It’s what smartphones, cruise missiles, washing machines, drones, 5G, medical equipment, cars, servers, IoT devices and much more have in common. They are full of chips, smaller than a postage stamp and yet the engine of just about all technology. And if you don’t have enough? Then you may have a problem.
What are chips anyway?
We are in the middle of a global chip crisis and not only you will notice that, because in addition to that shortage, a real chip war is raging at the same time. Because whoever has chips has a dominant position. Chips are the driving force behind the technological developments of the past fifty years. But what are chips anyway? A chip is a small plate of silicon containing tens to billions of microscopic electronic links. The computing power of chips is expressed in nanometers, the lower the number, the more computing power and the more complicated and expensive it is to make. For example, the chip that calculates the amount of fuel in a car is 180 nanometers, your washing machine is 65 nanometers, 4G is 22 nanometers, your laptop is approximately 7 and your iPhone 12 Pro is 5 nanometers. Then there is the technology of the future, such as: artificial intelligence and self-driving cars. These will even work at 2 nanometers and not everyone can make these chips. Anyone who can do this has a major technological and therefore economic advantage, but first let’s explain why there is such a shortage of those small parts. A lot of that has to do with Corona.
The world is changing and working from home is becoming the norm, years of technological development are suddenly taking place. Zooming via Teams. We suddenly buy massive amounts of technical gadgets and yes, suddenly with little to do. Outside the home, the sale of game consoles also increased, and yes, you understand what that does to the demand for chips. That unexpected explosion in demand is leading to an unprecedented global shortage, especially in the car industry, because cars are moving chips. There are hundreds of chips in a car and if one chip cannot be delivered, the whole car cannot roll off the belt. Waiting for a chip has never taken so long and that is annoying when you are waiting for your PlayStation 5 or a new camera. But above all, it shows how dependent we are on chips and who can make them. So who can make the most advanced chips has influence.
The most advanced chips
Seventy percent is made in Asia and we are talking about all kinds of chips. If we zoom in on the most advanced chips, only South Korea and Taiwan remain. This is where Samsung and TSMC are based and the latter is arguably one of the most important companies in the world that you’ve never heard of. It is pretty much the most important player in the chip industry. TSMC is a company that produces chips on behalf of others. There is a good chance that you also have a chip from the Taiwanese company in your pocket.
They have become so big because they make among other things chips for Apple. They are already making three nanometer chips, but are working hard on two nanometer chips. In the coming years they will invest a little less than 100 billion dollars in order to maintain their technological lead. That money is also necessary, because making chips with such computing power is an extremely difficult process that you cannot speed up. Making a chip is a bit like restoring a painting. It goes layer by layer, atom by atom and that is vulnerable. It will take you three months to get from silicon to chip. If something goes wrong on day 3, you won’t find out until the end. The chip machines come from the Dutch company ASML. They are the only ones in the world that can make the most important machines in the chip production process. Cost of a machine is 200 million each and ASML also has suppliers with a queue of seven or eight months.
China and the United States
Once those machines are in place, it will take months to fine-tune everything. Provided all knowledge and expertise is in-house. In short, you can’t just do that. If you want to keep up with TSMC or Samsung from scratch, then you need about 10 to 20 years in addition to a lot of money. This knowledge about the most advanced chips is therefore only available from two companies in two countries. The rest of the world orders there and is therefore dependent. Even most high-tech Chinese and US companies are generations behind. If it’s up to the US government, China won’t catch up. China and the US both want to be the biggest. Throughout history, whoever presided over an industrial revolution automatically became the world leader. At the moment we are at the beginning of a fourth industrial revolution, in which China has better cards, so there is a pretty good chance that China will take over that world from the US. So chips have become the stake in a geopolitical battle between those two countries. For example, the US is trying to cut off Chinese companies from high-tech. They prohibit TSMC from supplying chips to the Chinese company. Huawei and the US are the largest buyer of 5 nanometer chips with Apple, so TSMC listened to that.
In the meantime, China is trying to make those very advanced chips itself, but to do that they need machines. China needs ASML again for that and the US has put a stop to that in a roundabout way. Those machines may not be exported. The US is trying to stay ahead of the competition with China and is also investing heavily to be self-sufficient and China is also pulling the wallet with 1.4 trillion. And yes, the EU cannot sit back and watch there either, because here too nobody wants to be dependent on a few factories, also because of the relationship between China and Taiwan. China sees Taiwan as a renegade province that they want to reunite with the Chinese mainland. The European Commission therefore wants the production capacity to double by 2030, and that is where a lot of money will go in the coming period.
While the battle for who will be the biggest country in chip continues, we are still short of the less complex chips that we also desperately need. The worldwide shortage of computers will certainly continue throughout the year. Because you now know how to make such a chip, you don’t just do that. There’s not much we can do but watch as this develops.