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Comment by mjevans | Hacker News Reader

While more R&D is good, if their intent is to stabilize the production markets other changes are likely required.

It must be at least moderately profitable to build and run _new_ fabs that produce the simple 'jelly bean' components that have been in dire shortage.

Inventories, both of sellable common 'ingredients' and also of shelf stable commonly desirable outputs should probably be reflected differently on asset books. Cutting buffers to the bone should not be good accounting practice as that encourages vulnerability. Laws need to change how that accounting is performed.

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Why would any laws need to be changed? Companies should and will just start holding higher levels of inventory as a business practice.

Companies should not spend billions on stock buybacks instead of keeping their factories in running order but the recent baby food issues in the US show that isn't always the case.

It's not one or the other, they can do both. You think that a company would rather do a stock buyback and NOT keep their factories in running order so their stock will tank right after they buy back their stock at a higher price?

Depends on the vesting schedule of the people doing the buybacks.

This article[1] says that in some states it's included in what you have to pay property tax on. That seems like it would push businesses to keep less than would otherwise be optimal.

[1] https://www.boxstorm.com/articles/inventory-tax-explained-fo...

Money used to purchase inventory is also usually taxed as profit, which is a further disincentive.

Yes, and no. Profit is profit and is taxed. After making a profit companies have the option of what to do with their profit.

They can dividend it, use it as capital, or use it to increase working capital (like stock.) Some tax environments tax dividends further, thus making it attractive (or cheaper, depending on you pov) to reinvest the profit in the business.

Of course working capital (stock on hand) can also be increased by other means - for example a loan or a capital injection.

Lastly, raw stock (pile of chips) is easy to value for stock-taking purposes (usually cost basis.) partially, or in some cases completely, finished goods is trickier. They could be valued at cost, at zero (a half finished controller is worth, what?)

Generally companies keep as much as they need, ideally no more. But the right number can be a moving target. We've been erring on the high side for a while now.

It’s not taxed as profit. It’s just a cash (non-expensed) outflow. That’s just a fundamental feature of how modern accounting works.

Just keep the MBAs with their Midas touch away from basic tech. Engineers are good enough at math to balance the books, it's not really harder than balancing a checkbook. I had better finances as a high school student than most Wall Streeters at the peak of their career. Got alpha they didn't, accounting for real is just mathematical horse sense.

One of the big problems in the US is accounting for inventory. If you're buying "tax-free" from a supplier, that part goes "onto your books" when it goes into your inventory. If you don't put that part into a product and sell it relatively quickly, you owe tax on that part as it sits on your shelf.

There are some other issues with inventory taxation like how fast you can depreciate it (ie. for tax purposes, chips are treated like mechnical inputs even though chips depreciate MUCH faster).

This all strongly discourages holding inventory.

And even engineers running companies will come to that conclusion.

> If you're buying "tax-free" from a supplier, that part goes "onto your books" when it goes into your inventory. If you don't put that part into a product and sell it relatively quickly, you owe tax on that part as it sits on your shelf.

I admit to not being a CPA, but that... doesn't make a ton of sense to me. What sort of tax do you pay on inventory?

My understanding is that it's not tax that's the issue, but the tying-up of capital in inventory that's generally being minimized. If interest rates are 3% and you have $1M in inventory, that's $30k per year in interest you're paying in order to hold that inventory, plus the physical costs of warehousing it.

And the MBAs naturally look at cutting costs as the fastest and most direct route to improving profitability.

> I admit to not being a CPA, but that... doesn't make a ton of sense to me. What sort of tax do you pay on inventory?

Welcome to the US taxation system.

As I understand it, VAT solves a lot of this silliness. However, the US doesn't do VAT for a bunch of historical reasons.

Cost of goods are deductible against sales. But unsold inventory is not. So effectively it is taxed as business profit.

Can't you sell it next year? And you know what? At some point somebody has to lose money to the tax collector. You can't deduct everything, can't shunt it all onto the customer (typically a leaf-node employee, someone at the bottom of an org chart). The business has to be profitable by enough that it can eat some taxation. Or what, you expect the orphan to do it instead?

Has to push through friction for others. And plus, cost of goods of unsold inventory isn't that painful if you actually are making huge margins on it, like you ideally should, because you built a better mousetrap that was that much better that you could protect it from copycats with patents and therefore let everyone benefit enormously from it.

In the end, the businessman must be creative. Must be an inventor, basically. Or a leader. And so in order to overcome that friction for the sake of the orphanage, the businessman must resolve friction in nature, some inefficiency of some sort, something that could be much better than it is. Something ineffective that could be effective. Plant a seed and reap two.

You are free to send extra money to the government if you truly believe in it.

I actually went ahead and did already! And I'm going to do it again!

Suck up those taxes! Suck them up! Just pay them! Subordinate yourself to the authority of the State that governs the place you do business, it's the least you can do.

Don't cheat the orphanage! Push through the friction!

