Friday, January 29, 2021

Chips down for EU as Asia seizes microchip advantage — Part 1

Microchip manufacturing via Wall Street Journal

Microchips/ semiconductors are ubiquitous in the modern world and an electric car can have more than 3,000 of them. Thousands of people in Sweden have got chip implants but there are downsides. About a trillion chips are made a year, or 128 for every person on the planet. The annual sales value in 2021 is projected at $450bn according to the World Semiconductor Trade Statistics (WSTS) — down from $469bn in 2018.

The Wall Street Journal reports that in 1990 the US and Europe produced more than three-quarters of the world’s semiconductors. Now, they produce less than a quarter. Japan, South Korea, Taiwan and China have risen to squeeze out the US and Europe. And China is on pace to become the world’s largest chip producer by 2030.

With the rise of the chip industry in Asia over recent decades, the US share of chip manufacturing has fallen to around 12%, according to a Boston Consulting Group report last year.

Europe's share of the global chip market is about 10% and it has no presence in leading-edge chip manufacturing.

However, the EU's bright star in the semiconductor constellation is ASML Holding NV, a Dutch equipment manufacturer, which dates from 1984 when electronics giant Philips and chip-machine manufacturer Advanced Semiconductor Materials International (ASMI) created a new company to develop lithography systems for the growing semiconductor market. "Called ASM Lithography, we began our days inauspiciously, located in a leaky shed next to a Philips office in Eindhoven, the Netherlands. Building on the R&D that had been in the works since the early 1970s, that same year we launched our first system, the PAS 2000 stepper," the company says.

ASML is among the Top 100 global companies by market capitalisation and revenues in 2020 were €14bn while net income was €3.6bn.

Philips entered the semiconductor industry with manufacturing and development in Nijmegen, Netherlands, opening its first chip production facility in 1955. The company is now named NXP Semiconductors NV and was a spinout from Philips in 2006. It’s a Dutch-American semiconductor manufacturer with headquarters in Eindhoven, Netherlands and Austin, Texas.

Britain's UK-based computer chip designer ARM Holdings had been a leading European Union chip firm designer for smartphones (not involved in manufacturing). It developed from a consortium, including Apple, in the early 1990s. In recent years it has been owned by Softbank of Japan and last September Nvidia, the American-Taiwanese graphics chip specialist, bid $40bn for the company.

According to Handelsblatt, the German newspaper, "The most important suppliers of automotive chips come from Europe, such as Bosch, NXP and Infineon. It is also the market leader for security chips for passports, IDs and smartphones — NXP, Infineon and French-Italian ST Microelectronics dominate this important market. And Europeans' encryption methods are in demand and recognized worldwide."

The Semiconductor Industry Association of America reckons that 80% of the global annual output of chips comes from Asia — in particular, South Korea and Taiwan. The group says that in 2001, nearly 30 semiconductor firms manufactured leading-edge chips. "As time has progressed and leading-edge semiconductors have become more difficult and costly to produce, that number has decreased significantly. The remaining chip companies manufacturing at the leading edge are from only three countries: Taiwan, Korea, and the United States."

Belgian Prime Minister Sophie Wilmes and Luxembourg PM Xavier Bettel take a break from an EU summit and eat chips outside the Maison Antoine friterie in Brussels July 18, 2020 via Twitter.

Last December Germany, France, Italy, Belgium, The Netherlands, Spain, Estonia, Greece, Croatia, Malta, Portugal; Slovenia, Finland, Romania, Austria, Slovakia and Cyprus, signed a declaration to "consolidate and build on Europe’s position in areas of proven expertise and aim to establish advanced European chip design capabilities and production facilities." The Recovery and Resilience Facility fiscal stimulus provides for 20% to be invested in digital transition; this is up to €145bn over 2 to 3 years.

"Intel Inside" and US dominance

The Semiconductor Industry Association says that US companies account for almost 50% of global chip sales.

However, with so much production overseas coupled with China's plan to reduce its reliance on chip imports, the US is concerned about long-term national security implications.

