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  • Almost everything we use

  • depends on silicon semiconductors called chips.

  • From your iPhones, your fridge, your air filter.

  • The most advanced supercomputers,

  • the most basic toaster ovens.

  • What's turning on your indicators,

  • what's turning on your radio in your car.

  • That's a chip.

  • Today, about a trillion chips are made a year

  • or 128 for every person on the planet.

  • And China's government is lending the industry

  • the same strategic importance

  • it gave to its atomic bomb program.

  • It's arguably a lot more important

  • because you are talking about China becoming

  • self-reliant on the technology that powers

  • all of mankind's future scientific advances.

  • The key semiconductor

  • is the advanced logic chip.

  • It's the most expensive and complex piece of silicon

  • that gives computers and smartphones their intelligence.

  • This is the microprocessor designed by Apple,

  • designed by Qualcomm,

  • are made by only a very few companies,

  • and they're made on the very, very most

  • advanced manufacturing.

  • Right now, there's one company that's crucial

  • when it comes to making advanced logic chips:

  • Taiwan Semiconductor Manufacturing Company, or TSMC.

  • And it is a company that makes customized chips

  • for a lot of global tech companies,

  • including Apple and Nvidia and MediaTek.

  • So when TSMC has a shortage,

  • entire industries shut down.

  • And this dependency on Taiwan worries western countries.

  • The other concern that has been voiced by others

  • is the fact that China claims Taiwan,

  • which is a democratically self-governing island.

  • China has always said it wants to take over Taiwan

  • by force if necessary.

  • But China's also worried

  • since they too rely on Taiwan,

  • which has strong ties to the U.S., for their chip imports.

  • The result of all this:

  • multi-billion-dollar plans by multiple countries

  • in a race to dominate

  • the mother of all cutting-edge technologies.

  • The transistors which give chips their functionality

  • are small, very small.

  • The way to measure a size in the chip industry

  • is in nanometers.

  • These are billionths of a meter.

  • The current state of the art is 5 nanometers.

  • They are smaller than a virus.

  • Very soon, we're going to get to the point where

  • these layers of materials that we use to build up

  • a transistor on a chip are going to be an atom thick.

  • Once we get to that point, we can't make them any smaller.

  • The smaller transistors are

  • the more you can fit into a chip,

  • which in turn will offer more computing power.

  • But making these chips has gotten so incredibly

  • complicated and expensive

  • that it's difficult to keep up.

  • That's why the number of manufacturers

  • at the industry's cutting edge

  • has fallen from over 25 in 2000,

  • to just three.

  • There are fewer and fewer companies actually

  • producing leading-edge silicon for a very simple reason.

  • You need $15, $20 billion to build

  • just one semiconductor factory,

  • and that factory is obsolete within five years.

  • That means you need to be running that plant

  • 24-7.

  • It needs to be producing

  • hundreds of millions of devices a year,

  • and those devices need to be selling at a very high premium,

  • otherwise you're losing money.

  • And there are really only a few companies that understand

  • the brutal, you know, economics of the industry

  • and that they can play that game and win.

  • But now the American champion, Intel,

  • has shown signs of a slowdown.

  • Although it's dominated the industry for the last 30 years,

  • it's starting to fall behind in manufacturing.

  • And it's announced that, like everyone else,

  • it may start outsourcing some of its work to TSMC.

  • What's really changed though over the last decade

  • is that you've had what's called the birth

  • and the growth of foundries.

  • These are companies that specialize only in manufacturing

  • and take designs from other companies

  • and make them with the best process technology.

  • In the past, they couldn't really keep up with Intel.

  • But now, particularly TSMC

  • and to a secondary extent Samsung,

  • have actually got ahead.

  • The net result of that is that a company like Qualcomm,

  • a company like Apple, can design a processor,

  • send that design around the world electronically

  • and have that design made into a piece of silicon

  • on a more advanced process.

  • By volume, South Korea's Samsung

  • actually makes more chips than any other manufacturer.

  • But the company mainly focuses on memory chips

  • rather than the custom-made logic chips

  • that companies depend on TSMC for.

  • Everybody wants TSMC to do their best stuff

  • because TSMC are better at it.

  • It's simple as that.

  • The economics and the technology...they've won.

  • Above 30% of the most advanced logic

  • is done in those factories in Hsinchu by TSMC engineers.

  • Both Samsung and Intel have recently announced

  • multi-billion-dollar investments in the foundry business,

  • although they won't be a threat to TSMC for years to come.

  • But whether it's South Korea, the United States or Taiwan,

  • China's relationship with all three is less than ideal.

  • Not to mention a lot of the equipment

  • and software provided to TSMC and Samsung

  • to manufacture chips

  • is made by U.S. companies.

  • There are only a select few companies

  • that can make these machines

  • that scrape off these fine patterns with ultra UV lasers.

  • You know, this is science fiction-level technology.

  • Applied Materials here in California, KLA-Tencor,

  • lots of these companies that you've never heard of

  • are absolutely crucial in the supply chain

  • in making these machines that then translate

  • into these multi-billion-dollar factories that make chips.

