The real crunch

[Arde]

As I may have mentioned the semiconductor supply worries me more than the energy mess. After all one can always synthesize gasoline and burn wood to cook
If TSMC in Taiwan is taken out, there are no good replacements. When companies dual source semiconductors they ignore the fact that both vendors have a common foundry in Taiwan, so they may gain pricing leverage, but not really supply chain diversity.

Intel visited Trump at the White House with fanfare, then Intel's CEO helped at Biden's state of the Union. I said, in both cases, they are not the solution today, and they are after a subsidy.

Now this, even the Taiwanese want a subsidy to build chip factories in the US.

Chip makers refuse to build new U.S. plants without more funding

Taiwanese semiconductor firm GlobalWafers joins Intel and TSMC in demanding $52 billion from Congress for U.S. expansion.

fortune.com

I hope we have the strength to say no to subsidies. This is a very profitable market, why do capital markets exist? Let them invest, the demand is there and prices are sky-high.
And of course, this affects cars. The E9 does not have much silicon content, but new car production would be paralyzed if we have no access to state of the art silicon. We already got a taste of that...

 

[craterface]

As I may have mentioned the semiconductor supply worries me more than the energy mess. After all one can always synthesize gasoline and burn wood to cook
If TSMC in Taiwan is taken out, there are no good replacements. When companies dual source semiconductors they ignore the fact that both vendors have a common foundry in Taiwan, so they may gain pricing leverage, but not really supply chain diversity.

Intel visited Trump at the White House with fanfare, then Intel's CEO helped at Biden's state of the Union. I said, in both cases, they are not the solution today, and they are after a subsidy.

Now this, even the Taiwanese want a subsidy to build chip factories in the US.

Chip makers refuse to build new U.S. plants without more funding

Taiwanese semiconductor firm GlobalWafers joins Intel and TSMC in demanding $52 billion from Congress for U.S. expansion.

fortune.com

I hope we have the strength to say no to subsidies. This is a very profitable market, why do capital markets exist? Let them invest, the demand is there and prices are sky-high.
And of course, this affects cars. The E9 does not have much silicon content, but new car production would be paralyzed if we have no access to state of the art silicon. We already got a taste of that...

Can car makers design cars around one type of simple chip? And let the software writers do their magic?

That said, I might lean toward some kind of subsidy for American based chip makers, because chips are a matter of national security. And because Asian governments might be happy to subsidize their chipmakers in order to drive ours out of business. We already subsidize all kinds of unhealthy ag products, for example (sugar price floor comes to mind)....

 

[jmackro]

I hope we have the strength to say no to subsidies. This is a very profitable market, why do capital markets exist? Let them invest, the demand is there and prices are sky-high.

Yes, semiconductors are very profitable; especially for the most advanced designs which are not presently made in the US. However, demand is not related to where the devices are produced. Demand from the US will be the same whether the chips are produced in Taiwan, mainland China or within the US. Unless subsidies were paid or tariffs imposed on chips from non-US sources, there's no motivation for TMSC to build plants within the US and have to deal with our higher labor and environmental costs.

Asian governments might be happy to subsidize their chipmakers in order to drive ours out of business

Yup. They may also be subsidizing their chipmakers to promote in-country employment. Or they may simply offer a less onerous regulatory environment for putting up plants and producing products. There are lots of reasons why it's cheaper/faster/simpler to manufacture overseas instead of in the US.

 

[Dick Steinkamp]

I hope we have the strength to say no to subsidies. This is a very profitable market, why do capital markets exist? Let them invest, the demand is there and prices are sky-high.
And of course, this affects cars. The E9 does not have much silicon content, but new car production would be paralyzed if we have no access to state of the art silicon. We already got a taste of that...

The ROI is too long in the US form of capitalism for US manufacturers to build state of the art fabs in the US. "Next quarter" is long range thinking here. The stock (and executive compensation) would take too big of a hit to consider spending the billions and years it would take. I think the path to US fabs is probably the military making a case that they need these 5nm chips for weapons and it's a national security risk to have to get them from another country.

I don't believe that cars (ICE or EV) are using state of the art chips (yet). Pretty mild stuff from what I can see even for self driving applications. The day will come, however.

 

[Gary Knox]

Business expertise is not the strength of our current national administration (or many previous ones). WSJ article this week notes that of the 68 top executives in the admin, who shape our economy, very few have ANY business experience. Quote: " Some familiarity with business is especially important given that President Biden and Vice President Kamala Harris have spent their lives in law or politics. But the authors found that Biden economic officialdom is dominated by careers in law (20), politics and government (21), and academia or policy-making (12). The main business experience is in venture capital or investing (five)." Living about 7 miles from the POTUS home in DE, I know his entire career has been in politics. Seems also true of the VPOTUS. I have not found any reference to actual business experience in the life of our Secretary of Treasury.

