Billions of dollars in subsidies and strict regulations are being rolled out to build and strengthen the semiconductor industry. But are they enough to competitively fabricate tiny building blocks (chips) of the intelligent devices powering the economy and society? Yes, money mobilizes resources we need, and restrictions limit the growth of competitors. But they are insufficient for the semiconductor industry growth.
Semiconductor devices are highly amenable to advancement with the continued flow of knowledge and ideas. Consequentially, they keep getting better and also cheaper. Hence, transistors in chips produced with 3nm process nodes are far better and more affordable than their ancestors made with previous nodes. Specifically, TSMC’s 3nm (N3) will offer up to 70% logic density, 15% speed improvement, and 30% power reduction at the same speed as N5 technology. Hence, success in the semiconductor industry depends on creating a consistent flow of knowledge and ideas for making chips better performing at decreasing cost.
Furthermore, each wave of demand and scope of advancement begins humbly. But they keep growing, demanding increasing investment. Besides, due to the need for numerous equipment, expertise, and chemicals, and their growing specializations, it’s not feasible to contain all the value chain layers within the boundary of a single country, let alone a single firm.
In retrospect, the semiconductor industry’s success has emerged from the creation of the snowball effect. Instead of Governments’ mega programs, a few individuals took the initiative to keep growing embryonic beginning layer after layer. Those journeys often started to detect and grow new waves instead of jumping on to already matured waves. And due to increasing specialization, the journey of developing the pearl kept progressing in partnerships, spreading the value chain across countries and continents.
USA’s semiconductor industry growth
For sure, the invention of the Transistor opened a new wave. After winning the Nobel Prize for the invention of the Transistor, Dr. Shockley left Bell labs. He embarked on the mission of advancing the transistor to exploit commercial prospects. Hence, with the support of private capital, he broke the ground in 1956 to turn the farming community of California into Silicon Valley. He scoured US’s human capital base to recruit eight bright science and engineering graduates to develop and produce new semiconductor devices. But due to Dr. Shockley’s authoritarian management practice, the eight left to form their own company. Shockley was shocked by their departure, describing their going as a “betrayal”. He also termed them as the “traitorous eight.” They included Gordon Moore, Robert Noyce, and Eugene Kleiner.
These eight personalities were at the core of profiting from the latent potential of the transistor wave through a Flow of Ideas. Their race of specialization in making transistors increasingly better and less costly to produce led to the rise of the USA’s semiconductor industry, forming Silicon Valley. Shortly after leaving Dr. Shockly’s lab, they reached an agreement with Sherman Fairchild and formed Fairchild Semiconductor on September 18, 1957. Within three years, Fairchild grew into a leader in the semiconductor industry. More interestingly, by 1960, it became an incubator of Silicon Valley, directly or indirectly involved in creating dozens of corporations, including Intel and AMD. In this journey, Robert Noyce’s invention and specialization in integrated circuits played a vital role. Besides, Eugene Kleiner was one of the founders of Kleiner Perkins, the Silicon Valley venture capital firm, which funded 900+ founders for pursuing High-tech ideas.
These eight personalities were behind the rise of the US semiconductor industry through increasing specialization of products and processes.
Japan’s Semiconductor industry growth in Perspective
Due to the dismantling of Japan’s military after the 2nd world war, Masaru Ibuka ended up starting a radio repairing a ship in 1946. Soon after, his imperial navy colleague Akio Morita joined him in establishing a company called Tokyo Tsushin Kogyo–Tokyo Telecommunications Engineering Corporation. These two gentlemen had suitable academic backgrounds and got experience in high-end electronics while working at the Japanese Imperial Navy. Hence, while busy repairing radios in war-ravaged buildings, they got intrigued with the invention of the transistor. Therefore, Masaru Ibuka boarded a plane for the US to learn about transistors.
These duo’s realization of the latent potential of the transistor in replacing the vacuum tube resulting in a new wave in consumer electronics, led to being an early recipient of transistor license from Bell Labs in 1952. Within a few years, they succeeded in releasing the transistor pocket radio. Despite the inferior quality, it became popular among college graduates due to its compact size.
But Masaru Ibuka and Akio Morita did not remain content with the early success of the transistor radio due to its compactness. Their company Sony focused on continuous refinement in the making transistor increasingly better and cheaper. Consequentially, Sony fueled Reinvention waves across consumer electronics products, from radio to television. And Sony R&D team’s specialization journey was so deep that one of the team members got Nobel Prize in 1974.
To further improve the transistor and its production process, companies in the area of test and process equipment, wafer, and specialized chemicals started to form. Notable ones are Tokyo electron for test and process equipment, Hitachi, Nikon, and Canon in photolithography, and predecessors of SUMCO Corporation. Hence, Japan’s semiconductor industry grew due to personalities like Masaru Ibuka, Akio Morita, and others for fueling Waves of Innovation out of specialization.
