Chips uncovered

nformation is the oil of the 21st century, but that’s only possible because chips exist. Chips are more essential than oil today. If oil ran out tomorrow, we’d find alternative energy sources. Without chips, the world would grind to a halt.

Right now, you’re reading these words on a screen. It might be your phone, computer, or tablet. If it weren’t for the device in your hands, this article would have never reached you—a missed opportunity, a fleeting moment that never happened. Think of your favorite podcast that keeps you company during quiet moments. Remember that tweet that made you smile or that movie that captivated you during a train ride?

Speaking of everyday conveniences, what better example than the efficiency and time saved by something as simple as a washing machine? There’s even a TED talk about this. Sometimes, we overlook the automation of 21st-century routines that make life easier.

Looking back at the long chain of discoveries and inventions that brought us here, we find their foundation in countless names and places. We also find specific processes and precise formulas. Yet all of them rely on a small technological marvel: semiconductors.

Semi... What?

Don’t worry, you won’t need technical knowledge to understand this, and I promise to keep it brief.

Think of a microchip as the brain of a computer. Semiconductors, in turn, are like neurons that make up the chip itself: they’re not devices but materials. The name is quite descriptive—they conduct electricity in a precise and coordinated way to control and operate entire systems. Transistors, on the other hand, are the "switches" that manage or amplify electrical flow, orchestrating the electrical symphony.

A microchip can be found in everyday devices like a smartphone or used in ambitious projects like launching rockets into space or powering national electric grids. They all rely on a piece of metal ranging in size from a pinky fingernail to a pinhead. However, semiconductors aren’t limited to transmitting energy solely through computer chips, just as not all neurons reside in the brain. Anything that requires electricity needs a semiconductor, even something as simple as an LED bulb.

Manufacturing a microchip is like crafting a flint axe in the Neolithic era.

Microchip manufacturing is an extraordinarily specialized and expensive process. Each step demands cutting-edge technology and microscopic precision:

1. For instance, the most advanced transistors today are just 5 nanometers in size. This means over 30 million of them can fit across a human hair.
2. The machine used to etch incredibly tiny patterns onto silicon wafers (the semiconductor) employs ultraviolet light. These machines are considered the most complex ever built, with around 450,000 components. It's estimated that one of these machines, called EUV, costs between $120 million and $150 million, requiring massive capital investment.

Despite the sophistication of the production process, in this era of accelerated digitalization, where connectivity and computing have become the cornerstones of daily life, these tiny devices are the engines powering our modern world. Their demand shows no signs of slowing down.

According to a recent McKinsey & Company report, the semiconductor industry is projected to reach a staggering value of $1 trillion by 2030. Asia is at the epicenter of this revolution.

To understand why, one detail must be clarified. There are three types of chip companies: Fabless, IDM, and Foundry.

During the golden age of technology, the United States was the undisputed hub of microchip production. Pioneering companies like Intel, Texas Instruments, and IBM set up factories on American soil, leading innovation and technological progress.

However, as the new millennium approached, microchip manufacturing became a global game. The majority of companies chose to outsource semiconductor production, as is the case in many industries, simply because it’s cheaper. You may recall that the back of an iPhone used to say, "Designed by Apple in California - Assembled in China," which eventually caused them some issues.

This is why Asia is responsible for 75% of global semiconductor production, with Taiwan standing out as the undisputed leader, producing over 60% of the world’s semiconductors and more than 90% of the most advanced models. Today, renowned companies like Apple, Google, and Nvidia, while designing their own chips, outsource manufacturing to a single company: Taiwan Semiconductor Manufacturing Company (TSMC).

Taiwan has no competition

It’s a paradoxical geographical marvel, with a territory that mirrors the scale of the chips it produces. Its physical smallness is in stark contrast to its colossal influence on the electronics industry. It’s truly intriguing that what China considers a mere province has sustained the empire of such a specialized, costly, and complex production chain.

What did Taiwan do that other Asian regions couldn’t? It could be seen as a simple tale of rivalry...

In 1949, after the Chinese Civil War, the Republic of China (ROC) was proclaimed in Taiwan, while the People’s Republic of China (PRC) was established on the mainland. This situation led to the existence of two separate governments, each claiming to be the legitimate ruler of China.

Given this political context, Taiwan has sought to diversify its market and establish a strong economic and technological position on the global stage. Over the years, Taiwan has built such a powerful industry that it now borders on a monopoly.

However, for importing countries, this poses a problem. Imagine a global pandemic threatening to disrupt the production of supplies needed to make microchips... Well, you don’t have to imagine it. The disruption of the supply chain during COVID-19 impacted thousands of companies worldwide. The world witnessed the collapse of strong industries like automotive due to chip shortages.

For example, oil's value doesn't lie solely in its ability to be converted into fuel; it resides in its scarcity. In this sense, Taiwan has created an extremely valuable resource, making it the central stage for the battle over what is considered the key to the future.

Microchips and semiconductors have become the new oil.

Everyone wants a piece of the pie

As I mentioned earlier, TSMC is at the forefront of manufacturing the latest chips to date. These microchips have proven their superiority in AI and cybersecurity applications by speeding up data processing and performing parallel computations.

In this newsletter and on Twitter, I’ve devoted significant attention to AI, and it’s no coincidence. If you’ve followed me, you’ve likely noticed the emphasis I place on AI being one of the most significant discoveries in human history.

With this in mind, the importance of advanced microchips becomes even clearer. From medicine to space exploration, these tools will allow us to unlock new breakthroughs and push the boundaries of what is possible. We are on the brink of a golden age of innovation, driving discoveries and solutions to our most pressing challenges.

However, when such powerful technologies emerge, a crucial problem always arises: everyone wants a piece of the pie.

Today, only 10% of TSMC’s revenue comes from China, according to the company. More than half of its revenue comes from the United States. This has significant implications for the global power balance:

China, as a rising global power, seeks to maintain its global position and economic influence. With its vast and dynamic market, the Asian nation must be part of TSMC’s supply chain. This would secure access to key technologies and strengthen its production capabilities, thereby supporting its standing in the global economy.

TSMC’s reliance on revenue generated in the United States underscores the strategic importance of this region. The U.S. is recognized as one of the leading drivers of innovation and technological development. With a strong customer base in this country, TSMC benefits from its leadership in the tech sector. In addition, it benefits from economic stability and investment capacity.

Both China and the U.S. know that influence over Taiwan is a trump card in the geopolitical chess game.

Are we witnessing a Cold War 2.0 between China and the U.S.? We’ll explore this in the second part of this article 😊

Where to find me

• Twitter: https://twitter.com/NachoLucea
• Instagram: https://www.instagram.com/nacholucea/
• YouTube: https://www.youtube.com/channel/UC6vRcumzUfp1vL55aUdlmtg
• Linkedin: www.linkedin.com/in/ignacio-lucea