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.

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.

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 1985, Taiwan’s powerful minister K.T. Lie called Morris Chang into his office in Taipei. Minister Li said we want to promote a semiconductor industry in Taiwan, how much will you need?

Taiwan had deliberately inserted itself into the semiconductor supply chains since the 1960’s as a strategy to provide jobs, acquire advanced technology and strengthen its security relationship with the US. Companies involved in Taiwan included Texas Instruments, RCA and UMC.

Morris Chang at the time had been passed over for CEO of Texas Instrument and was looking for something new to do. Minister Li and a blank check was something he never had at TI.

The model Mr. Chang was going to do was to produce chips designed by customers. At the time, firms such as TI, Intel and Motorola mostly manufactured chips they had designed in house.

The reasoning was as technology advanced and transistors shrank, the cost of manufacturing equipment and R&D would rise. Only companies that produced large volumes of chips would be cost-competitive.

The Taiwanese government supplied 48% of the business plan Chang drew up. Dutch company Philips agreed to put up $58 million, transfer production technology and license intellectual property in exchange for 27.5% of TSMC. The rest of the money came from wealthy Taiwanese families that were asked to invest by Minister Li. The company also received generous tax benefits.

Throughout the 1990’s, half of TSMC sales were to American companies. Chang told its customers we do not design the chips, we build them for you.

By the 2000’s, it was common to split the chip industry into 3 categories: Logic – the processors that run smartphones, computers and servers. Memory – refers to DRAM; Other – analog chips, semiconductors that mange how devices use electricity. This last category is more dependent on clever design.

The biggest chip maker in the analog is Texas Instruments.

The DRAM market has been dominated by a relentless push toward offshoring production to a handful of facilities. The reason is the high cost of fabrication (in the 1980’s $20 billion). The 3 companies which dominate are Micron, Samsung and Hynix from South Korea.

Linking to dividend paying stocks, there tends to be reasons why they developed the way they did. Sometimes it is government policy, sometimes it is the most cost effective, the biggest margins, many different issues come into play. As an investor, you want to look forward to see if those good things from the past continue.

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

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.

Similar to Japan, Korea was important to the US that it develop into a market economy. Lee Byung-Chul founded Samsung. Lee was a natural businessman navigating South Korea’s complicated politics with finesse. The motto of the company is Serving the nation through business and Samsung was soon a conglomerate. Lee had a notion to break into the semiconductor field but it was not easy to jump from basic assembly to cutting-edge chipmaking.

Lee thought the environment was changing as the US government had helped fund the creation of the Korea Institute of Science and Technology and a growing number of Koreans were graduating from top US universities and being taught by US educated professors in Korea.

The South Korean government had identified semiconductors as a priority. Lee went to the US and toured plants, he wondered about secrets, but was told mere observation cannot be replicated. South Korean government promised $400 million for financial support. The banks would lend millions more. Samsung made the decision to enter the industry with a $100 investment.

Intel was worried about the Japanese influence and offered Samsung a joint venture selling chips manufactured by Samsung with Intel’s brand. The added advantage for Intel, Korea’s cost was substantially lower than Japan’s costs and wages.

Micron, which was cash strapped at the time, did a deal with Samsung to license a design for a 64K DRAM. What MICRON did, Samsung learned.

By 1998, South Korean firms had overtaken Japan as the world’s largest producers of DRAM, while Japan’s share fell from 90% to in the late 1980’s to 20% by 1998.

Linking to dividend paying stocks, all profitable companies need the help of the government. Sometimes it is directly, sometimes it is indirectly but good relations with the government is important.

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

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.

When Silicon Valley opened plants in the Orient, eventually companies in Japan and Korea saw opportunity and Japanese firms succeeded by replicating US rivals’ products, manufacturing them at higher quality and lower price.

Sony’s CEO Akio Morita knew replication was a recipe for second-class status and second-rate profits. He drove his engineers not only to build the best radios and TVs, but to imagine new types of products entirely. In 1979, Sony introduced the Walkman, a portable music player that revolutionized the music industry, incorporating 5 of the company’s leading edge integrated circuits in each device. Sony sold 385 million units worldwide.

In the DRAM market, Japanese DRAM firms got access to far cheaper capital. Chipmakers like Hitachi and Mitsubishi were part of vast conglomerates with close links to banks that provided large, long-term loans. Even when the firms were unprofitable, the banks kept them afloat by extending credit long after American lenders would have driven them to bankruptcy.

With this cheap capital, Japanese firms launched a relentless struggle for market share. Toshiba, Fujitsu, and others were just as ruthless in competing with each other, yet they could sustain losses as they waited for their competitors to go bankrupt. Japanese firms invested 60% more than their US rivals in production equipment. 5 years after Intel introduced the 64K DRAM chip they had 1.7% of the global DRAM market, the Japanese share soared.

