13 highlights
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The crunch has raised a fundamental question for policymakers, customers and investors: Why can’t we just make more chips?
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There is both a simple answer and a complicated one. The simple version is that making chips is incredibly difficult—and getting tougher.
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“It’s not rocket science—it’s much more difficult,” goes one of the industry’s inside jokes.
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The more complicated answer is that it takes years to build semiconductor fabrication facilities and billions of dollars—and even then the economics are so brutal that you can lose out if your manufacturing expertise is a fraction behind the competition.
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China has called chip independence a top national priority in its latest five-year plan, while U.S. President Joe Biden has vowed to build a secure American supply chain by reviving domestic manufacturing. Even the European Union is mulling measures to make its own chips. But success is anything but assured.
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Intel’s first microprocessor—the 4004—was released in 1971 and contained only 2,300 transistors with a node size of 10 microns
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But Intel’s undisputed leadership of the following decades ended between 2015 and 2020 when rivals Taiwan Semiconductor Manufacturing Co. and Samsung Electronics Co. started building chips with better transistors: ones with dimensions down to 5 nanometers
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Before you put silicon into chipmaking machines, you need a clean room. A very clean room. Individual transistors are many times smaller than a virus.
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Chips consist of as many as 100 layers of materials. These are deposited, then partially removed, to form complex three-dimensional structures that connect all the tiny transistors. Some of these layers are just one atom thin.
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One of the most difficult parts of the process is lithography, which is handled by machines made by ASML Holding NV. The company’s gear uses light to burn patterns into materials deposited on the silicon. These patterns eventually become transistors. This is all happening at such a small scale, the current way to make it work is to use extreme ultraviolet light, which usually only occurs naturally in space. To recreate this in a controlled environment, ASML machines zap molten droplets of tin with a laser pulse. As the metal vaporizes, it emits the required EUV light. But even that is not enough. Mirrors are needed to focus the light into a thinner wavelength.
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Once you spend all that money building giant facilities, they become obsolete in five years or less. To avoid losing money, chipmakers must generate $3 billion in profit from each plant. But now only the biggest companies, in particular the top three that combined generated $188 billion in revenue last year, can afford to build multiple plants.
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The more you do this, the better you get at it. Yield—the percentage of chips that aren’t discarded—is the key measure. Anything less than 90% is a problem. But chipmakers only exceed that level by learning expensive lessons over and over again, and building on that knowledge.
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The brutal economics of the industry mean fewer companies can afford to keep up. Most of the roughly 1.4 billion smartphone processors shipped each year are made by TSMC. Intel has 80% of the market for computer processors. Samsung dominates in memory chips. For everyone else, including China, it’s not easy to break in.