Summary of the book ‘Chip War’ by Chris Miller

Silicon Valley is cognate to social networks and software companies, barely comprehended after the material the valley is named after. Silicon, a semiconductor, allows electricity conductance to be manipulated in various ways, which led to the development of a transistor, a device that amplifies, controls, and generates electrical signals. The entire digital world exists because engineers have learned to control the most minute movement of electrons as they race across slabs of “silicon”. The book asserts that semiconductors have defined the world we reside in, and determine the shape of international politics, the structure of the world economy, and the balance of military power. The author begins with the Silicon Age origins, making this book a thrilling read filled with personalities exhibiting grit, greed, and ambition.

[ Semiconductors & Capital flow ]

Silicon and germanium are glass-like materials with no electric conductance. Nevertheless, electricity flows when these semiconductor materials blend with others. AT&T, a telephone company, christened a “transistor” — a semiconductor device that amplifies or switches electrical signals and power. Hearing aids, an opening invention, unclogged numerous use cases to test the waters. Fairchild, a start-up founded by engineers who split up from Palo Alto Network was on the mission to match the invention with the commercial opportunities. An expedition to pack maximum transistors into a single slab of silicon inaugurated “integrated circuits” that hit the limelight colloquially as a “chip”.

During world war II, bomber crews turned knobs punching in wind speed and altitude, adjusting the glass mirrors through a lever, and hitting the targets. Chip innovation turned the tide, improving the target hit ratio by 70%.

[ Top dollar shift ]

The Government paid the top dollars for chips used in rockets and satellites, however civilian landscapes remain unexplored. Fairchild envisioned an affordable price range and formulated a plan for a good business. It succeeded in the strategy to innovate technologies miniaturising the chip and slashing the cost from 20 to 2 US Dollars. The price cut was not the strategy, but rather the end goal, spurring the masses to test the chips for earthly concerns. Venture capital funding shifted from rockets to corporate computers.

[ Rise of Japan ]

As the commercialisation rocketed, so did Japan’s economy. Japan’s low capital cost and muted military spending freed up funds for the semiconductor business as integrated circuits entered planes, automobiles, camcorders, microwaves, and the Sony Walkman. Hitachi, a Japanese firm, hauled the capital expenditure for the semiconductor business from 1.5 billion to 60 billion yen within a decade. Japan pioneered in 1-megabit semiconductors, used in the hearts of computers, which carry hundreds of millions of circuits in an area that is one-third the size of a little fingernail. America’s strategy to turn Japan into a transistor salesman was now worrying them.

[ Silicon over steel ]

Electrical engineers, physicists, and scientists could get America only so far. The supply chain specialists, marketing managers, and business acumen restored America’s glory. Jack Simplot, a billionaire who racked up profits making potato chips, shielded Micron, a semiconductor company pouring billions during the trough cycle. Andy Grove spent his life scrutinising every detail of the manufacturing process and its business, driven by a nagging sense of fear. His bold decision to drop chip manufacturing and propel in microprocessors saved Intel, a technology firm, from bankruptcy and turned it into the world’s most profitable and powerful company. Jerry Sanders, a salesman from Fairchild, founded Advanced Micro Devices, another American company that revived the American Semiconductor industry.

South Korean Government signalled financial support for the semiconductor industry at home. American chipmakers sensed the opportunity twofold, diversification and reduced Japanese dependency. USSR was crowding up, however, with intentions dissimilar to Japan and South Korea. USSR administered a “Copy It” strategy, duplicating the designs and replicating the mass production. Although the USSR’s rockets were as powerful, they lacked communication and surveillance technologies, whereas America had mighty chips. Cold War ended.

[ Futuristic Taiwan ]

Akin to Japan and South Korea, Taiwan’s semiconductor supply chains since the 1960s, were a decisive move to provide jobs, acquire advanced technology, and strengthen security relations with America. One distinct thought made Taiwan stand out of the pack — the grit to produce advanced technology. The government funded the companies in infancy and safeguarded them at maturity through policies directed at the Nation’s well-being. Taiwanese state declared that “All people must make semiconductors”.