The State of California gave me a huge break that I would have never gotten on my own. I did the math and the taxes I pay turn into that help at a 1/1000000 (one millionth) efficiency rate. That's awesome, that may be a high hurdle for everyone else but for me it's a great deal, because I can get speedups as great or greater, with just that help they gave me. So in fact a 1000000000x (one billion times) speedup was possible directly due to this break they gave me, so the ROI is already 1000x (a thousand times). And once they unlock that, hey that's just the beginning, sky's the limit! That 1Bx speedup (1 billion times) is actually an undersell, I could have kept going and gotten a 1000000000000x speedup (trillion times) and kept going and going beyond that, literally ad nauseam (numbers that would sicken you by looking at them, literally that). It's just a trillion-x speedup is too big, people get dizzy, there's no metaphors, people distrust the problem you're solving if you get that speedup, it's better to say a billion. There's metaphors for that (difference between wheelbarrow of dirt and a mountain, two seconds and the human lifetime, jumping a foot off the ground and going to the Moon). It's the biggest number that really fits in people's heads.

But they're both still big speedups that vastly overcome the meaningless 1000000x hurdle that taxation and redistribution impose.

Advice: value the taxes you pay at more than 0%. Fine, not 100% or more, but not 0% or less. Say 20%, to start with. Start by reducing what you deduct from your taxes, limit that to the things the State really doesn't want you paying taxes for. But on business lunches! Dude cough it up completely!

And in the process get rid of the tax lawyers and accountants who tell you to do contortions for tax reasons. Then you'll see your business with clarity.

This issue isn't "paying taxes"--it's the fact that inventory laws in the US are stupidly obtuse. Computer chips are not nuts and bolts.

I believe that VAT solves a lot of these issues (while trading off for others).

If you get 1 trillion x anything taxes won't be a factor in your ability to get money. At that multiplier my pocket change becomes the entire world economy.

So I wonder if anybody here could compare what Phoenix has vs Hsinchu in Taiwan. It seems like the closest the US has to what Taiwan has.. (Intel, new TSMC, various other fabs are there).. so making Phoenix the Mecca of semiconductor jobs in the US seems like a pretty smart goal .. while the federal govt loves to spread money around it seems wise to just say let’s be real folks, it’s way easier / efficient to pour gas on an existing fire than to build totally greenfield.. like pump tons of cash into the AZ universities for semiconductor work. But I wonder if people have some history / perspective on why people don’t say “oh you want to work in semi area? Go to Phoenix..”..

Seems a bit strange that Phoenix would be a desirable place to build a fab, given how water-intensive most processes are. Yes, the water can and should be recycled... but it just seems weird to build a plant like that in one of the parts of the country that will probably never have enough fresh water, compared to other areas where they can't get it out of the way fast enough.

Is it the labor pool there that makes it attractive? Energy costs? Something about state/local subsidies?

The reason I heard is that Phoenix is seismically stabile, and weather stabile. Both of those things can cause power outages which are incredibly expensive at a fab.

Can power outages be more expensive than diesel?

Quakes and flooding can kill generators. You can be smart and build them on elevated earthworks, but if the event is severe enough something will fail.

Fabs require 10's of MW continuous load. Not feasible to backup with diesel generator.

Rather feasible with a set of natural gas turbine plants. Pipelines and local storage would be expensive but doable - depending on the economic damage of the plant going offline. Cost share it with a data centre facility to reduce the per megawatt cost even further.

Yes. But in layman's terms, wouldn't you just call that a "power plant"?

I mean, so too is a genset a powerplant. It's really just a question of scale and generation capacity. Imagine we're talking about a cell versus a battery. Same thing really.

Compared to Taiwan, land of earthquakes and typhoons. It's… amazing that things even work in Hsinchu?

And nuclear power https://en.m.wikipedia.org/wiki/Palo_Verde_Nuclear_Generatin...

The water involved is mostly recoverable and reusable

While there's cost involved, its shortage probably won't be a bottleneck?

I recall a video by asianometry stating that best case water re-use is about 70%. That will be rough in the desert.

Intel is funding a bunch of water projects in Arizona with the goal to be net postive in water use: https://www.intel.com/content/www/us/en/environment/water-re...

Agriculture and municipal uses much more water than industry in AZ. Shockingly even with the population growth total state water use hasn’t increased due to conservation efforts. https://www.azcentral.com/story/news/local/arizona-environme...

Phoenix is geologically dead, no seismic disruptions to mess up any of the lithographic processes. Also the region is a desert (Arizona seems like a clever way to say the science fiction sounding “Arid Zone,” doesn’t it?) so it shouldn’t be prone to flooding, though lots of potential for static electricity, iirc, but I guess these companies have some way of easily preventing that?

Doesn't a fab need to consume tons of water? That whole southwest are of the US is entering longer and longer periods of drought. Seems like setting up shop further north into a water-rich area would be better.

"That whole southwest area" is too generalized, as Arizona, by necessity, has been expert at water use in contrast to what surrounds Arizona.

(can't find the citation that i want for that, though)

Ironically the new TSMC plant is being built down the street from a place that uses dynamite for its rock quarry. I live about the same distance from the quarry as TSMC is and I can sometimes feel/hear them when they use explosives. I wonder if they know yet, lol.

The value of a rock quarry is probably so small relative to a fab that this story ends in TSMC buying out and shutting down the quarry.

Isnt the intel fab across the street from the tsmc fab?

Motorola Semiconductor Product Sector division was in Phoenix for decades

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