Probably a lot of PhD's amongst those 68, but speaking from my life experience, I learned a LOT more per year by working in a Dow Jones corporation for over 3 years than I did in those 8 years of working toward the PhD in physics/chemistry.. Lots more i could say, but better fold up the soap box.

 

[Ohmess]

I think part of the problem is that in the past we drove the manufacturing of semi-conductors offshore. I did some work for the IBM-Toshiba joint venture that built a chip plant in Manassas, VA 15 years ago; that plant took almost $1 billion to build and equip. The political risks have gotten worse since then, and even US based companies are not willing to make these types of investments given this.

The fact that the products are profitable, and/or that we have suddenly realized the national security problem we have created by allowing the manufacturing of virtually all of our most important high technology components to be done elsewhere does not change their calculus. On the other hand, having massive subsidies provides them a political shield, which is what they are really seeking.

 

[Arde]

Yes, semiconductors are very profitable; especially for the most advanced designs which are not presently made in the US. However, demand is not related to where the devices are produced. Demand from the US will be the same whether the chips are produced in Taiwan, mainland China or within the US. Unless subsidies were paid or tariffs imposed on chips from non-US sources, there's no motivation for TMSC to build plants within the US and have to deal with our higher labor and environmental costs.



Yup. They may also be subsidizing their chipmakers to promote in-country employment. Or they may simply offer a less onerous regulatory environment for putting up plants and producing products. There are lots of reasons why it's cheaper/faster/simpler to manufacture overseas instead of in the US.

The Intelectual Property of those devices is concentrated in American companies, that is, companies incorporated in Delaware, capitalized through equity using US investment banks, and traded in US stock exchanges. Most importantly ruled by US civil and criminal law.
I am referring to Nvidia (the king of GPUs used for training Machine Learning models used for self-driving cars, for video processing used in drones and many other uses, and for graphic displays). I am referring to Intel and AMD (who dominate the processor space for servers and PCs), to Qualcomm (who dominates the really hard to get right radio modems), to Broadcom (who dominates many vertical markets including networking), to the circuits owned and built by Cisco, to Xilinx (now part of AMD who dominates programmable devices aka FPGA) which could be used like asked above to give devices a run time personality, etc, and by Apple (the largest cap company in the world I think that does at most prototyping but not manufacturing).

The creation of that IP is what generates lots of jobs, not the manufacturing, as a fab is operated by a very small number of people due to automation.
So why the heck did the US keep the IP creation but let the manufacturing (largely based on US developed technology and patents) go to a seismic island across from China knowing things could blow up sooner or later?

It is false that US policy has no incidence on these choices, Avago acquired Broadcom around 2016 and the merged company was domiciled in Singapore, largely for tax reasons. When the company attempted the next large acquisition the Trump WH blocked it and said come back home little grasshopper, and so they did. Broadcom Inc was re-domiciled in the US. When the Trump WH got into the tariff war with China they asked Broadcom to stop sales to one Chinese telco equipment vendor (who would have collapsed) and asked Canada to jail the Huawei CFO heiress for Iran embargo violations. And jailed she stayed for three years.

Intel has fabs in Ireland and Israel (who make serious efforts to attract those), in spite of the low fab headcount the products produced there are essentially country exports. Intel Israel just reported that their plants exports accounted for about 11% of the entire Israeli tech exports! Staggering. Don't you want that in your own country?

You are entitled to your own opinion on whether subsidies or a play-to-win backing of US/Western strategic and commercial interest in the global scene are the best way to back up your private sector. You know my opinion. And I fear the semiconductor showdown is the next round. And the timing could not be worse based on the sad precedent of the Germans begging the Canadians to return the repaired turbines so they can keep pumping Russian gas.

The funny but rude T-shirt slogan about what it takes to play tennis may need a revision: "You need subsidies to play tennis" ..

 

[teahead]

Corporate welfare

 

[Koopman]

I think it's time for " OUR Government "to start worrying about" OUR Country" and use funding that will help " OUR " Economy instead of giving funds to Foreign Countries not knowing where the whose pocket the money actually ends up in. The factories should have been built and running by now. Seems we wait too long to do what should be done. In the meantime China is buying up America which is owned by the People of this wonderful country we once were so proud of.
Just "Food for Thought "
Have a great weekend.
Harry

 

[Dan Wood]

Before retirement I worked with many of the chip companies while at an automotive electronics (audio) manufacturer. I believe TI was the last wafer plant in the US (at that time) other than prototype manufacturing and it was moving out. Now I see TI is adding a up to 4 fab plants in Texas.

$6.5B Texas Instruments Fab Could Be First of Four at Site Totaling $30B

Austin Commercial is building the first of Texas Instruments' future fabs in Sherman, Texas.

www.enr.com