Semiconductors & Geopolitics

Leading Companies

Leading companies within the global semiconductor industry have traditionally fallen into three categories: chip designers, equipment-makers, and manufacturers ("fabricators"). Leading chip designers include Intel (US), AMD (US), Qualcomm (US), and NVIDIA (US). Leading equipment-makers include AMSL (Netherlands), TEL (Japan), Lam Research (US), and Applied Materials (US). And leading manufacturers include Intel (US), TSMC (Taiwan), Samsung (SK), Broadcom (US), Texas Instruments (US), Micron (US), GlobalFoundries (US), and others.

Intel. Intel emerged as a pioneer in the early days of semiconductors, and to this day remains an industry leader in both chip design and manufacturing. Intel’s main semiconductors and solutions focus on CPU and data centers–along with chips for IoT, memory, and programmable solutions. Revenues in 2022 totaled $63B, and top customers include Dell, Lenovo, and HP (42% of revenues collectively). Intel has operating fabs in the US, Europe, China, Southeast Asia, Costa Rica, and Israel–along with new sites in progress in Arizona, Ohio, and Germany.

Intel uniquely designs and manufactures semiconductor chips, while all other companies only do one or the other. After decades of clear market leadership, TSMC and customer-partners recently overtook Intel in manufacturing more advanced chips (i.e. 7nm and 5nm chips). In response, Intel has redoubled efforts for internal R&D and commercialization, began offering “foundry” services (i.e. manufacturing chips for other companies), invested to expand its total manufacturing capacity globally, as well as became a foundry customer of TSMC (to manufacture Intel-designed 5nm and 3nm chips). Intel Foundry Services customers now include Arm, Tower Semiconductors, an unnamed large customer, and others.

TSMC. Taiwan Semiconductor Manufacturing Corp operates purely as a foundry to manufacture semiconductor chips for other companies. In 2022, revenue totaled $73.7B. TSMC’s largest customers include Apple, AMD, Qualcomm, and Nvidia. In particular, Apple accounts for >20% of total revenue, and has bought 90% of 3nm chips (since TSMC began production in Dec 2022). TSMC also announced plans to transition to 2nm chip production in its Taiwan plants by 2025 (now announcing delays into 2026).

TSMC and customer-partners overtook market-leader Intel in recent years by manufacturing 5nm and 3nm chips through highly advanced processes–with plans to begin 2nm production in by 2026. TSMC has the majority of and its most advanced fabs in Taiwan, and various others planned domestically. Globally, it has one operating fab and two under construction in the US (5nm), one operating in Japan and another planned, one operating in Singapore, one planned in Germany, and one in China.

Samsung. Samsung Electronics, in addition to smart devices and varied consumer electronics, operates as a foundry for semiconductor manufacturing. For its own smartphones, Samsung partners with Arm to design chips. Its foundry has served many of the leading chip designers (Qualcomm, Nvidia, and even Intel along with Google, Meta, Tesla, etc.), and is the second largest foundry (to TSMC) in the industry. After Intel entered the market as a foundry and perhaps given the shifting market dynamics, Samsung did not name its foundry clients during 2022. Samsung’s foundry began manufacturing 3nm chips in June 2022, the first manufacturer to market.

AMD. AMD is a long-time competitor with Intel in designing leading chips, particularly for the PC processor subsegment. To this day, AMD competes for customer share with Intel and others in CPU and APU (accelerated processing unit, essentially CPU + GPU) products. Revenues in 2022 were $23.6B. In decades previous, AMD both designed and fabricated its own semiconductors. But in 2008, it spun off its fabrication assets into a separate company, GlobalFoundries, and today remains a “fabless” designer of semiconductors. As of 2023, AMD’s key foundry partners are TSMC and GlobalFoundries.

Another industry trend involves tech giants designing their own semiconductor chips. In 2020, Apple decoupled from Intel in favor of designing its own computer chips and partnering with Qualcomm on smartphone chip design -- with TSMC as their foundry. (To date, Apple continues co-designing with Qualcomm out of necessity, given complexity inherent to leading-edge semiconductor design). Apple-designed chips have enabled higher performance, and for the company to more tightly integrate end-to-end sustainability. Similarly, Meta, Alphabet, Amazon, IBM, and others are undertaking to design chips to better integrate into their products and architectures. Partnerships between tech giants and semiconductor companies have and will continue to emerge (see also Intel-Google for data center chips).

National Interests

During the COVID-19 pandemic, the world experienced initial sell-out shocks of products, as well as medium-term shortages of others. Semiconductors constituted one of the longer-term shortages, due to compounded challenges with supply, manufacturing, and distribution across the value chain. Thus, a general susceptibility of semiconductor supply chains became quickly evident–particularly in the US, Europe, and China which consume nearly 70% of global semiconductors.

Nation states and their militaries have since greater (publicly) attuned to defense implications of a secure supply of semiconductors. Semiconductors reside within most intelligence and weapon systems, thus making such a matter of national defense. General supply chain resilience is also a consideration for national economies and private sector industry. According to research by The White House office, the US perhaps lost 1% of annual GDP due to the pandemic-era semiconductor shortages.

United States. In the US, the Federal Government passed the CHIPS Act 2022 which provided nearly $280B in funding programs to bolster semiconductor R&D and manufacturing on US soil–with the goals to establish a secure US-based supply of semiconductors, and return the US to end-to-end global semiconductor leadership. Funding extends to national R&D labs, as well as private companies, whether US-headquartered or not. Intel, TSMC, and Samsung have all announced plans to expand manufacturing capacity in various sites across the US.

