Why does China CCP leaders so very stupid willing to spend
and waste $200-300 billion to invest in R&D to be able to build
their own advanced high end chips without depending on TSMC, Samsung ,
Intel etc. ?
Even if China
succeed China will not be able to get a profit return of their
investment. Who want to buy from China made chips that have no good
back up services. No matter what China strategy of dumping billions to
be chip independent is very foolish and stupid moves.
China think their monopoly business model is
better than Dr.Morris Chang division of labor specialised contract
manufacturing model. Very stupid of the Chinese CCP leaders to thnk
like that.
According to Boston
Consulting ( if Dr.Bob still believe BCG is clever enough not lying )
it is totally impossible to have all the suply chain of semicon fab in
one country.
China do not have
self sufficiency in food and need to import plenty of food. There 1
billion Chinese want to eat well and will suffer food shortage in the
future. Why China never spend a few billions to grow more than enough
food to feed their own people ? China have plenty of land to grow food
and not enough being done to grow plenty of food.
China leaders on keen to invest in high technology
to make fast easy money using Chinese people hard earned money. Too
many stupid and useless China CCP leaders do not know what are their
priorities.
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The resilience myth: Fatal flaws in the push to secure chip supply chains
From China to the U.S. to Europe, semiconductor
makers are being showered with subsidies, but to what effect?
CHENG TING-FANG and LAULY LI, Nikkei Asia
tech correspondents JULY 27, 2022
TAIPEI -- In the
sweltering Asia summertime of mid-June, Taiwan Semiconductor
Manufacturing Co. urgently dispatched a team to Japan to visit some of
the company's equipment suppliers. Why, it wanted to know, were these
companies saying they could not deliver vital machines on time? TSMC is
the world's largest chip manufacturer, and its suppliers had always
bent over backward to provide what the powerful company was demanding,
but for the first time, it was being met with apologetic messages.
The
situation was highly sensitive. TSMC is in the midst of a $100 billion
expansion, spurred on by governments in the wake of last year's
alarming shortages of crucial chips. But the Taiwanese giant has found
its own supply chains to be plagued by bottlenecks, affecting items
that range from lenses so precise they could focus a laser beam on a
pingpong ball on the moon, to apparently mundane valves and tubes.
The June mission followed on the heels of a similar trip by the company's
supply chain management chief, J.K. Lin, and a task force to the U.S.
in March, to investigate why the chipmaking machines TSMC ordered there
were taking up to 18 months to turn up.
In
Japan, suppliers including Tokyo Electron, the country's largest
chipmaking equipment manufacturer, and Screen Semiconductor Solutions
told TSMC they might miss even the elongated delivery times they have
promised, sources familiar with the tricky meetings told Nikkei Asia.
Screen
-- one of the few companies in the world making the chemical cleaning
machines that are vital in chipmaking plants -- reeled off a list of
obscure components that it was having trouble securing from its own
supply chain. Valves, tubes, pumps and containers made of special
plastics -- all are in short supply.
The problems are cascading
from supplier to supplier and making it hard to resolve the global
shortage of chips, the hearts and brains that power electronic devices
from PCs and smartphones to automobiles.
The
difficulties underscore a series of inconvenient truths, not just for
TSMC and its rivals and suppliers, but for policymakers around the
world. Amid U.S.-China trade
tensions and pandemic disruptions, governments in China, the U.S.,
Europe and elsewhere have determined to "onshore" semiconductor
manufacturing. So-called supply chain resilience has become a central
aim of policy. But such resilience is a myth.
These
new national efforts are backed by huge subsidies and state-backed
investments. The U.S. Senate at the end of July is expected to vote on
the $52 billion CHIPS Act. Japan's government will back TSMC to the tune of 476 billion yen ($3.5 billion) to build a factory there for the first time.
The
trouble is these efforts touch only the visible end of the
semiconductor supply chain. Behind chip production sits a network
supplying equipment and other items encompassing hundreds of raw
materials, chemicals, consumable parts, gases and metals without which
the bogglingly precise process of chipmaking could not function. China
is directing a combined 1.5 trillion yuan ($221 billion) of public and
private investments to replicate a chip supply chain within its own
borders, with modest results to date.
