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.

The book talks about geopolitics and why the chip makers are essentially in the Orient and is that good or bad.

The good side is US companies such as Applied Materials, Lam Research and KLA are part of a small oligopoly of companies that produce irreplaceable machinery like the tools that deposit microscopically thin layers of materials on silicon wafers or recognize nanometer-scale defects. Without this machinery, much of produced in the US, it is impossible to produce advance semiconductors.

There is a Dutch company called ASML that produces the machine that allows for the making of advance semiconductors. It is called an EUV or extreme-ultraviolet lithography machine. It costs about $100 million for each machine and has the most advanced components, the purest metals, the most powerful lasers and most precise sensors. The machine took tens of billions of dollars and several decades to develop. It not only does the job but works reliably enough to produce chips cost-effectively.

ASML also provides the software and technical support that remain on-site when the machine is installed for the tool’s entire life span.

During COVID there was a shortage of chips, but the reality it was not a shortage because of supply problems, it was shortage because of demand. The world produced more than 1.1 trillion semiconductor devices according to research firm IC Insights. The demand is driven by new PCs, 5G phones, AI data centers and our demand for more computing power.

All developed countries around the world want more chips made near them and governments are pouring incentives to do so. In Taiwan, TSMC wants to retain its central role in the world’s chip industry. The company spent over $100 billion to upgrade its technology and expand chipmaking capacity in Nanjing, China, Phoenix, Arizona, although they are not producing the most advanced chips in those locations. The most advanced technology stays in Taiwan.

East Asia produces 90% of all memory chips, 75% of all processor chips and 80% of all silicon wafers. It is broken down in Taiwan produces 41% of all processor chips and 90% of the most advanced chips. Japan produces 17% of all chips. Korea produces 44% of all memory chips and 8% of all processor chips. Singapore produces 5% of all chips. China produces 15% of all chips, most of the low-tech, but it can change with government help.

Linking to dividend paying stocks, if you read a book such as Chip War you will see different companies leading the industry and making profits. When Intel was the number one company, their product was the standard for every office and home computer, but then cellphones were invented and a new leader came forth. Now we have AI and new leaders in the chip making. The important aspect was not to see all chips as the same, they are different which means margins are different, which means continuing to do homework is a good thing.

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