In the PwC / Bloomberg top 100 global companies by market value, the US had 59 superstars in 2020; China 18; EU27 10 (France 3; Netherlands 3; Ireland 2; Denmark 1 and Germany 1); UK 4; Switzerland 3; Japan 3; India 2 and Saudi Arabia 1.

The EU27 should be just 7 as Ireland's Medtronic and Accenture are effectively American companies and the Dutch Prosus NV is a unit of a South African fund. All the European companies (EU and others) are more than 30 years old.

Andy Grove (1936-2016), the Hungarian immigrant who was Intel's chief executive officer from 1987 to 1998 and its president from 1979 to 1997, famously titled his memoir, "Only the Paranoid Survive."

In 1997, he was chosen Man of the Year by Time magazine for being “the person most responsible for the amazing growth in the power and the innovative potential of microchips.”

Following a relative annus horribilis in 2020, the market value of Intel was at $228bn on January 28, 2021; Taiwan Semiconductor Manufacturing Company Limited (TSMC) $590bn; Samsung Electronics $515bn and Nvidia (founded by Taiwan-born Jen-Hsun "Jensen" Huang in 1993) $323bn.

TSMC makes chips under contract for some Intel competitors, including American-based firms, Nvidia and AMD. TSMC reported this month that revenue for 2020 surged 31% — the best growth in more than a decade — to a record $45.5bn.

In 2020 Apple announced that it would drop Intel as the chip supplier of its Mac products, accounting for 4% of Intel's sales in 2019; the latest generation of Intel chips — that are only 10 nanometres wide — has been hobbled with manufacturing problems; AMD, Intel's longstanding minor competitor, has got attention with designs that have won business from Google for example; and; Nvidia has made strides in adapting its graphics chips, or GPUs, to other data-intensive tasks, in particular, the machine-learning algorithms at the heart of today’s AI (artificial intelligence) systems.

The newest Intel fabrication plant in Arizona, where chips with minimum feature sizes of 10-nanometers are produced began delivering chips in 2019, five years after the previous generation of chips with 14-nanometer features.

The Wall Street Journal reports that "the company is considering outsourcing production of some of its most prized chips to Asian competitors, in particular Taiwan Semiconductor Manufacturing, the world’s largest and most-advanced contract chipmaker, according to people familiar with the matter.

Intel already has decided to recruit TSMC to make graphics-processing chips."

Pat Gelsinger, CEO of VMware, who worked at Intel for 30 years from 1979, will be the third CEO in less than 3 years, from February, and with annual profits over $20bn it can make a comeback.

This week Intel announced that it has invested $475m in its Ho Chi Minh City facility to develop more complex technologies and tap new market opportunities. The latest investment takes its total in Vietnam to $1.5bn, the chipmaker said in a statement.

"As of the end of 2020, Intel Products Vietnam has shipped more than 2bn units to customers worldwide," Kim Huat Ooi, its general manager, said.

The money will go into manufacturing 5G products and the 10th-generation Intel Core processors.

One of Intel’s 10 manufacturing sites globally, IPV says it is the company’s largest assembly and test manufacturing facility with more than 2,700 employees.

South Korea’s Samsung Electronics is reported to be considering an investment of as much as $17bn to build a chip-making factory in Arizona, Texas or New York. However, US federal government incentives would be expected to make the cost more competitive with foreign locations.

Samsung's rival `Taiwan Semiconductor Manufacturing (TSMC) last year said it would build a plant near Phoenix Arizona and in December bought land for the $12bn project.

America invented the microchip

The genesis of the microchip was in Bell Telephone Laboratories (Bell Labs) in New Jersey in the 1940s, where scientists were seeking a more durable alternative to glass vacuum tubes that like light bulbs, had to be replaced regularly in telephone equipment.

The transistor first developed at Bell Labs, also called a point-contact transistor, was a semiconductor device that could amplify or switch electrical signals. The term transistor was coined as a contraction of the words, trans and resistance.