  • And the U.S. has leveraged its position

  • to enact sanctions on China,

  • banning the country from using U.S. technology

  • out of security concerns.

  • So we're all familiar with the example of Huawei,

  • whose smartphone business has basically been

  • essentially obliterated by U.S. sanctions.

  • Whether it's software, whether it's actual chip components,

  • materials that go into chips

  • or equipment that you use to fabricate chips,

  • all of that is technically banned.

  • The American tech embargo

  • began as an effort against Huawei over national security,

  • but bans and restrictions now affect at least 60 firms.

  • These include SMIC,

  • China's chip champion, which has been put on a blacklist.

  • At the end of 2020,

  • TSMC sales to Chinese clients dropped by roughly 70%.

  • And for the first time ever,

  • Huawei reported a drop in revenue.

  • I think China's rise as a superpower in technology

  • is regarded as a threat

  • to very fundamental American interests.

  • They are military foes,

  • and the last thing Washington wants

  • is also to see a technological foe with the wherewithal

  • or the capabilities to wage technological warfare

  • on the United States.

  • But U.S. sanctions might not be

  • such a simple solution.

  • China is the largest purchaser of chips in the world,

  • as well as a manufacturer of less sophisticated chip

  • for companies like Qualcomm and other American companies.

  • Bear in mind that a lot of American businesses

  • rely on China for growth.

  • So there is very strong pushback from the private sector

  • to allow the flow of American technology to China to resume.

  • But if you look at the overall picture,

  • I think the Biden administration shares

  • the Trump administration's objectives

  • in curtailing China's rise as a technological power.

  • And that's because that would have ramifications

  • for really long-term strategic goals.

  • We're investing aggressively in areas

  • like semiconductors and batteries.

  • That's what they're doing and others.

  • So must we.

  • But cutting China out completely isn't an option.

  • Since much of the world depends on China

  • to manufacture most of their electronics like iPhones.

  • A chip designed, say by Apple in Cupertino in California,

  • will be made in Taiwan,

  • then packaged into something that's going to end up

  • in an iPhone in the Philippines.

  • That chip then makes its way to China

  • where it gets plugged into an iPhone.

  • That iPhone then gets on a plane and gets sold in Europe,

  • or maybe even comes back to Cupertino

  • and get sold in the Apple store.

  • So the semiconductor supply chain

  • is arguably one of the most complex

  • and widely geographically spread supply chains in the world.

  • From Beijing's perspective,

  • U.S. sanctions are a way to keep China

  • at the bottom end of the supply chain,

  • forever stuck as a low-tier manufacturing hub.

  • That's why China is determined to become self-sufficient

  • and is shifting into its highest gear.

  • During its annual NPC meeting in 2021,

  • President Xi Jinping pledged $1.4 trillion

  • to accelerate their tech industry

  • and become totally independent from foreign technology.

  • One of the announcements that we've seen come out

  • since the NPC has been SMIC,

  • China's top chipmaker,

  • signing an agreement to build

  • a $2.5 billion semiconductor foundry,

  • or manufacturing plant with Shenzhen's government.

  • And I think you'll see more of those

  • private-public partnerships,

  • where a private giant or entity, such as SMIC,

  • drives more efficient private capital

  • into national objectives.

  • SMIC, or

  • Semiconductor Manufacturing International Corporation,

  • is China's largest foundry.

  • Although it's still decades behind Taiwan's TSMC,

  • China has shown its ability to throw money

  • and human resources at the development of mega projects.

  • But the chip industry isn't quite the same thing.

  • There have been numerous failures

  • in terms of China's domestic chip development effort.

  • SMIC is an example of a success

  • but have been plenty more that have fallen by the wayside.

  • Literally hundreds of much smaller corporations

  • that you and I have never heard of

  • that raised capital but ultimately failed

  • to deliver on its goals.

  • TSMC has shown

  • it takes much more than capital and human resources.

  • It takes time.

  • So TSMC was founded in 1987.

  • And it has spent more than 30 years

  • in developing and creating its own manufacturing technology.

  • It is just not very likely that you can create

  • a comprehensive semiconductor ecosystem overnight.

  • And unlike the U.S. or China,

  • Taiwan's economy is largely built around semiconductors.

  • TSMC is located in the small town of Hsinchu,

  • which hosts a whole ecosystem of other well-established

  • chip manufacturing and packaging companies.

  • And the industry also attracts Taiwan's best talent.

  • One of Taiwan's best-paying industries

  • is the semiconductor industry.

  • So with that incentive,

  • a lot of school children would see

  • the electrical engineering or anything that's related

  • to the semiconductor manufacturing as their top choice

  • when they decide on which university departments

  • they want to go to.

  • So in the U.S. you have students

  • choosing to study computer science

  • or other subjects that would be more related to the skills

  • that big tech companies like Google or Amazon require.

  • Likewise in China,

  • students are much more likely to be attracted by companies

  • like Tencent, Baidu and Alibaba, or make their own app.

  • One of the things that Chinese officials