In 1985, Japanese firms spent 46% of the world’s capital expenditure on semiconductors, compared to America’s 35%. By 1990, the Japanese were over 50%.

The competition changed because of a better product and a low price. The man who at one time supplied half of the potatoes to McDonald’s was the wealthiest man in the state of Idaho. Joe and Ward Parkinson had founded Micron to make design chips for Mostek and lost its contact. The brothers had a talk with Jack Simplot, who saw that Japanese competition had turned DRAM chips in a commodity market. The best time to buy commodities is when prices are low, Jack invested in Micron. That $1million investment made him a billionaire. The Micron chips were the best made, the lowest price and the engineers were both creative in terms of storage capacity and the lowest cost.

Linking to dividend paying stocks, level playing competition is rare and as an investor when you invest are you buying a commodity like product? Commodity like products are similar to the dollar store items, low cost and high margins are necessary to make money. What is the cost to make? and how much does it sell for?

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

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.

If you ever seen or used a radio from the 1930’s – it was the size of many bedroom dressers but the insides were vacuum tubes. In the 1950’s the insides of a radio was transistors. Then William Shockley working for Bell Labs owned by AT&T was trying to make the transistor more efficient came up with the by assembling multiple components on the same piece of semiconductor material. The material used was silicon thus the silicon chip was invented.

William Shockley was a genius in the labs and not a great businessman and 8 people left the company to form Fairchild Semiconductor in 1964. The start of Silicon Valley had begun. The 8 included Eugene Kleiner, who founded Kleiner, Perkins venture capital fund; Gordon Moore who gave Moore’s Law to describe the exponential growth of computing and Bob Noyce who could bring both inexpensive and quality to computer chips as well as profitability.

When Charlie Sporck joined Farichild, the company it was mostly men who designed the semiconductors and women who assemble them. Charlie was all about the greatest efficiency and keeping costs down. He went through multiple states and eventually was asked to check out Hong Kong. Fairchild was the first company to locate operations offshore but soon Texas Instruments, Motorola and all US chipmakers had operations in Hong Kong. After a decade, Charlie went to Singapore and China. Mr. Sporck said he never had union problems in the Orient as millions of peasant farmers moved into the cities to find work.

In 1968, Noyce and Moore who were unhappy with their lack of stock options and tired of dealing with head office in New York left Fairchild to form Intel. The company’s first product was a chip called a DRAM or dynamic random access memory. The advantage of DRAM is they could be used for many functions or to produce them in mass would be less. At the time, most chips were specialized or could only be used for one function such as a calculator or missile guidance computer.

Intel invented the general logic chip. The chip eventually became the x86 and came popular just as Microsoft was the software for personal computers, the computer chip was the x86. Both might not be the best, but they were picked and became the standard. Being the standard led to high margins and profitability for both companies. Each company essential had a moat around it.

The x86 also dominated the server business, which companies such as Amazon and Google run the cloud from. Today nearly every major data center uses chips x86 chips from Intel or AMD.

This does not mean there is no competition. ARM uses a simple chip architecture called RISC.

Then becomes the opportunity or blunder looking back or the innovator’s dilemma

Intel has a license to print money in the 1990’s and 2000s, then a new emerging technology comes along. At the time, mobile phones were big and clunky and did not have the infrastructure to run very well. Apple decides to reinvent the phone to be a computerized phone. Apple went to Intel and asked for chips at a low price. There was not profit for Intel and the cellphone industry was in its infancy, Intel turned down Apple. Steve Jobs at Apple went to ARM and the iPhone was launched.

In just a few years, Apple was making more money in smartphones than Intel was selling in PC processors. Today, cell phone chips consume a third of chips sold and Intel is not in the game.

Linking to dividend paying stocks, we all see the world as it is and rarely what it could be or will be because investing in high margin stocks is a good way to make money. The company is profitable, it stock is stable and rising, dividends are paid, and all is good till it is not. Looking back, there are plenty of companies you could have invested in but did not for some very good reasons. All investors do the same thing, because the only perfect information is looking backwards.

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

In the world of politics, sometimes politics see the world as black and white, but in the reality, it is grey, and one of the ways it is grey is supply chains for companies that manufacture. Over the years, some companies emerge as the dominant in their field and they are very hard to dislodge from that position. This means a company which competes in the field needs to specialize. This specialization is good because the product tends to the go to product, the bad side is because of the specialization the main source of material tends to be one plant.

