From Corona pandemic to geopolitical challenges

In early 2021, the then-US President Joe Biden called a special Zoom meeting at the White House. Addressing nineteen CEOs of the world's largest technology and manufacturing companies, he held up a twelve-inch-long silicon wafer. He said that unless America invested 'big and bold', it would fall behind in global competition. So 'we have to play the game harder'.

Traditionally, car companies like Ford or GM were not supposed to be present at this meeting of technology companies. But the impact of the Corona pandemic has shaken the global supply chain to such an extent that even car manufacturers have become concerned about semiconductor politics. Throughout 2021, billions of people realized how dependent our daily lives are on these small chips.

This crisis hit from two sides: geopolitical pressures and the shock of the pandemic. In 2020, the United States began to isolate China from American chip technology. Chinese companies like Huawei had been stockpiling chips since 2019, and Chinese factories were rushing to buy up equipment, fearing future sanctions. The pandemic disrupted global chip supplies. In particular, there was a severe shortage of common logic chips used in cars.

The biggest cause of the crisis was a miscalculation of demand by various industries, especially car companies. In 2020, PC sales soared due to the lockdown and data center expansion. Meanwhile, car companies assumed that sales would decline, so they canceled chip orders. But when the car market quickly turned around, it turned out that chip factories had already allocated their production capacity to PC and data center customers. This was a total disaster for car companies. Each modern car requires more than 1,000 chips. Without one chip, the car would not be shipped. As a result, the world produced 7.7 million fewer cars in 2021.

Although the Biden administration called this incident a “supply chain crisis,” the problem was different. A record 1.1 trillion chips were produced worldwide in 2021, up 13% from 2020. This was because demand for chips had grown rapidly, especially due to the proliferation of PCs, data centers, 5G phones, and AI technologies. In fact, this failure was mainly due to car companies, which operated on a risky ‘just-in-time’ approach and made bad decisions by canceling orders.

Recent events have shown how powerful ‘choke points’ or control centers are in global politics. These control centers are currently concentrated in the hands of a few countries. Therefore, competition is also emerging among allied countries, everyone wants to be a big player in this trillion-dollar industry.

Each country is now trying to strengthen its position in the chip industry:
• The United States wants to rebuild its production capacity while maintaining its dominance in design and equipment.
• Europe, Japan, and Singapore are also trying to strengthen their positions.
• South Korea plans to invest $100 billion by 2030, maintaining its leadership in memory chips and expanding into logic chips.
• Taiwan fiercely protects its most valuable asset, TSMC. It plans to keep the most advanced technology in Taiwan. New factories in Nanjing or Arizona will not be equipped with the latest technology.
• Japan is subsidizing TSMC to set up factories to strengthen its own machinery and components sector.

America still dominates chip design software, specialized equipment, and architecture. But its weakness is productivity.

In 2021, Intel's then-CEO Pat Gelsinger wanted to take Intel back to the top of the chip industry by beating TSMC and Samsung. But his plan, even by building large factories, did not work. Now, new CEO Lip-Bu Tan has come up with a different strategy. He wants to make the company less bureaucratic, cheaper, and more efficient. The principle of this new change is that Intel will not only manufacture its own chips but will also provide foundry services for external customers (such as AI and data-center companies).

America is trying to reduce its dependence on Taiwan, but even if TSMC and Samsung build factories in the United States, the most advanced chips will not be made there. They will keep the latest technology in their own country. As a result, the world is becoming more dependent on Taiwan for the time being.

(Modified and abridged excerpt from Chapter 53 of Chris Miller's acclaimed book 'Chip Wars', "Shortages and Supply Chains")

Author: Mahmud Hossain, a BUET graduate, has over three decades of leadership experience in Bangladesh's telecom and ICT sectors. He played a key role in introducing mobile technologies in the country. He now serves as a Commissioner at BTRC, following senior leadership roles in several national and multinational industry-leading companies.