Semiconductors (chips) are very special. They’re usually made from silicon (Si) and germanium (Ge) which can be intentionally "doped" with impurities to alter their electrical behavior. These malleable little chips are what allow us to check our phones 100 times a day, move numbers around a spreadsheet, send emails with typos, and everything else that you can label as “tech”.
Can’t live without it
I can’t have a good day without coffee (I know, it’s a problem). Luckily I live in New York which is littered with coffee shops on every corner, so I can always get my fix in. Without it, I get agitated — and I’m not the only one:
On December 29, 1675, King Charles II issued A Proclamation for the Suppression of Coffee Houses. In it he banned coffeehouses as of January 10, 1676, since they had become "the great resort of Idle and disaffected persons" where tradesmen neglected their affairs. The worst offense, however, was that in such houses "divers false malitious and scandalous reports are devised and spread abroad to the Defamation of his Majestie's Government, and to the Disturbance of the Peace and Quiet of the Realm."
An immediate howl went up from every part of London. Within a week, it appeared that the monarchy might once again be overthrown—and all over coffee. On January 8, two days before the proclamation was due to take effect, the king backed down. - Uncommon Grounds: The History of Coffee and How It Transformed Our World by Mark Pendergrast
At the core of nearly every piece of technology we use today lies the semiconductor. You see, in the same way, we need to cultivate the beans to get the grounds that then drip into our bottomless mugs, we also need to produce the materials that make the chips that power our lives. And it’s not easy.
While the uprising of AI is exciting, the amount of computational power required to make bigger and better models is still high, and behind all that power lies a handful of companies that keep the line running. The business opportunities are huge, of course, but it’s all very expensive; and with profit incentives lies political interest. Which brings us to this:
Intel spends $33 billion in Germany in landmark expansion
Under Gelsinger (CEO), Intel has been investing billions in building factories across three continents to restore its dominance in chipmaking and better compete with rivals AMD, Nvidia and Samsung.
The party Intel is throwing in Germany is a bit of a wink to the industry since it not only solidifies Germany’s commitment to expanding its tech infrastructure, it is another big investment in a place that is not Taiwan.
For a long time, Taiwan has been the leading champ in semiconductor production. Like most, if not all industries, the actual production of core inputs is outsourced from the U.S. because, well, cheap labor. Intel’s move could potentially diversify the semiconductor supply chain further, possibly challenging Taiwan's leadership status. While this might not immediately affect Taiwan's position (after all, they've got a seven-year winning streak), it does add a new twist to the semiconductor saga. Plus, Germany isn’t the only spot. The kids are coming back home as well:
Inside Taiwanese Chip Giant, a U.S. Expansion Stokes Tensions
Taiwan Semiconductor Manufacturing Company (TSMC), the world’s biggest maker of advanced computer chips, is upgrading and expanding a new factory in Arizona that promises to help move the United States toward a more self-reliant technological future.
During the pandemic (where does the time go?), a lot of business leaders realized that sometimes offshoring may not actually be the best idea. While it does significantly lower the costs of overhead, if you’re not able to get your stuff then you can’t sell it. On top of supply chain issues, there’s also the lingering concern that is China; and while that’s a whole other discussion, consider this photo and the words of China’s President, Xi Jinping.
China's President Xi Jinping has said "reunification" with Taiwan "must be fulfilled" - and has not ruled out the possible use of force to achieve this. - China and Taiwan: A really simple guide
Now if you were running a tech company, you’d be concerned. Nevertheless, Taiwan is still number one:
Taiwan Is Still Semiconductor Leader as Chip Exports Rise Again
Taiwan’s exports of integrated circuit chips rose in 2022 for a seventh consecutive year, further solidifying the economy’s leadership status in a global semiconductor industry that has been roiled by US-China tensions and diversifying supply chains.
So we can look at these moves of production expansion as more of a setting up of the chess board. Intel is investing in Germany (and Ohio). TSMC is investing in Arizona. Apple is making it’s own chips (and they’re incredible). Japan is also interested in chips. Oh, and Nvidia is literally ChatGPT’s brain.
Coffee was once pretty scarce. It took a couple of hundred years to get from Ethiopia, into Europe, to Brazil, then Boston, and the rest of the world. Today, there’s a Starbucks on every corner where I buy $4 black coffee using Apple Pay with my iPhone with a silicon chip that could one day be actually manufactured in Cupertino.
Thank you.
We’ve seen a push toward “American-made” products over the past couple of years. Whether it’s consumers wanting to support their local economy, businesses wanting to keep their supply chain close, or even politicians selling the idea of more jobs in America, it’s clear that we may be entering a smaller world with less of a focus on globalism. The problem lies in costs. At the end of the day, American labor is more expensive, and with more input costs come higher prices. We already pay over $1k for a new iPhone, how much more are we able to handle? And with all this talk of inflation, are higher prices simply here to stay? Lots to think about. I need my coffee.
As always, if you have any questions, want more explanations, or strongly disagree, comment below, follow me on Twitter, or shoot me an email.