NAND FLASH MEMORY and LED—outcome of personalities, creating new waves
While working for Toshiba, out of his own passion, Fujio Masuoka pursued the possibilities of electronic non-volatile memory. Hence, he looked into the latent potential of inventions made by Egyptian engineer Mohamed M. Atalla and Korean engineer Dawon Kahng at Bell Labs in 1959. Consequentially, he succeeded in inventing NAND flash memory. This development has led to solid-state disk drives substituting magnetic hard disk drives–creating a new wave. Ironically, neither Toshiba directed nor encouraged Fujio Masuoka. On the other hand, Nichia’s journey of pursuing the latent potential of LED led to a Nobel Prize-winning scientific discovery by Shuji Nakamura. Subsequent technological inventions of the perfect white LED light bulb—created a new wave of lighting out of semiconductors.
Taiwan’s semiconductor industry growth
Upon giving a contract to RCA to set up a fab and provide training to young engineers, Taiwan got into the mission of developing the semiconductor industry. But Taiwan’s semiconductor industry did not grow due to the mere investment ($10 million) Taiwan made. Instead, it happened due to Taiwan’s capability of leveraging a new wave, fabless and foundry service model. Hence, Taiwan focused on creating a flywheel effect through process optimization specialization. In addition to sourcing equipment and chemicals from suppliers in the USA, Japan, and Europe, Taiwan focused on highly couped R&D for yield optimization out of the continued flow of ideas. But who built such high-performing R&D capacity in its flagship companies like TSMC? Among many others, the most prominent name is Dr. Morris Chang.
Among the first batch of engineers trained by RCA, a few ventured into forming new companies. In addition to competing with existing players, they also pursued complementary capacity developing a growing ecosystem. One of the notable examples has been MediaTek.
South Korea
In the 1960s, the Semiconductor industry was given birth in South Korea. It began the journey of souring labor for testing, bonding, and assembling semiconductor devices by multinational companies (MNCs) from the United States of America and Japan. But in the late 1970s, Samsung’s founder became serious about entering semiconductor manufacturing. He succeeded by opening the door to DRAM manufacturing. In the beginning, Samsung relied heavily on US and Japanese firms licensing technologies, importing process equipment, and operating the fab. Subsequently, Samsung focused on internal R&D for yield optimization. Besides, Samsung’s quick decision to imitate iPhone’s design in turning features phones into smartphones created a growing demand for high-end mobile processors. Hence, Samsung kept upgrading process nodes, becoming one of the top global performers.
Europe
One of the notable successes of Europe has been the Dutch ASML—the only EUV lithography machine innovator. But is it the outcome of massive government programs? For sure, NO. ASMI’s founder Arthur del Prado is a notable personality in creating Europe’s semiconductor industry. In the 1950s, he ended up in Silicon Valley to develop the belief about the latent potential of transistor invention—forming a new wave in electronics. Subsequently, in the early 1960s, he returned to Europe to promote transistor-making by offering American wafers and process equipment. Later, in 1964, he formed ASMI to develop and manufacture semiconductor equipment like atomic layer deposition, epitaxy, chemical vapor deposition, and diffusion.
He also had a strong passion for pursuing photolithography, which led to a joint venture with Philips, giving birth to ASML in 1984. He put together a team and mentored them well, leading to ASML’s success as the sole provider of a critical component for sub-10nm silicon chips.
China and India’s Semiconductor industry growth dream—led by Government’s subsidies
As explained, the underpinnings of building the semiconductor industry are personalities and specializations for fueling new waves. But unlike it, the mission of building the semiconductor industry in China has been through massive subsidies. Lately, India has also marked with massive Government programs. The offering of billions of dollars in subsidies and giving protection for import substitution have been dominating. Instead of creating a snowball effect in nurturing new waves through a flow of ideas for specialization, the strategy has been importing equipment and expertise for pursuing import substitution.
Unlike in the past, politicians and bureaucrats have been in leadership. Besides, the profit-making competition out of creativity and ideas has been replaced by grabbing the existing landscape. As the semiconductor industry is still quite amenable to progression through waves of Creative Destruction, the approach of both China and India runs the risk of facing wasteful investment.
USA’s Semiconductor industry growth is led by the Whitehouse and Congress
In retrospect, the uprising of the American semiconductor industry is attributed to personalities like traitorous eight. Unfortunately, all of them have retired, and a few of them are already dead. The recent erosion of the USA’s semiconductor industry is partly due to a lack of dynamic personalities like those traitorous eight. But as it has reached the crisis, the uprising agenda is being led by politicians sitting at the Whitehouse and Congress. Hence, like China and India, the USA has been with tons of money to salvage the sinking ship—triggering Chip War. Besides, the USA has come up with regulations restricting competitors from accessing the latest chip-making gears. Hence, like China and India, the USA has also been suffering from a lack of personalities in detecting and fueling new waves through specialization.
Despite growing volume and importance, the semiconductor industry has been still evolving—doubling density and performance within a few years. Hence, acquiring existing capacity and mastering the making skill is not sufficient for building the semiconductor industry. The underlying forces in the form of lithography machines, different fab equipment starting from deposition to inspection, chemicals, and chip designs have been evolving in episodic form. Consequently, the underlying dynamics appear to have creative destruction, monopolization, and Disruptive innovation effect. Hence, successes have been transient. Unfortunately, state interventions are not sufficient to cope with and leverage it. Hence, for building the semiconductor industry, the focus should be on empowering self-motivated, capable personalities to pursue innovation waves out of specialization—created through the flywheel effect.
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