On the sidelines of Europe’s largest technology conference, IFA Berlin, author Chris Miller weighed in on the geopolitical implications of the demand and supply of advanced chips.

One cannot think of modern-day electronics without the nanoscopic transistors or chips that are at the heart of these devices. The tinier the chip size, the more advanced they are. It’s the reason your smartphones and laptops are more powerful than the computers that sent man on the moon in 1969. But the reins of this trillion-dollar industry are held by a handful of companies and countries.

On the sidelines of Europe’s largest technology conference, Internationale Funkausstellung or IFA Berlin, Chris Miller, author of Chip War: The Fight for the World’s Most Critical Technology, weighed in on the geopolitical implications of the demand and supply of advanced chips. Miller noted how this trillion-dollar market behind the microscopic semiconductor technology is at the heart of an ongoing technology cold war.

Chips at the centre of the future of warfare

Speaking about how the entire chip industry has its origins in the military, Miller said defence planners are already thinking of a tightly linked autonomous and electronic warfare in the future.

“The Russia-Ukraine war has been defined by the semiconductors in the military equipment that both sides are using. In East Asia, there’s a destabilizing arms race underway,” said Miller, hinting at the increased militarization of Japan, China’s rising military budget spending and threats concerning Taiwan. One also can’t ignore alliances such as AUKUS and the Quad that have come up in the last few years, to send a signal to the military might of China in the Indo-Pacific region. Each of these countries is also doubling down on their investments in using advanced semiconductors in military applications, noted Miller.

During the pandemic, when global supply chains went for a toss, there was a huge shortage of chips that continues to this day. The consumer technology and automobiles industry has been deeply impacted by it. Last year saw the launch of ChatGPT which was followed by an AI boom. According to Miller, the demand for computing power has led to a chip shortage.

“Nvidia is a company worth a trillion dollars and its GPUs are critical for the future of AI. But GPUs are becoming a scarce resource in Silicon Valley. You will get a better AI model only if you train on larger datasets. Access to compute has been the limiting factor. But today it isn’t just companies, but governments are interested in semiconductors as well,” said Miller highlighting how chips have become a major point of contention between governments.

Chips are hardware components that make a lot of modern-day advances in the AI sector possible. This AI that’s used for consumer products is also being deployed for military applications. According to Miller, the realization that advanced AI chips could be used by China to make more efficient AI-powered weapons is the reason behind US’ export curbs of advanced chip technology to China.

On August 31, the US government announced a curb on exports of sophisticated Nvidia and AMD chips to some countries in the Middle East. Nvidia’s A100 and H100 GPUs that help in speeding up machine learning tasks – the latest and fastest on the market – are part of these curbs according to a Reuters report. Nvidia, Google, Apple, Qualcomm, AMD, Intel – all major advanced chip design firms – come from the USA, which gives the US a strategic advantage.

Bottlenecks in the chip supply

The US along with Japan, Taiwan, South Korea and the Netherlands controls the majority of the semiconductor supply chain. When it comes to manufacturing chips under 10 nanometer, Taiwan has a 92 percent share, thanks to Taiwan Semiconductor Manufacturing Company or TSMC. South Korean Samsung shares the remaining 8 percent.

Dutch company, ASML, is the only one in the world that makes high precision machines that actually make the most advanced computer and mobile chips. For making advanced chips, you need to etch complex miniature electrical switches layer by layer onto a silicon wafer. This process is called lithography (where light is used to etch circuitry). ASML, which also happens to be the most valuable company in the Netherlands, uses superfine extreme ultraviolet lithography technique to etch the silicon wafer with finer circuits to make advanced chips. Advanced chipmakers such as Samsung and TSMC need ASML’s high-precision machines to make advanced chips. ASML doesn’t export its machines to China.

“Until a few decades ago, there were many companies operating in the semiconductor space. Now, there are a handful of influential companies left. The entire industry is dominated by chokepoints. The trend in the chip industry has been towards the concentration of technology in a handful of companies,” noted Miller.

China, despite all its manufacturing prowess, doesn’t have much to show when it comes to high-end chip manufacturing. As a result, China has been pouring billions of dollars into developing its home-grown chip industry, as currently it relies a lot on South Korea, the Netherlands and of course, Taiwan, for high-end chips. According to a DigiTimes report, China invested $290.8 billion in 2021-22 on semiconductor projects.

“China has spent the last decade desperately trying to catch up. The US, the EU and India have only now begun heavy investments in developing domestic chipmaking capabilities,” said Miller in his speech.

Where does India stand?

The rising geopolitical tensions between the US and China, have forced many companies to rethink their dependence on China as a manufacturing hub. As seen above, manufacturing chips isn’t an easy task. According to Miller, it is easier to shift device assembling rather than chip making. Vietnam, Thailand, India and Mexico are seeing huge investments, thanks to companies moving out of China.

The world’s most valuable company, Apple, plans to assemble 10-15 percent of its iPhones in India in 2023. The Indian government also offers production-linked incentives that cover 13 sectors including the semiconductor sector. In February, the Indian government also laid out an ambitious target of hitting $2 trillion in overall exports annually by 2030. While assembling electronics products in India could certainly help achieve this goal, one can’t say advanced chipmaking would play a huge role in that.

India has announced $10 billion in incentives and subsidies to encourage local chip manufacturing. This is a fifth of the subsidy amount that’s part of the US Chips and Science Act that has managed to attract interest from 460 companies, according to a Reuters report. The EU Chips Act has subsidies worth $47 billion. Chipmakers Intel and TSMC have already begun setting up their plants in Germany. India has no advanced chipmakers to boast of yet. When it comes to high-end chipmaking, India has a long way to go despite the claims made by the government.

“The chip wars are about geopolitics. The semiconductor industry will not remain the same. Investment flows are changing and the implications for the rest of the electronics industry will be profound,” said Miller.

https://www.moneycontrol.com/news/technology/advanced-chipmaking-tech-is-controlled-by-five-countries-and-its-an-industry-dominated-by-chokepoints-chip-wars-author-chris-miller-11299211.html/amp