In the movie the Graduate staring Dustin Hoffman, Mr. Robinson tells the Dustin Hoffman character the future is plastics. It could be, but the real future was the transistor or what we call computer chips.

Recently read an excellent book on the subject called Chip War by Chris Miller published by Scribner, NY, 2022. The book highlights the history of the computer chip as well as adds geopolitical themes which the State Department worries about.

In part 4. since the late 1980’s there has been explosive growth in the number of fabless chip firms or which design semiconductors in house and outsource their manufacturing.

Computer graphics is one of the most important, because the office computer were designed to run microsoft programs including Word, Excel and Power Point. Graphics was a secondary aspect because the computation required to display 3D images was immense.

Making realistic graphics requires use of programs called shaders, which tell all the pixels in an image how they should be portrayed. Companies such as Nvidia GPU’s can render images quickly because they are structured to conduct lots of simple calculations simultaneously.

Nvidia realized that high-speed parallel computations could be used for purposes other than computer graphics. Nvidia released the software program CUDA that allows GPUs to be programmed in standard programming languages. CUDA was free but only worked on Nvidia’s GPU chips. Soon computational chemistry to weather forecasting were using the parallel processing. The next step is what we are in now AI or artificial intelligence.

Nvidia’s chips are build by TSMC.

When Intel decided not to supply Steve Jobs with chips, one reason was the infrastructure to use cell phones had not been developed. In 1985, Qualcomm was founded to prove a point. For the telecom providers such as Verizon, they had phone calls on a certain frequency. Irwin Jacobs of Qualcomm said no, the calls should move between different frequencies to allow more calls in the spectrum space. Qualcomm designed the modem chips in a phone to communicate with a cell network, but also the application processors that run a smartphone’s core systems. Telecom systems use Qualcomm chips. Once that was in place people could use the cellphone anywhere, anytime and they do.

All of the chips are made by TSMC or Samsung.

The biggest beneficiary of fabless is Apple. The company Steve Jobs built has always specialized in hardware. The first iPhones the chips were outsourced to Samsung. The hardware is put together in China by Foxconn and Wistron. Today the chips are made by TSMC.

In the book there is more about the geopolitics and the interesting role China plays summed up by a quote Our fundamental problem is our number one customer is our number one competitor.

Linking to dividend paying stocks, sometimes companies benefit from governments and sometimes they do not, it is always nicer when the relationship seems to be on the company side. There are reasons why supply chain systems develop the way they do and there are benefits to many when it happens including recurring profits.

There are more questions than answers, till the next time – to raising questions.