Western Self-Sufficiency in Computer Chips Is Just Not Going to Happen
Yet as the last of the fully integrated US semiconductor manufacturers, no company has been more central than Intel to America’s strategy to bring chip-making back home.
The Weight of History
Intel’s integrated model long made it the king of Silicon Valley, but it missed a crucial opportunity in the wake of the mobile revolution. It continued focusing on expensive, power-hungry CPUs (central processing units) for PCs and servers, failing to prioritise the lighter, more energy-efficient processors used in smartphones. It neither brought out its own chips, nor followed the advice of industry observers to mirror the TSMC model of manufacturing them for other firms.
This would have generated enough cash to be early in funding the brutally expensive research into the next generation of chip-making technologies. But Intel didn’t feel the need: its CPU manufacturing business relied on the previous state of the art, deep ultraviolet lithography (DUV). For years the company couldn’t resist the profit margins and free cashflow from continuing to focus on this older technology. Wall Street is always addicted to the cash machine, even amid diminishing technical momentum, so plenty investors supported the strategy.
Meanwhile, TSMC built up a formidable library of intellectual property (IP) to enable clients to design and order more chipsets easily. It mastered remote collaboration so that American chip designers didn’t even need to jump on Zoom calls with Taiwan. They could flesh out their latest technical requirements in TSMC’s virtual e-foundry, 24 hours a day.
Making massive volumes of chips for mobile devices enabled TSMC in the mid-2010s to invest before any rivals in the extreme ultraviolet lithography (EUV) used to manufacture today’s most powerful semiconductors. This made TSMC even more efficient, while setting a new chip-making standard that Samsung and eventually Intel would be forced to follow.
The Foundering of Intel’s Foundry
Gelsinger was keenly aware of the domino effect from Intel’s smartphone failure. In 2021 he launched Intel Foundry Services (IFS), a standalone unit offering TSMC-style manufacturing to third-party clients. Hence the investment in extra capacity.
Unfortunately, Intel’s corporate culture has eaten this strategy for breakfast. A great example was Intel board member Lip-Bu Tan’s resignation in August. Formerly the CEO of US chip software firm Cadence Design Systems, he had only arrived two years ago to help implement Gelsinger’s strategy.
In October 2023 he was even put in charge of manufacturing. Yet he soon quit in frustration at “the company’s lagging workforce, its approach to contract manufacturing and … risk-averse bureaucratic culture”.
His departure left a glaring gap in semiconductor expertise on the board. Intel’s stock is down 59% in 2024, and the company is cutting 15% of its workforce to save US$10 billion as IFS has struggled to take off.
Yet at bottom, this is a crisis for the US. The cherished notion of “design in America, build in America” is fading. Despite TSMC and Samsung creating US manufacturing capacity, both companies will still make the most of their products at home.
Above all, TSMC holds unparalleled chipmaking prowess and remains firmly rooted in Taiwan. Taiwan retains the key advantages in this industry: intellectual capital, skilled labour and decades of production know-how.
Meanwhile, the Taiwanese American CEO of Nvidia, Jensen Huang, whose company dominates the AI chips market, sees no reason to decouple from TSMC. And no matter how hawkish US political leaders become about overseas supply chains, economic facts persist: Tesla, for instance, relies on Nvidia’s chips, which depend on TSMC fabrication.
The global nature of chipmaking will therefore not bow to American nostalgia. The US may persuade TSMC and Samsung to open more facilities in the States, but absolute sovereignty is gone. The departure of Intel’s last true believer underscores that sobering truth.
Howard Yu is Professor of Management and Innovation, International Institute for Management Development (IMD). This article is published courtesy of The Conversation.
