Who makes the chips for all our devices?

This article is based on a valuable contribution by Bharath Ramsundar recently published in his newsletter “Deep into the Forest”.

The production of semiconductor chips, which are the basis of all the electronic devices we use on a daily basis, is also becoming increasingly important from a political point of view.

Many companies, such as Nvidia, increasingly tend to outsource the production process of their chips to manufacturers such as TSMC. These producers, mostly concentrated outside the United States, are therefore becoming increasingly important both geopolitically and economically.

A look at the semiconductor past

Chips are the product of the semiconductor industries. In recent decades, the technology industry has focused on software, taking Moore’s law for granted: this stemmed from the observation that the number of transistors that can be integrated into a chip doubles roughly every two years. In the last ten years Moore’s law has begun to no longer represent reality as the construction of new and faster chips becomes increasingly difficult.

Let’s look at the diagram: in the x-axis we find the size inside the chips.

Chip costs
View original diagram

Rising chip production costs

Why do the costs rise so much, so much so that Moore’s law, which had been the Bible for so many years, is in crisis? Mainly the reasons come from physics.

As transistors and all components of a chip become physically closer, some physical effects become increasingly difficult to control: heat dissipation, electronic noise, quantum effects. The immediate consequence was that the construction of a chip manufacturing plant now requires billions in investment.

This trend towards a growing complexity of production, has generated the birth of so-called “Fabless” companies or companies that have their designs of new chips produced to external companies dedicated to production on behalf of third parties.

Nvidia, the king of graphics processors that we find in many PCs, entrusts the production of its chips to both TSMC and Samsung. The very fact that the world’s two largest chip factories are outside the United States poses a major problem and is full of geopolitical consequences, as we shall mention later.

Intel has had significant problems penetrating the smartphone chip market and this has reduced its market share. Intel’s difficulties are significant because it is the largest semiconductor company that still makes its own “Home” chips.

Apple has developed its new M1 processor internally, allowing it not to use Intel or AMD chips.

How could newcomers produce competitive chips in such a short time? The reason is called TSMC. This company also has an interesting story.

It is likely, according to the author, that in the near future the United States will have to scale back its efforts in the research and development of chips dedicated to artificial intelligence in favor of new and more efficient semiconductor production techniques.

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