John Bardeen (1908-1991) and Walter Brattain (1902-1987) demonstrated their semiconductor device in December 1947. They had experimented with silicon but replaced it with germanium which increased amplification by about 300 times.

William Shockley (1910-1989), their team leader, was furious that they didn't keep him in the loop. Shockley, a brilliant scientist, had failed to produce a working transistor earlier.

The three would share the 1956 Nobel Prize in Psychics. In 1972 Bardeen would also share another Nobel in Psychics.

In 1954, Gordon Teal, another alumnus of Bell Labs, and his team at Texas Instruments produced the first commercial silicon — a component of ordinary sand — transistor.

Shockley on his own improved the original transistor and in 1955 he returned to the Santa Clara Valley in Northern California. He had lived in Palo Alto from the age of 3.

Shockley opened Shockley Semiconductor in Mountain View and hired a group of young scientists.

Bardeen and Brattain had a good reason to keep quiet on their earlier transistor experiments.

Shockley was mentally unstable and at the age of 33 according to a biographer, he wrote a suicide note saying “Most of my actions are the consequence of motives of which I am ashamed.”

In 1957 eight of Shockley's scientists quit and established Fairchild Semiconductor — a subsidiary of an East Coast company.

Termed the "Traitorous Eight" by Shockley, they developed a method of mass-producing silicon transistors. The group included Gordon Moore (age 92 years) and Robert Noyce who were later the co-founders of Intel in 1968.

The new company was profitable in six months with the help of its first sale: an order from IBM for 100 transistors at $150 apiece. The order was shipped in a Brillo scouring pad carton, picked up at a local supermarket.

In 1958 Jack Kilby (1923-2005) of Texas Instruments developed the first prototype of the integrated circuit, which became known as the silicon microchip, and six-months later in 1959 Robert Noyce (1927-1990) produced his chip model at Fairchild Semiconductor.

Noyce was assisted by his colleague Swiss-born Jean Hoerni who developed a "method of protecting exposed p-n junctions at the surface of silicon transistors by oxide masking techniques."

Sony's 1957 portable
TR-63 transistor radio

Gordon Moore, the co-founder of Intel, forecast in 1965 that the number of transistors on an integrated circuit would double every year until it rose to 65,000 by 1975. Moore then revised what has become known as Moore’s Law to a doubling of transistors on a chip every two years.

Intel's recent problems at its newest fabrication plant in Arizona show that the challenge has risen.

"Though the pace of progress has slipped in recent years, the most advanced chips today have nearly 50bn transistors."

Shockley Semiconductors was sold in 1960 and Shockley became a Stanford University academic. He also became a pariah for advocating eugenics the pseudo-scientific justification for racial prejudice, approvingly quoting a 1927 comment by Justice Oliver Wendell Holmes of the Supreme Court on sterilisation, "Three generations of imbeciles are enough."

Silicon Valley, the area in Northern California in the south San Francisco Bay Area, which once was a major fruit-growing area, got its nickname from a journalist in 1971, who evoked the key role of the region in the development of the silicon microchip and the creation of America's innovation engine.

Sony of Japan licensed the rights to transistors in 1953 and in 1954 Texas Instruments made the world's first transistor radio but it was not successful.

Sony made its first transistor radio in 1955 and its 1958 portable version sold about a half-million across the world.


The Swedish chemist Jöns Jacob Berzelius (1779-1848) was a pioneer in chemistry. The scientist isolated selenium, thorium, silicon, titanium and zirconium, and devised the present system of chemical symbols according to Nature magazine.

Berzelius isolated silicon in 1824 and it is neither metal nor non-metal but it's called a metalloid — an element that falls somewhere between the two.

"Silicon is a semiconductor, meaning that it does conduct electricity. Unlike a typical metal, however, silicon gets better at conducting electricity as the temperature increases (metals get worse at conductivity at higher temperatures.)"

Almost all kinds of sand, clay and rock contain silica and there is plenty of it.

Part 2 will focus on R&D, Europe's struggle with ICT and the challenges also faced by East Asian economies.