In an article by Allison Lampert and Tim Hepher of Reuters, there was a fire in a Philadelphia area parts factory owned by SPS located in Jenkintown. SPS is owned by Berkshire Hathaway – Precision Castparts Corp. The factory specializes in high-strength nuts and bolts for engines, wings, fuselages and landing gears or according to the SPS website – it is hard to find a plane that does not have some of its parts.

The fire lasted a few days, which means the aircraft supply system will be pressured because companies such as Boeing and Airbus have backlogs to build airplanes. The nuts and bolts are made with titanium fasteners, and it is hard to find other companies doing the same thing. The nuts and bolts are needed to assemble the carbon-fiber jets. All the major aerospace companies have sent people to the Philadelphia area. Companies include: Boeing, Airbus, Safran, and GE Aerospace.

Linking to dividend paying stocks, in the world of supply chain systems, they are complex for many good reasons. Quality, specializations, quantity, ownership and the list goes on. It is the reason why managing the supply system is a very important element to any manufacturer and understanding the complexity is needed for the health of the organization. If you invest in a manufacturing company, it is important to try to understand how the supply system works and options when something bad happens.

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

In every economy there is always a sector that is doing better than the rest of the economy and that success generates more success which tends to lead to a boom. Then the problem of when will the boom slow down and lead to a bust. Every company in the market loves growth, but not too much and it should be profitable growth. In investing you love a boom if you are an existing shareholder. If you are not an existing shareholder, you want to capture some of the upside potential and sell before the bust. As an experienced investor you need a healthy sense of cynicism when you invest, to worry about what could go wrong and a short-term holding ends up being a long-term holding.

In an article by Tripp Mickle of the New York Times News Service, the hottest company for the past couple of years has been Nvidia. The company makes computer chips that power the AI that all companies will be and have started to use. The chips the company sells come with very health margins, which means profits are high. The company reported total revenues of $39.33 billion with a profit of $22.09 billion, both numbers were up 80% over a year.

Nvidia’s business has been buoyed by the biggest tech companies non-stop spending on AI data centers. Amazon, Microsoft, Alphabet and Meta have all said they will spend $65-$100 billion on data centers this year.

Much of the money will flow to Nvidia because they control 90% of the graphics power units (GPU) that power AI data systems. The newest chip is called Blackwell and costs between $60,000 and $70,00 a chip. The companies need a lot of chips.

There was a question about how many because of the release of DeepSeek which has been released for AI use based on low priced chips. Prior to DeepSeek, the tech industry consensus was to build bigger and better AI systems, will that change?

The consensus is that with DeepSeek more companies will be using AI which in return increases the use and need for Nvidia chips.

In terms of production issues, Nvidia has ramped up production of Blackwell chips and has achieved billions of dollars in sales.

Linking to dividend paying stocks, if you think about the history of computer chips starting with Fairchild Semiconductor to Intel to Nvidia, different companies have been on the forefront of change. The early companies depended on the military for sales, now chip companies are dependent on the software companies, that is a good thing. If you invest in Nvidia although it only pays a 1 cent in dividend, the strategy is the stock will move up and down, pick a number such as when it hits $150 sell a portion of your holdings and keep the rest. Ride the boom, but ensure you take profits along the way and that way you will recoup your investment and made money along the way because it looks like tech companies will spend for another couple of years.

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

If you are involved with an organization that adds to its programs with government funding, overtime you will see when the government changes, the language of the grant changes. All governments have agendas, parts you will like, parts you will not like, but they all have agendas. When asking the government for money, agendas need to be adhered to or no money will result, even though the money does the same thing under any government. One of the first executive actions of the Trump administration was to drop DEI or diversity, education and inclusion from government.

Corporate America followed suit, to lessen the emphasis on DEI. At annual meetings, shareholders vote on a number of issues including appointment of auditor, compensation of senior executives and results of the company. If groups wish to include more questions, all companies have a process of when questions have to be submitted, approved and sent to shareholders to vote on.

In an article by Michael Liedtke of the Associated Press, the National Center for the Public Policy Research submitted a question designed to scrub corporate programs designed to diversify its work force at the Apple annual meeting. The proposal was accepted by the Board, it was included in the questions sent to shareholders before the meeting (most shareholders vote before the meeting) and reported at the AGM. Apple’s shareholders said no to the proposal.

Apple did commit to investing $500 billion in the next 5 years in the US which could create 20,000 jobs. The government can then decide what is more important dropping DEI or are investments and jobs more important to its agenda.

Linking to dividend paying stocks, all companies seek talent and often talent is not always walking through the door, people have to have a reason to apply to the company outside of needing a job. The desire to seek good talent and the desire to adhere to government regulations is a balancing act, fortunately most of the time, agreement between companies and government is common.

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