSMC at the moment, but not by a whole lot more than in TSMC has trailed Intel in the (somewhat) recent past. Samsung allegedly will have 3nm in production early this year while TSMC 3nm has slipped to late this year. Remains to be seen how that actually ramps, but barring a significant problem for either, they will be close.
TSMC I think has tended to have an edge at the same node size name recently, although that can flip. Samsung will have GAA while TSMC will be on FinFET for example, so the 3nm battle will be interesting.
I don't think TSMC has quite emerged as the sole survivor just yet. Although it's also not clear that the industry trend for consolidation and competition gradually dropping out has changed to a more stable equilibrium.
You're making the mistake of taking their process names at face value.
Samsung 3nm is less dense than TSMC's 5nm which has been shipping since 2020. They are more than 2 years behind, as they still haven't matched TSMC 5nm even when their new 3nm launches.
You're missing where I said in the next paragraph you snipped off that TSMC has been ahead at the "node size name".
> Samsung 3nm is less dense than TSMC's 5nm which has been shipping since 2020. They are more than 2 years behind, as they still haven't matched TSMC 5nm even when their new 3nm launches.
For high performance logic, drive currents, leakage, switching power, metal resistance, etc can all be equally or more important than density.
In 2019, TSMC spent $14.9 billion on capital expenses while it generated $34.6 billion in revenues... in 2020, the foundry spent $30 billion and generated $56.8 billion revenues
"Shit is just bidness, String. Buy for a dollar, sell for two. That all it need be." - Proposition Joe "Shit is just business. Buy for a dollar, sell it for ten, plus the overnight interest rate. That all it need to be." - Federal ReserveLink for the lazy: https://www.youtube.com/playlist?list=PLKtxx9TnH76SRC7ZbOu2N...
Intel and Samsung both have foundry capabilities. TSMC is just number one as of now. In a decade or two it is almost guaranteed that the top dog in this industry will shift given how historically volatile the entire semiconductor industry is.
having trouble parsing this. is the datapoint from 2020 missing?
> TSMC set forth a three-year plan to spend $100 million on expanding its chip and packaging capacity [... but with global uncertainty], TSMC is only talking about spending somewhere between $40 billion and $44 billion on capex in 2022.
That's only 400x as much, after all.
I used to own TSMC stock. I sold it. Concern about this exact scenario is pretty much the sole reason I exited my position.
In order for China to make a move, they must be able to have confidence beyond doubt that their operation would succeed. As a failed annexation would cause political and economical havoc. In order for China to have high confidence in their ability to over take Taiwan, they need capability that is simply not available to them right now (Or any organization on earth for that matter) because to fight Taiwan means to wage asymmetric warfare against a technologically advanced, prepared, reasonably well funded, and determined nation.
Some considerations that China will have to face:
* Dispersed AA missile launchers (MANPADs) that will deny complete aerial superiority over Taiwan airspace. MANPADs are cheap, work without any centralized command system, can be operated by single user without much training, and can be concealed.
* Satellite and other intelligence technology that can detect boarding ships and potentially guide missiles to eliminate them. This is bad for China as boats are still arguably the highest throughput method of getting a lot of people somewhere, quickly. Aircraft will face problem with AA.
* Cruise missile counterattacks. Taiwan doesn't have that many cruise missiles, and they each don't carry a massive yield in terms of payload. However in the event of real hostility, Taiwan can deploy them against many airfields and supporting infrastructure of the China military. This will definitely at least hinder operation of many facilities.
That's just my understanding so far. And of course, things will change, so we'll see how it goes in the future.
Should China attack Taiwan it will be at a time when the semiconductor industry is the least of our concerns and the US is in a significantly lower position than China.
Right now it's just cold war era threats with both sides being paranoid of the other and both sides also being too afraid to act.
The PRC is basically "flying the wings" off of the Taiwanese airforce: https://www.businessinsider.com/china-may-be-trying-to-wear-...
>>>Dispersed AA missile launchers (MANPADs) that will deny complete aerial superiority over Taiwan airspace
MANPADs have altitude limitations. Fixed wing manned aircraft can fly high, and use precision munitions to prosecute targets. China also has a large fleet of combat drones that can fly the riskiest mission profiles, even drawing out Taiwanese air defenses by provoking fire, revealing themselves for counterattack.
>>>Satellite and other intelligence technology that can detect boarding ships and potentially guide missiles to eliminate them.
That would borderline on a pre-emptive attack which could be easily spun by the CCP in the court of international opinion. Also, the PRC's integrated air defense systems along the coast are damn heavy, not to mention their surface fleet's own air-defense ships. Good luck hitting ships in harbor with cruise missiles.
The main advantage Taiwan has is that the PLAN has insufficient amphibious shipping capacity to put enough combat power ashore in a reasonable timeframe. But they already have 2 brand-new LHAs out a total 8 planned: https://en.wikipedia.org/wiki/Type_075_landing_helicopter_do...
Combine with the PLAN's existing 8 LPDs ( https://en.wikipedia.org/wiki/Type_071_amphibious_transport_... ), and STUFT (Ships Taken Up From Trade, aka "civilian RO/RO ships pressed into moving military hardware"), and they should be able to credibly move several divisions by 2025. With the growth in their surface combatant fleet and the modernization of their air force, they should be able to keep the US/Japan/Australia busy long enough to not interdict their amphibious assault.
All it would take is an incident causing the dictatorship's leader to lose face and force him to take action to distract from the crisis (see Falklands War for example.) It could be anything, something like an industrial accident at a poorly managed facility causing massive deaths and a worldwide crisis. Initially they would cover it up but when it becomes public, like in Chernobyl, the régime would be discredited and forced into a panic.
I know it is far fetched, it's hard to see how such a mishap could have such far reaching consequences, but it realistically could happen at any time.
PRC planners have concluded it can take TW without US intervention ~5 years ago. US/JP planners have finally admitted the same this year. Reality is TW has an extremely outdated military that's not at all well prepared or well funded. It doesn't have any extensive asymmetric training, nor is the nation determined to fight insurgent style if shit hits fan. Those are all US porcupine wish lists, and none of it was / is remotely reality.
The consensus understanding right now is sheer imbalance in capabilities (PRC has both quantity and quality) means PRC will be able to do to TW what US did to Iraq. More or less annihilate their military from the conventional fight within a few days after which PRC operations would be relatively uncontested.
China relies on TSMC too.
That's not necessarily good on the long term. China was on par with Western powers until about 1500-1600 and had everything they needed. Then they grounded their fleets and turned inside. In a couple of centuries the British and everyone else came knocking at their harbors with gunships. China recovered only recently.
I would assume China would want to keep production going and keep business as usual if they did, but I'm not sure.
Historical data matters, but the changing landscape and relative levels of power between the united states and China also are a factor.
As time passes, they grow less dependent upon Taiwan's chipmaking.