Throwing Money at Chips

Throwing Money at Chips "We rarely think about chips, yet they've created the modern world," Chris Miller writes in his excellent new book Chip War. "Most of the world's GDP is produced with devices that rely on semiconductors." Over the last two years, though, lawmakers and corporate executives have been forced to think a lot more about these chips, given worldwide shortages. While supplies have improved of late, the geopolitics surrounding chip production are getting worse, with most of the world's advanced chips manufactured in Taiwan, an island increasingly pulled between the U.S. and China.   Today, Taiwan Semiconductor Manufacturing, or TSMC -- the most important and successful chip assembler in the world -- said it was committing a total of $40 billion to building new U.S. factories. President Joe Biden, along with two of the country's most successful CEOs -- Apple's Tim Cook and Nvidia's Jensen Huang -- traveled to an event in Arizona to celebrate the news.  But the headlines obscure another reality, according to Barron's Tae Kim. It will take much more than $40 billion to win the "chip war." Tae writes:  By the time the new Arizona TSMC plants come on line they will be one or two generations behind the most advanced processes being used in Taiwan. J.P. Morgan expects TSMC to start making 3-nm chips in the first quarter of next year—something that won’t be made in the U.S. until 2026. By that point, Taiwan Semiconductor’s home factories are likely to have moved on to a more advanced technology. That means that even by 2026 Apple is unlikely to build its latest iPhones, which require the newest chips, at the U.S. factories. Meanwhile, in the world of chip making, $40 billion doesn't go all that far, Tae notes:  Then there is the overall $40 billion investment number, which sounds impressive in the aggregate, but isn’t quite as large given that it will be spread over multiple years. TSMC didn’t specify the timeframe for the investment. It will be a fraction of TSMC’s overall capital spending budget during the same time period. TSMC is slated to spend over $100 billion in capital expenditures from 2022 to 2024, according to J.P. Morgan estimates. The U.S. has to start somewhere if it wants to be a global power in chip manufacturing. Just don't expect it to happen quickly. You can read the rest of Tae's story here. You can also read his recent Q&A with Chip War author Chris Miller.