While
a globalized semiconductor industry used to run smoothly across dozens
of countries, the effort to replicate this architecture inside single
countries or regions has revealed and exacerbated bottlenecks in the
supply chain,
according to Nikkei Asia's investigations and interviews with more
than two dozen senior industry executives from the major chip economies
of the U.S., European Union, Taiwan and Japan over the past five
months. At the same time, there are questions over the long-term wisdom
of the policy, and fears about whether, if they can be gotten up and
running, many of these factories might ultimately sit idle.
JT Hsu, head of semiconductors and materials at Boston Consulting Group, said even
a goal of reaching 70% to 80% self-reliance is "extremely tough. ...
It could be extremely challenging for any country or region to get all
the fronts covered."
"It's
not only the [factories] that manufacture the chips but it's
everything that goes in there," said Jens Liebermann, vice president of
semiconductor materials at the electronic materials business unit of
BASF, the German chemical group. "All the materials, chemicals, gases
and their raw materials. All have to be there. It comes down to, where
is the source, where is the raw material, where is the manufacturing,
and who can handle the logistics?"
Morris
Chang, an elder statesman of the semiconductor industry who founded
and formerly chaired TSMC, put it most bluntly in remarks addressed to
the U.S.
"If
you want to reestablish a complete semiconductor supply chain in the
U.S., you will not find it as a possible task," he said at an industry
forum last year. "Even after you spend hundreds of billions of dollars,
you will still find the supply chain to be incomplete, and you will
find that it will be very high cost, much higher cost than what you
currently have."
Bottlenecks upstream
Despite
how insignificant they might sound, those valves, tubes, pipes, pumps
and containers are a case study in complexity -- and they are driving
executives mad.
"I am not kidding! We are still receiving valves
and tubes that we ordered more than a year ago," one executive with a
Taiwanese supplier to TSMC told Nikkei. "When opening the box, we are
often very shocked. The box might contain only 10 pieces out of a
100-piece order."
With only a handful
of specialist suppliers able to meet anti-contamination standards and
deal with the red tape of manufacturing items that also have potential
military use, it has been no easy task to increase capacity, especially
with limited supplies of the raw materials behind them.
These
items are made of special plastics called fluoropolymers and are
indispensable to the handling of corrosive chemicals and ultrapurified
water that flows in all chip manufacturing facilities and chipmaking
machines, where standards keep going up and up.
The
most advanced chips, those used to build the latest iPhone and MacBook
processors, for example, are now at the 5-nm level. Nanometer size
refers to the line width between transistors on a chip. A nanometer is
roughly 1/100,000 of the thickness of a piece of paper or human hair.
The smaller the nanometer size, the more cutting-edge and powerful the
chips are, and thus more challenging to develop and produce. In turn,
chipmakers need to place billions of transistors on a chip. The
tolerance for a defect or microcontamination is extremely low.
"The
size of a COVID virus is about 100 nm," Kevin Gorman, senior vice
president of integrated supply chain transformation with Merck
Electronics of Germany, told Nikkei. "You can then see how refined the
chip manufacturing work is and why all the materials are critical."
When
it comes to semiconductor-grade valves and tubes for handling
chemicals, it is crucial they do not become a source of contamination.
Only a few suppliers worldwide have the capability to reach the
exacting requirements, according to Nikkei Asia analysis. CKD and
Advance Electric of Japan and Entegris of the U.S., are qualified
suppliers of valves; Iwaki of Japan is the dominant supplier for
chemical-handling pumps; industry sources referred to Agru of Austria
and Georg Fischer of Switzerland as essential providers of the critical
piping systems for chip plants.
The Wassenaar Arrangement, a
multinational agreement signed by more than 40 nations to avoid such
components being shipped to rogue states for military use, adds red
tape that provides another barrier to new entrants.
Follow
the supply chain upstream, and further chokepoints emerge with regard
to the fluoropolymers from which these components are made. One such
material, known as PFA, is only supplied by Chemours of the U.S. and
Daikin Industries of Japan. It requires extensive know-how to process,
and no competitors are on the horizon.
Other key
fluoropolymer material makers include Solvay of Belgium, 3M of the
U.S., Gujarat Fluorochemicals of India and HaloPolymer of Russia. But
not all of them are qualified to build semiconductor-grade materials
and they must supply to a wide range of other industries beyond the
tech sector. Sources from Russia have dropped away due to the
disruption and sanctions caused by the Ukraine war.
