It is one thing to heat up a commodity war but it is entirely different matter to direct the war to bring complete success for the initiator. America is getting into grid lock by heating up a chip war with China. Let me explain this business strategy in a nutshell, critique levelled at internally and my assessment as to its minuses.
When Joe Biden signed The Chips & Science Act into law on August 9 2022 the press lauded it as a milestone for paving way for America to gain the following:
1. Make America once again competitive in innovation technology and at the same time ensuring national security
2. Incentivize the domestic semiconductor industry to install & improve their manufacturing capacity
3. Seeks to enhance R&D in cutting edge technology incorporating modern digital processes such as artificial intelligence, quantum computing, and nano technology all with a special emphasis upon microprocessors.
The associated business strategy has key operating principles:
1. Establishing Fab or Foundry which is the plant that produces semiconductor chips. In order to jump start, STMC from Taiwan which has already built one Fab in the Arizona region at the cost of 12 Billion Dollars is motivated to expand its operations by going for two more fabs costing additional 28 Billion dollars. Moreover Intel Company was also roped in to build highly sophisticated Fab in Ohio that would cost around US$ 20 Billion. In both cases the installed cost would be offset by cash grants hovering around 45%
2. America would scupper any business dealings with Semiconductor Manufacturing international corporation (SMIC) the leading company in China that produces microprocessors
3. Exporting sensitive technology to countries such as China would require license
4. Not to repeat the mistake done during the 1990s when USA went to specialize in chip design and relocate manufacturing facilities out shore in Taiwan and Seoul. Instead lure established companies such as STMC in Taiwan and Samsung electronics of South Korea to invest within USA
5. Extending transfer of sensitive technology by Samsung to Chinese companies where US has proprietary rights of the manufacturing process.
Critiques were up in arms regarding this business strategy for example Mark Lippett, CEO for AI chip designer XMOS made two vital points:
1. It is indeed a real challenge to reduce imports from overseas and ensure self-sufficiency domestically
2. He also said” “If there was a global directive that mandates no chip sales to China at all, for example, the majority of the semiconductor businesses would go belly-up.”
I for one supports Mark’s point of view. More to it. America is sharply out of focus as regards to what Chinese reactions would be. China realizes that any restrictions puncturing her advanced chip imports would finally end up in supply disruptions that ultimately affect global balance and too the fine balance of geoeconomics between the two countries. Thumbing up on national security, US would defeat the purposes intended by the Chip Act namely domestic development of the chip industry. Why? Because China possesses the rare minerals that go into the production of advanced chips. A blanket export ban of these minerals by China would bring the US chip manufacturing to its knees.
Nobody in the proper sense can down play the strength of China not only in terms of rare earth minerals but rising in the ladder of chip production process domestically. The crux of the matter is already China has earmarked more than 100 Billion dollars for upgrading of Fabs by SMIC.
Cheers!
Muthu Ashraff Rajulu
Business Strategist
Mobile: + 94 777 265677
E-mail: cosmicgems@gmail.com
Blog: Business Strategist
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