China’s communist Government followed, however, with mistakes that the USSR made, though in more extreme forms. China plunged the country into the cultural revolution, putting the iron and steel industry at the forefront, contradictory to Taiwan’s advocating electronics. When a consumer opens a newly bought Apple smartphone, the case reads “Designed by Apple in California, Assembled in China”. This is highly misleading as the smartphone’s most irreplaceable components are indeed designed in California and assembled in China, but they are made only in Taiwan.

[ Absolute China ]

Albeit late to the party, China realised the importance of semiconductors, and their connection to national security, information, and modernisation. Harnessing the digital world for authoritarian purposes, China relied staggeringly on foreign products. Its most critical technology rested on the fragile foundation of imported silicon. In 2014, China decided to double down on semiconductor subsidies announcing a “Big Fund”. By 2017, China’s chip imports of 260 billion US dollars dwarfed Saudi Arabia’s oil or Germany’s car exports. Government funding of this scale and support often creates an atmosphere for the rising star. One in China was Huawei, with its world-class design arm. China imagined a future head-to-dead with Taiwan disrupting the technology forms and trade flows. It would reset the balance of military power, too. The USSR could match America’s missiles but not byte-to-byte. China thought it could do both, however it should read the next offset carefully.

[ The Next Offset]

Electrons zipping around the guidance of American missiles ended the Cold War, but future wars will be in the electromagnetic spectrum. If the 1970s offset rested on “digital microprocessors, information technologies, new sensors, stealth”, the new era would be “advances in artificial intelligence and autonomy”.

[ The Competition ]

The priorities of any firm are in the budget. At the country level, the lens widens to softer dimensions like building relations and policy changes. Cheap credit from the Chinese Government flooded the world chip market, reducing the American profit margin. However, fierce strategies can motivate barbaric intentions for a few. A Chinese national working at Micron, a chip-manufacturing company, downloaded 900 files from his employer determined to replicate cutting-edge chip recipes. Micron lost the case in a Chinese court and, in addition, asked to scale down the product mix offering in the Chinese market.

America ignored its deteriorating position in the aftermath of China’s rising capabilities, and the staggering reliance on South Korea and Taiwan. Publicly CEOs urged America to confederate with China, and encouraged trade agreements, but privately admitted the strategy was full of holes.

In return was the assault on Huawei. Huawei, cut off from the world’s entire chipmaking supply management traded only with America’s Commerce Department covered under a special licensing agreement. China accepted Huawei to become a second-rate technology player rather than hitting back against America.

[ China’s Sputnik moment]

China remained frozen during the COVID-19 lockdown, but hiring in Wuhan continued. China’s leaders were willing to do almost anything in their fight against coronavirus, but their effort to build a semiconductor industry took priority. Imagining an all-domestic supply chain was insurmountable, let alone the thought of technological independence. The worry for the other countries was that China’s slew of subsidiaries would let it win market share across multiple parts of the supply chain, especially those that don’t require the most advanced technologies.

[ Race to participate ]

South Korean government and private companies work as a team to promote the semiconductor sector. Taiwan’s government remains fiercely protective of its chip industry. Europe, Japan, and Singapore are the other regions looking for new semiconductor investments. TSMC, a semiconductor firm in Taiwan, plans to invest over $100 billion between 2022 and 2024 to upgrade its technology and expand its chipmaking capacity.

[ Taiwan’s importance and dilemma ]

COVID-19 impacted semiconductor packaging operations. Still, in 2021 the world produced over 1.1 trillion semiconductor devices, according to IC Insights, a semiconductor market research firm. The car industry was the only exception suffering a chip shortage forecasted by demand downgrade.

Sticking out the sore thumb is Taiwan. It produces 11 percent of the world’s memory chips and fabricates 37% of the logic chips. Computers, phones, data centers, and most other electronic devices can’t work without them. A disaster in Taiwan — a loss of 37 percent of computing power production could be more costly than the COVID-19 pandemic and its economically disastrous lockdowns. It would take at least half a decade to rebuild the lost chipmaking capacity.

[ Conclusion ]

The staggering complexity of producing computing power shows that Silicon Valley isn’t simply a story of science and engineering. Technology only advances when it finds a market. The history of the semiconductor is equally a story of sales, marketing, supply chain management, and cost reduction.