Hsu
Chun-yuan, chief business development officer of United Integrated
Services, a leading cleanroom builder for TSMC and rival chipmaker
Micron Technology, told Nikkei that "sources of fluoropolymers are
constrained" and there have been "demand hikes from both the chip and
battery industries, driven by the electric vehicle boom."
And
further upstream still? Fluoropolymers are processed from fluorspar,
also known as fluorite, a mineral of which China controls nearly 60% of
the global production output,
according to data from market research company IndexBox. China has
long identified fluorspar as a strategic resource and back in the late
1990s limited exports due to its importance to industries from
agriculture, electronics and pharmaceuticals to aviation, space and
defense. The mineral is often labeled as a "semi-rare earth."
According to IndexBox, Mexico
is the second-largest producer of fluorspar with about 10.8% of the
market last year, followed by Mongolia and South Africa. In
Europe, Bulgaria and Spain together control some 5% of the global
market. In a supply chain review paper published by the White House in
2021, the U.S. flagged the risks of
critical materials subject to foreign domination and identified
fluorspar as one in a list of "shortfall strategic and critical
materials." The report did not point
out its deep link with the chipmaking industry. It said increasing
sources of critical minerals, strengthening stockpiles, and ramping up
North American manufacturing, processing, and recycling capacity could
result in fewer disruptions during "future worldwide crises."
Similar
issues arise in the handling of gases such as neon, used in
lithography, and C4F6, a fluorine gas used in etching. Both count
either Ukraine or Russia as a major source of supply, which has been
disrupted by the war. The equipment for moving them around is also
highly specialized.
Only a handful of
companies -- including Rotarex of Luxembourg and BBB Neriki Valve and
Hamai Industries of Japan -- are qualified to supply the ultra high
purity valves for the gas cylinders that the semiconductor industry
uses, Nikkei Asia supply chain checks show. Rotarex controls close to
80% of the market and only produces these specific items in Luxembourg.
The
valves, built with stainless steel and other alloys, must endure
extensive verification processes and need to be government certified
because of the dangers of leaks and explosions. It would take "10 to 20
years" for a new entrant to meet the standards and tests of different
government authorities for certification, some industry executives told
Nikkei.
Trade tension, pandemic and war
The
call for chip supply chain resilience emerged amid the U.S.-China tech
war when former U.S. President Donald Trump's administration clamped
down on Chinese tech champion Huawei Technologies in 2019 and blocked
its use of American technologies, especially chips, citing national
security. The drastic move spurred an aggressive nationwide Chinese
campaign across sectors to cut dependence on the U.S. and build a
secure, self-controllable supply chain.
The self-sufficiency
movement evolved into a global campaign in late 2020, as unprecedented
chip shortages stalled car production and hurt a wide range of
industries, crimping global economic growth and threatening jobs. The
U.S. Department of Commerce said the shortages wiped an estimated $240
billion off the country's gross domestic product in 2021. The
automobile industry alone made 7.7 million fewer cars than the year
before.
The Ukraine war has further amplified demands for supply
chain security. The war drove up prices of energy, metals, chemicals
and crucial gases that many chip-related suppliers needed. It also
increased the sense of urgency.
For most major economies, chips
are essential for building everything from computers and data centers
to appliances and cars. They are central to the battle for supremacy in
space, science, artificial intelligence and EVs, and will be crucial
to the military and defense equipment of the future. Advanced chips are
integral to an array of critical national security capabilities
"including sophisticated weapons systems such as the Javelin antitank
missiles the U.S. is supplying to Ukraine to defend itself against
Putin's invasion," the U.S. Department of Commerce pointed out in a
recent report.
Governments so far have promised to pour more than
$100 billion into subsidizing the building of local chip supply chains.
As well as the U.S. CHIPS Act, the EU adopted the 45 billion-euro ($46
billion) European Chips Act, Japan had budgeted 600 billion yen ($4.42
billion) and India set up a $30 billion funding program for
semiconductors and other tech sectors.
Major chipmakers from
Intel, Micron and Texas Instruments in the U.S. to TSMC and South
Korea's Samsung Electronics have separately announced more than $650
billion in investments. These include several outside their home bases.
