Quotes
America’s strategy to turn Japan into a transistor salesman seemed to have gone horribly wrong.
Most of Japan’s big DRAM producers, however, failed to take advantage of their influence in the 1980s to drive innovation. At Toshiba, a DRAM giant, a mid-ranking factory manager named Fujio Masuoka developed a new type of memory chip in 1981 that, unlike DRAM, could continue “remembering” data even after it was powered off. Toshiba ignored this discovery, so it was Intel that brought this new type of memory chip, commonly called “flash” or NAND, to market.
The Russian chip industry faced humiliation of its own, with one fab reduced in the 1990s to producing tiny chips for McDonald’s Happy Meal toys. The Cold War was over; Silicon Valley had won.
The largest analog chipmaker today is Texas Instruments, which failed to establish an Intel-style monopoly in the PC, data center, or smartphone ecosystems but remains a medium-sized, highly profitable chipmaker with a vast catalog of analog chips and sensors.
“Now hear me and hear me well,” Sanders declared at one industry conference. “Real men have fabs.”
Nvidia’s first set of customers—video and computer game companies—might not have seemed like the cutting edge, yet the firm wagered that the future of graphics would be in producing complex, 3D images. Early PCs were a dull, drab, 2D world, because the computation required to display 3D images was immense. In the 1990s, when Microsoft Office introduced an animated, paperclip called Clippy that sat at the side of the screen and dispensed advice, it represented a leap forward in graphics—and often caused computers to freeze.
“If you don’t behave, we’re going to buy you,” ASML’s CEO Peter Wennink told one supplier.
Even the deep pockets of the Persian Gulf royals who owned GlobalFoundries weren’t deep enough.
The question for China’s leaders was how to pivot to producing the kind of chips the world coveted. When Japan, Taiwan, and South Korea wanted to break into the complex and high-value portions of the chip industry, they poured capital into their semiconductor companies, organizing government investment but also pressing private banks to lend. Second, they tried to lure home their scientists and engineers who’d been trained at U.S. universities and worked in Silicon Valley. Third, they forged partnerships with foreign firms but required them to transfer technology or train local workers. Fourth, they played foreigners off each other, taking advantage of competition between Silicon Valley firms—and, later, between Americans and Japanese—to get the best deal for themselves. “We want to promote a semiconductor industry in Taiwan,” the island’s powerful minister, K. T. Li, had told Morris Chang while founding TSMC. Was it any surprise that Xi Jinping wanted one, too?
China was disadvantaged, however, by the government’s desire not to build connections with Silicon Valley, but to break free of it. Japan, South Korea, the Netherlands, and Taiwan had come to dominate important steps of the semiconductor production process by integrating deeply with the U.S. chip industry. Taiwan’s foundry industry only grew rich thanks to America’s fabless firms, while ASML’s most advanced lithography tools only work thanks to specialized light sources produced at the company’s San Diego subsidiary. Despite occasional tension over trade, these countries have similar interests and worldviews, so mutual reliance on each other for chip designs, tools, and fabrication services was seen as a reasonable price to pay for the efficiency of globalized production.
China’s import of chips—$260 billion in 2017, the year of Xi’s Davos debut—was far larger than Saudi Arabia’s export of oil or Germany’s export of cars.
Lee built Samsung from a trader of dried fish into a tech company churning out some of the world’s most advanced processor and memory chips by relying on three strategies. First, assiduously cultivate political relationships to garner favorable regulation and cheap capital. Second, identify products pioneered in the West and Japan and learn to build them at equivalent quality and lower cost. Third, globalize relentlessly, not only to seek new customers but also to learn by competing with the world’s best companies. Executing these strategies made Samsung one of the world’s biggest companies, achieving revenues equivalent to 10 percent of South Korea’s entire GDP.
The new administration’s China team didn’t agree. They concluded, as one senior official put it, “that everything we’re competing on in the twenty-first century… all of it rests on the cornerstone of semiconductor mastery.”
Our fundamental problem is that our number one customer is our number one competitor.