Europe. The European Commission passed the Europe CHIPS Act in April 2023, with $47B in funding toward European Union semiconductor developments. Further, Germany has allocated $20B in national funding to establish itself as a European semiconductor leader. Intel and TSMC have announced plans to build semiconductor factories in Germany. The UK also announced $1B in funding toward its national semiconductor development.

China. China has also invested significantly in establishing and developing national semiconductor capacity. From three public investment funds, to tax incentives and subsidies, to local investment initiatives, some estimates put total Chinese investment toward semiconductor development at $330B. Furthermore, China also already operates 31 “trailing-edge” chip fabs, as much as the US and Europe combined–with plans to further expand all capacity. And China controls a significant supply of key inputs for semiconductor wafers and equipment (e.g. 94% and 83% of gallium and germanium).

Geopolitics

Building on nation state interests, geopolitics has a significant influence on global semiconductor market dynamics. Two key geopolitical factors are: 1) conflict between democratic-disposed allies and autocratic nations; and 2) vying between the US and China as world-leading economies. The role of semiconductors in military systems and national economies heighten the significance of semiconductor resilience for both the democratic and autocratic alliances. Both the US and China also view economic leadership as tenets of ideological leadership, in addition to the pure economic opportunities of leading the $1T semiconductor industry.

The below chart by the European Strategy and Policy Analysis System 2022 overviews the global value chain for semiconductors (as of Oct 2022). Taiwan punches significantly above its weight in the semiconductor industry, controlling 92% of leading-edge chip manufacture for the world, all but entirely through TSMC. The US holds market leadership through its design and manufacturing, with Intel as the flagship private company; nonetheless, the US Federal Government also strongly encourages non-US-based semiconductor companies, and all but equally favors TSMC and Samsung in US-based developments. Overall, to consider, the US, Taiwan, and China manufacture >65% of the world’s semiconductors–and Europe, South Korea, and Japan largely the remainder.

The US and China have experienced tensions over democracy-communism and economic leadership for decades. China’s re-integration of formerly democratic Hong Kong against the will of many people, in the view of US and democratic allies, heightened US-China tensions. Similarly, China’s increasing efforts to re-integrate democratic Taiwan under full China rule create worry for the US and allies–for potential losses of democracy and economic partnership. Taiwan’s indispensable role in the semiconductor industry creates significant concern for US and allied military and economic considerations.

For both global military aggression (spying on the US, appearing to condone Russia’s invasion of Ukraine, Taiwan aggressions, etc.) and economic malpractice by the Chinese Communist Party (CCP) and Chinese private sector companies, the US and allied nations have implemented a series of sanctions to impede Chinese military and economic development. In particular, these sanctions have focused on excluding Chinese companies, considered to be CCP-controlled, from accessing US and allied semiconductors and equipment. Initial sanctions began in 2018, led by the Administration of US President Trump. Sanctions have increased, both in scope and by participating nations enlisted by the US, and remain in force as of Oct 2023. The Administration of US President Biden renewed US-China sanctions on semiconductors and microelectronics, quantum technologies, and AI capabilities in August 2023.

The CCP and Chinese companies have undertaken a variety of efforts to stock-pile, alternatively source, and develop their own semiconductors and advanced technologies. Key companies within the Chinese semiconductor industries include Huawei (smartphone manufacturer), Semiconductor Manufacturing International Corporation “SMIC” (chip manufacturer), HiSilicon (fabless chip designer), Yangtze Memory Technologies (memory chip designer and manufacturer), etc. To their credit, notwithstanding US and allied sanctions, Huawei and SMIC showcased a 5G smartphone featuring a 7nm chip in September 2023. US Secretary of Commerce, Gina Raimondo, disputed whether Huawei can manufacture these at scale (estimated at 15M in 2023, but rising to 70M by 2024). SMIC can assuredly supply these and slightly more advanced chips for use by the Chinese government and military.

Notwithstanding this advance, US and allied sanctions have caused delays for the Chinese economy and military–and will likely continue as tensions remain. In return, China has also undertaken efforts to hinder US and allied technological developments. Given a US-first affiliation, Intel experienced Chinese regulatory opposition which preempted its intended acquisition of Tower Semiconductors. China also has signaled to the US and allies that it has the capacity to forestall gallium and germanium exports, key inputs to semiconductors, EVs, etc. China produces 94% and 83% of global production, respectively. Thus far, however, China has not done so, instead critiquing the US and all economic aggression, while in turn displaying “diplomatic behavior and principles”.

These US-China conflicts not only have a direct effect on the countries’ economies and securities; resultant lack of collaboration among two world-leading economies and peoples also occurs. Nonetheless, both the CCP and US Presidential Administrations have made and continue to make efforts to collaborate on other fronts. One such example is the long-standing US-China Scientific Collaboration Agreement, a political agreement endorsing a spirit of cooperation in scientific and technological pursuits, typically renewed in five-year cycles. In the face of current challenges, some in the US and surely some in China, have called for their respective nation to curtail cooperation. However, many others call for continued and increased cooperation, including two Stanford professors Steven Kivelson and a thousand scientists who petitioned President Biden’s Administration in favor of the agreement. Notwithstanding challenges, both nations have much to offer to each other and their allies.

Link to supporting slide deck

Image Credit: CGTN