TSMC is building in the U.S. and Japan, Intel plans to expand in
Europe and Southeast Asia, and Samsung has construction plans in the
U.S. According to SEMI's estimate, some 91 new chip plants are set to
go online worldwide from 2020 through 2024.
When the European
Chips Act was enacted earlier this year, European Commission President
Ursula von der Leyen acknowledged that "no country -- and even no
continent -- can be entirely self-sufficient." The hope is that parts
of the supply chain that cannot be brought onshore will at least run
through friendly nations.
"Europe will always work to keep global
markets open and to keep them connected. This is in the world's
interest; it is in our own interest, too," she said. "Europe will build
partnerships on chips with like-minded partners, for example the
United States or for example Japan. It is about balanced
interdependencies and it is about reliability."
U.S. Treasury
Secretary Janet Yellen has floated "friendshoring" as a compromise
concept. "We cannot allow countries to use their market position in key
raw materials, technologies, or products to have the power to disrupt
our economy or exercise unwanted geopolitical leverage," she said in
April. "Let's build on and deepen economic integration and the
efficiencies it brings, on terms that work better for American workers.
And let's do it with the countries we know we can count on."
Russia's
fall from Western favor demonstrates that alliances can shift over
time and spats can emerge even between nations ostensibly committed to
free trade.
Japan limited the export of photoresists, a crucial
chipmaking chemical dominated by Japanese suppliers, to South Korea
during a Tokyo-Seoul trade war in 2019.
An assessment by BCG suggests there are at
least 50 chokepoints in the semiconductor supply chain across design
tools, manufacturing, packaging, materials and equipment. These points
are defined as areas where 65% or more of a particular item is
concentrated in a single country or region.
The
U.S. dominates chip design tools and at least 23 types of essential
equipment, it found. Japan is a leader in the production and critical
formulation of critical materials that include wafers as well as
photoresists. Europe is the leader in industrial gas.
The
extreme ultraviolet (EUV) lithography machine exclusively built by
ASML of the Netherlands provides a prime example of how difficult it is
to switch a component in the chip supply chain. Sometimes it is just
impossible to find alternatives.
The EUV machine is indispensable
in the production of cutting-edge chips of 7 nm and below, helping
project the complicated patterns of integrated circuits on a
microscale. Production delays are hampering the ability to add new
capacity, lengthening the current chip crunch and setting back the
introduction of more cutting-edge chips.
ASML has extended the
waiting time for several models to two years due to constraints on
vital parts including optical mirrors and lenses, people familiar with
the matter told Nikkei. A company spokesperson acknowledged some delays
and said constraints on the industry were "very diverse and across
multiple tier suppliers."
Creating EUV
light inside a vacuum chamber within a machine is exceptionally
challenging, relying on Germany's Trumpf for a powerful laser source
and another German partner, the optics specialist Zeiss Group, for a
system of mirrors to reflect and direct the light.
Since
even the smallest irregularities cause aberrations, Zeiss boasts that
its product is the world's "most precise" mirror. "If one of these EUV
mirrors were to redirect a laser beam and aim it at the moon, it would
be able to hit a pingpong ball on the moon's surface," CEO Andreas
Pecher told Nikkei. Zeiss and ASML have been working together for
nearly 30 years.
Even if ASML wants to strengthen
its own supply chain resilience and looks for other optical partners,
it will require at least five to 10 years of co-development work before
getting initial results, several executives told Nikkei.
"Actually it's almost not replaceable in the many years to come," Nikkei heard from one executive from a Japanese lens maker.
There
is almost no part of the chipmaking process that does not require deep
specialization and no part of the supply chain that can be simply and
quickly duplicated.
Chemicals and solvents used in chip plants
need to reach the so-called part-per-trillion (PPT) grade -- one
particle to 1 trillion drops. Gases need to reach a purity of up to
99.9999% -- the so-called 6N -- when it comes to cutting-edge chip
production. For silicon wafers, the basic substrate materials that
chips are fabricated on, all need to be as pure as 9N, or 99.9999999%,
an executive with the chip material distributor Wah Lee Industrial told
Nikkei.
