The Chip - Geo-Political Implications

 The semiconductor chip shortage faced by the world industry today can be traced back to the peculiar circumstances in which this industry developed.  Of course the immediate reason for the shortage is the pandemic still blowing in the world.

The technology required to manufacture silicon chips is extremely complex. As a result, not many companies can boast of harnessing this technology. The USA of course has the lead. The company which started chip manufacturing was Intel and it is one of the few companies which makes them even today.

Among the few companies which are making semiconductor chips today, are Intel, Samsung, TSM, Qualcomm, Broadcom, Micron, Texas Instruments and Nvidia. These companies among themselves share the semiconductor market of the world. There are other small players as well. A few years after the semiconductor chip was invented, Intel had a virtual monopoly in manufacturing and supply of chips worldwide. But later Texas Instruments, Qualcomm, Nvidia developed their own technology and became major players themselves.  

In the late eighties and nineties the manufacturing of chips was outsourced to the Taiwanese company TSM. TSM recognizing the importance of the chip to the world industry had, over the decade between eighties and nineties, developed its own technology to manufacture semiconductors.

Today it is one of the largest manufacturers of semiconductors in the world. The chip may be designed by any of the above mentioned companies. However, chances are, it will be outsourced for manufacture to TSM. This company now supplies custom made chips to most of the industries of the world. Since electronics are used in almost all the devices one uses today, the chip has become an indispensable part of any gadget, from a wrist watch to an airliner.

The pandemic created the shortage of chips as factories closed down and production suffered. Enter China. China claims Taiwan as its integral part. However, Taiwan’s prowess in manufacturing semiconductor chips has been eyed by China for many years. With the integration of Taiwan, Beijing will get the knowhow to make advanced chips. Its own efforts in this field have not been so successful. Chips manufactured in China are several generations old compared to the ones designed by the big chip companies today and outsourced to TSM for manufacturing.

Massive investments by China in this field have not yielded them much in terms of success. This is an incredibly complex technology and most of it is controlled by the US. The recent ban on Huawei by the US has caused a big problem for Huawei and China, as it could not get the latest chips for its products.

The advanced machines to design and manufacture the chips are not easily available on the market. The US owns most of the patents on that technology as well. Moreover, no manufacturer will share such a lucrative knowhow, so the only way China or any country can hope to make their own chips is by research. This not easy, and is very expensive.

The chip war has only started, The US will zealously guard its technology and China more than any other country, will try its best to acquire it by hook or by crook. Also, it is worth noting that China has not been able to hack or reverse engineer this technology due to its sheer complexity.

As to where this chip war is headed, one can only make a guess. However, for the foreseeable future the chip shortage will pass us by and the US will continue to hold all the cards in this game.