Why China is not ready yet to use Taiwan

"Semiconductors, those little chips that are the building blocks of the 21st-century digital economy are a hidden underbelly of this drama.

Taiwan is an austere rock in a typhoon-laden sea with 24 million people. But this little island has — by universal acclaim — the most sophisticated microchip manufacturer in the world, Taiwan Semiconductor Manufacturing Company, or TSMC.

About 100 miles away, across the straits, is mainland China, with 1.4 billion people. Most are the same ethnicity, speak the same language and eat the same food as the people of Taiwan. But they have never been able to master the manufacture of the most advanced logic chips that TSMC makes.

TSMC is the world’s largest contract manufacturer of microchips, owning some 50 percent of the market, though Dan Wang, a technology analyst at research firm Gavekal, said in March of TSMC’s market share, “I think that still understates how important it is, because these are some of the most advanced chips out there.”

Indeed, TSMC and its South Korean rival Samsung have the only foundries in the world able to make the most advanced 5-nanometer chips, and TSMC is expected to begin next-generation 3-nanometer chips in 2022. The smaller the chip’s transistors, the more brain power you can pack onto it. China’s biggest chip maker, Semiconductor Manufacturing International Corporation, is not even close. It is mainly competing at 28 nanometers and just starting to produce some 14-nanometer chips.

I recently spent time in Silicon Valley asking U.S. chip designers what is the secret of TSMC’s sauce that China cannot replicate.

Their short answer: trust.

TSMC is a semiconductor foundry, meaning it builds the chips that lots of different companies design — particularly Apple, Qualcomm, Nvidia, AMD and even Intel. Over the years, TSMC has built an amazing ecosystem of trusted partners that share their intellectual property with TSMC to build their proprietary chips. At the same time, leading tool companies — like America’s Applied Materials and the Netherlands’ ASML — are happy to sell their best chip-making tools to TSMC. This ensures that the company is always on the cutting edge of the material science and lithography that go into building and etching the base of every semiconductor.

And since it is the main supplier of chips for Apple products, TSMC is constantly being pushed to go beyond the frontiers of innovation to accommodate Apple’s nonstop and short product cycles for new phones and iPads. It forces the whole TSMC ecosystem to get better and better, faster and faster. So TSMC’s costs keep going down, the value of its ecosystem keeps going up, and the number of people who can join and benefit from it keeps getting larger and larger.

“TSMC always acted like a start-up — it was driven — and it was always synthesizing the best of everyone,” explained Steve Blank, a semiconductor innovator, who runs a course at Stanford on the geopolitics of advanced technologies. Intel, America’s premier chip maker, kind of lost its way, making everything by itself and for itself, added Blank. “So it did not have customers pushing it, because Intel was its own customer, and as a result it became complacent.” Pat Gelsinger, Intel’s new C.E.O., has begun to reverse that.

I used to worry that Xi’s big idea — “Made in China 2025,” his plan to dominate all the new 21st-century technologies — would leave the West in the dust. But I worry a little less now. I have great respect for China’s manufacturing prowess. Its homegrown chip industry is still good enough to do a lot of serious innovation, supercomputing and machine learning.

But the biggest thing you learn from studying the chip industry is that all its most advanced technologies today are so complex — requiring so many inputs and super-sophisticated equipment — that no one has the best of every category, so you need a lot of trusted partners.

And if China thinks it can get around that by seizing Taiwan just to get hold of TSMC, that would be a fool’s errand. Many of the key machines and chemicals TSMC uses to make chips are from America and the European Union, and that flow would immediately be shut down."

 

 https://www.nytimes.com/2021/10/19/opinion/china-microchips.html