"If you want a resilient chip supply chain, you not only
need chip plants, you also need a whole string of suppliers from
critical chemicals and precision components all coming along," said an
executive at Japan's Daikin. "Building a semiconductor plant takes
several years, but building chemical plants will take even longer given
the extensive environmental assessments and regulations for handling
chemicals."
The long road to onshoring
China's
efforts demonstrate that the practical difficulty of building a chip
supply chain cannot be overcome by throwing billions of dollars into
the effort. As early as
2014, Beijing launched the first phase of the China Integrated Circuit
Industry Investment Fund, nicknamed the Big Fund, with 138.7 billion
yuan ($20.7 billion). Another 204 billion yuan followed in 2019. The
first national seed fund stimulated more than 500 billion yuan of
investment from the private sector and local governments; the second
phase of the fund is expected to encourage a further 1 trillion yuan.
China
indeed increased local chip production -- to 16.7% of its domestic
needs in 2021 from 12.7% a decade before, IC Insights data show.
The
mathematical implication of having many countries creating new onshore
chip supply chains is that capacity is going to be much greater than
the world as a whole actually needs.
The industry has indicated
that these are often noneconomic investment plans by saying in many
cases that factories will only be built if they are heavily subsidized.
With consumer spending on electronics apparently slowing sharply and
recession talk in the air, the outlook for actual chip demand, at least
in the short term, is suddenly uncertain.
Gorman
of Merck Electronics acknowledged questions about whether local plants
could reach economic scale, but said it still makes sense to localize
if its key customers could together shoulder the risks.
"Keeping
the supply line short is also better for our environment," he told
Nikkei. "Our customers ... will favor a local supply over one that has
to cross international borders."
Building an onshore chip supply chain is a "very large-scale and long-term journey," BASF's Liebermann told Nikkei. "It
will take a lot of time and a lot of costs and the cost will only be
justified if the utilization rates of those new plants are meeting the
demand, and the demand is high enough."
Most
industry executives believe a long-term increase in chip demand is
locked in, regardless of the current economic environment, as everyday
items become more connected and complex and as cars go electric and,
ultimately, autonomous. A semiconductor industry that had revenues of nearly $600 billion in 2021 is widely projected to be at $1 trillion by 2030.
"If
we really believe that the industry will be reaching $1 trillion ...
we should be able to have some level of regionalization of the
manufacturing and have the right leverage," Bertrand Loy, CEO of
Entegris, told Nikkei. "But we won't be able to have manufacturing
everywhere and get the right leverage. We are investing in some
countries, some products, but not in all countries for all products
because we cannot afford [to do] that."
ASML believes regional
investments "can co-exist, if connected to a global ecosystem," its
spokesperson said. "Compartmentalization leads to sub-optimization,
which leads to higher cost and slower innovation for consumers and
companies and governments who rely on this innovation."
'No longer an era of free trade'
Simon
H.H. Wu, president of San Fu Chemical, a Taiwanese chipmaking chemical
supplier, reckons geopolitical conflicts and trade barriers are
prevailing over globalization, upon which the chip industry was built.
"It's no longer an era of free trade," he told Nikkei, warning that policymakers and the industry should be under no illusions about the difficulties ahead.
"Any
country that controls certain natural resources or key technologies
would want to protect and leverage those resources for economic and
political benefits," Wu said. "What companies could do is to look for
allies and partners to alleviate the potential disruptions.
"There's
always something you need to import and ship from another place,
country or even continent. If you don't have phosphate rock how do you
produce chipmaking phosphoric acid? If you don't have fluorspar, how do
you produce fluoropolymers? At the end of the day, you can't move all
those mines and natural resources ... next door."
JT
Hsu, the head of semiconductors and materials at BCG, said the chip
crunch shows it is about time to build some "redundant" capacity to
give the industry a buffer to absorb shocks. "However," he said,
"it's nearly impossible and unrealistic that any country or region
could reach a point of 100% self-reliance, in terms of making
everything about chips from the start to the end. That's not possible
now and that is not likely to be possible in the future."
The resilience myth: Fatal flaws in the push to secure chip supply chains
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| The resilience myth: Fatal flaws in the push to secure chip supply chainsFrom China to the U.S. to Europe, semiconductor makers are being showered with subsidies, but to what effect? |
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