Data is NOT the next oil; Sand is!
For quick context, Silica is the 2nd most abundant substance on earth and the last thing we should seemingly be fighting for. But silicon in chips makes nations go crazier than two kids fighting for the last chip in a McD Happy Meal.
Deserving the accolade of FT Best Business Book for 2022, Chip War, is a seminal work interlacing the technology, economics and geopolitics of the semiconductor industry. It beautifully chronicles the star-studded journey from Shockley (Noble laureate, transistor-guy) to Moore (from the yet-another-narcissistic-sounding-physics-law) to Grove (the one with the perpetual existential paranoia) to the present day luminaries behind GPUs and TPUs. It would be a treat for engineers, economists, business and maybe even data ‘enthusiasts’ on here.
(Miller) Chris’ writing style is engaging and much like characters in a thriller you will meet the usual geo-political (and commercial) suspects from US (Intel, Fairchild, Texas Instruments, Micron,) Russia, China (Huawei, SCIM,) Japan (Sony,) South Korea (Samsung,) Taiwan (TSMC) and the Dutchmen (ASML) to the more esoteric ones (ZTE, LAM Research, Xylinx, SK Hynix, etc.). He explores the global dynamics of microchips, encompassing the fluctuating fortunes of companies and nations (their strong correlation, eg. Sony-Japan, Samsung-Korea, TSMC-Taiwan), the evolving division of (cheap) labor in chip production, the distinction from chip design, and the intricate relationship between government policies, outsourcing and industry advancements. It also serves as a valuable primer on chip types, their diverse applications (space, military, 5G, IoT, EVs, washing machines, toasters) and the tightly-coupled workings of their global supply chains.
Several parts of the book introduced entirely new information to me, such as the Soviet and Russian endeavors in developing their microchip industries. Can you name any Russian semiconductor company? Exactly! Other parts delved deep into the intricacies of the modern microchip ecosystem, uncovering the origins of ASML (Advanced Semiconductor Materials Lithography, probably the best thing the Dutch saw in manufacturing after their booming ship-building industry) as the sole supplier of high-tech equipment and pulling the curtain on how TSMC (Taiwan Semiconductor Manufacturing Company) emerged as the primary manufacturer of cutting-edge chips. It was refreshing to see the author emphasize and correct the misconception surrounding the chip shortage in 2021 and 2022. Contrary to popular belief, the shortage was primarily driven by the surging demand for consumer electronics, not by a supply-side issue. In fact, the book vividly portrays China’s efforts to keep chip factories operational even amidst the pandemic-induced shutdowns.
For folks who are not electrical engineers or physicists Chris dedicates minimal space to discussing the underlying science and engineering of chips, only as much as necessary to grasp their economic implications. One such example is the description of the cost and engineering breakthroughs required for Extreme Ultraviolet (EUV) lithography, enabling the creation of even smaller transistors.
A lion’s portion of the book delves into the interplay between civilian and military considerations in chip development. Initially, the military dominated chip consumption, accounting for ~90% (needs validation). A notable breakthrough occurred when chips were integrated into Minutemen II missiles, significantly enhancing their accuracy and enabling more effective targeting of Russian missiles. Over time, however, consumer demand grew while military demand diminished, eventually representing a mere 2% of total chip production. Additionally, it became financially impractical for the military to handle fabrication and, in many cases, even design their own chips — a costly investment that would quickly become obsolete. This shift towards consumer-driven demand exemplified the strength of Western and Asian innovation, with Japan’s consumer electronics industry playing (remember Sony’s walkman?) a crucial role that the Soviet Union’s primarily military-focused industry could never match.
The primarry objective (yeah even he had OKRs in mind) of this extensive historical analysis is to grasp the present moment, particularly the vulnerability of the global economy to any disruption of TSMC (be it a devastating earthquake or a Chinese invasion/blockade). It also highlights the United States’ impressive position as a global chokepoint for critical technologies, yet exposes its lack of self-reliance (anybody familiar with the drivers behind the recent CHIP act?). China’s struggle to overcome its technological deficit and its relatively inconsequential role in the global supply chain and domestic production are also scrutinized. While I largely agree with the author’s diagnosis, the author does take some leaps in judgement and underestimates, in my self-proclaimed-neutral opinion, the technical prowess of the Big Tech players of China, as do most westerners.
Overall, Chip War serves as a beautiful lens to look at the global economy, recognizing one of the United States’ major security challenges. As an up-to-the-minute resource, it leaves readers eager for the sequel — will Moore’s Law endure? What lies ahead for Intel (who accused of being a sleepy-eyed dinosaur in the industry)? Will China enter the realm of high-tech chip production (fueled by CCP-backed subsidies)? Will Taiwan succeed in maintaining its peaceful state through delay/defense tactics and an international diplomacy that banks on allies?
With this curtain pulled back, we are living in a movie! Butter up some pop-corn, and enjoy the electronic toys while you have them.
Back to where we began, I don’t think I know any nations that are biting their nails off for data anymore. Silicon, after oil, is the world’s most precious resource. IMO, it would be naive to assume that what happened in the Russia-Ukraine region cannot unfortunately happen in East Asia. History does not repeat, but it does occasionally rhyme. Hope we never have to literally utter the words, “Turns out, teaching sand to do math was a bad idea!”
As a quick thank you for getting this far, if interested, please IM me your address and I shall ship my copy to the first person in the inbox. What are you reading? Nothing interesting this summer, yet? You can find more of my writings on varied topics here!
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