The race for control of advanced chips heats up

The manufacture of an advanced microprocessor (chip), with transistors (small switches that turn an electrical current on or off) that are three dimensions and a few nanometers in size (a nanometer is one trillionth of a meter; that is, chips are larger than smaller than a coronavirus and only about 50 times larger than a hydrogen atom), requires enormous international interdependence, which the United States, Europe and China now want to reduce. It is perhaps one of the greatest complexities in the world –which we are trying to make understandable here–, made up of a series of concatenated monopolies, although the actor that holds the reins is the US, albeit in a situation of dependence on others, such as Taiwan or even Countries Low.

Let’s do a little history and pedagogy first. The chip was invented in 1947. The Fairchild Semiconductor company built one in 1961 with four transistors (today Apple’s next-generation M2 chip has 20 billion transistors), but it didn’t go on sale until 1971, at the hands of Intel. Basically, there are two types of chips: memory chips (which hold data) and logic chips (which process data). Currently, three companies dominate the global market for memory chips: Micron (USA), Samsung and SK Hynix (South Korea).

Every year more than a trillion chips are manufactured worldwide, that is, we touch about 125 chips per person. There are various levels of sophistication, although here we are interested in the most advanced, strategic for many things, from artificial intelligence to quantum computing. Due to globalization and the search for lower costs, the chip manufacturing process is spread all over the planet. Some countries design them (USA, above all), others manufacture the devices with which to cut them (Netherlands), others provide the necessary material to create them (rare earths, like China, or gases, like Japan) and finally others manufacture them in their own countries. foundries (such as Taiwan for data processing chips and South Korea for memory chips; between them they account for 81% of the world market). These foundries, called fabs, They require huge investments (from 40,000 million dollars upwards, for the most advanced), which the US or Europe now want to install or develop in their territory. An exception to the rule is the South Korean company Samsung, which does control a large part of the chain, although it imports the necessary liquids and gases from Japan.

«American companies stopped manufacturing chips in favor of Taiwanese companies, such as TSCM, a strategic error that the Joe Biden administration is now trying to correct, perhaps too late»

Advanced chips, as we said, are designed and marketed mainly by US companies, such as Intel, Qualcomm and NVIDIA. Apple, for example, designs its own chips (which account for between 40% and 60% of the price of its mobile phones), but does not manufacture them. American companies stopped manufacturing chips in favor of Taiwanese companies, such as TSCM, a strategic mistake that the Joe Biden administration is now trying to correct, perhaps too late. Even the Pentagon, which reserved some very sophisticated semiconductors, no longer pulls the wagon, but private companies do. Although it is DARPA, its Defense Advanced Research Projects Agency, that is funding research into the three-dimensional transistor structures, called FinFETs, used in the most advanced logic chips. Three companies installed in the US (Cadence, Synopsys and Mentor, the latter owned by the German Siemens) are the ones that design three quarters of the software they use chips from all over the world, which gives them immense power.

Chip manufacturing, for its part, depends on more than fifty types of machines and two thousand materials, chemicals and specialty gases. The silicon on which the chips are built is abundant (although graphene, nanomagnets and, in the future, biological DNA are being used more and more), as it is taken from the sand. But other raw materials or necessary products, no. To simplify, the chips are printed on small circular wafers made of ultrapure silicon, generally 14 to 16 millimeters in diameter. They are printed in layers, often dozens of them (a process called lithography or photolithography, now generally using ultraviolet light to record images on a silicon wafer coated with a photoresist material), which are cleaned with liquids and gases, a process of great complexity and hyperprecision. During etching, the wafer is baked and the chip is revealed. The entire process of creating a silicon wafer with chips, the operation of which must then be checked one by one with ultra-sophisticated machinery, consists of thousands of steps. To extract the chips from the wafer, the wafer is cut and minced with ultra-precise instruments.

Again, three US companies are essential in manufacturing the apparatus required for some of these processes. Applied Materials for machines that deposit thin films of chemicals onto wafers; Lam Research for etching circuits on them, and KLA for tools that detect nanometric errors on wafers and lithographic masks. That is, American machines (Japan has some competitors) are required to make advanced chips. And hence the control that the US government wants to exercise in its sale, with the aim of suffocating China’s chip production capacity (and therefore its technological advances).

Dutch company ASLM (owned by Intel and others) has a virtual monopoly on ultra-precision machines for deep or extreme UV lithography, without which advanced chips cannot be made. Each one costs about 100 million dollars. The US is trying to prevent ASLM – which already applies some restrictions to Beijing – from selling them to China.

“Japanese companies produce about 70% of the world’s etching gas and about 90% of the photoresists, thin layers of material used to transfer circuit patterns to wafers”

Dozens of sophisticated materials are used throughout the manufacturing process, from the extremely scarce Hafnium to precious metals and some of the so-called rare earths, of which China controls 90% of its world production, although other countries such as Japan, Spain or Chile try to extract theirs. Also special gases (for example, to clean wafers), in which Japan has a near monopoly. In addition to producing 90% of the fluorinated polyimide used for smartphones, Japanese companies produce about 70% of the world’s etching gas and about 90% of the photoresists, thin layers of material used to Transfer circuit patterns to wafers. Japan’s Mitsubishi Gas Chemical plans to nearly triple US production of a chip-making chemical over the next decade.

In summary, we are facing a clear interdependence, with a very complex supply chain built on single companies that control the market. The great controller, as we said, is the US, thanks to its design companies and companies from allied countries. But for how long? To reduce its dependency, Washington wants the companies involved in the process to settle in its territory, which will change supply chains to make these increasingly tiny and powerful chips. A possibility that China lacks, which imports more chips than oil. The Taiwanese TSCM, which is already going to launch into 3 nanometer chips, is setting up a factory in the US, but does not want that factory to acquire technology below 4 nanometers, thus preserving its primacy.

The restrictions adopted by the US so that China does not have access to this technology mean that Beijing has to choose to develop software of cutting-edge design, advanced materials and machinery, and manufacturing know-how, among other things. Is not easy. Reverse engineering (that is, figuring out how something is made from the final product) doesn’t help much in this area. But in the face of US restrictions, China has no choice but to give it a try, and it’s starting with the most basic chips. If he succeeds, the world will have changed.

Finally, two reading recommendations on this complexity. the excellent Chip War: The Fight for the World’s Most Critical Technologyby historian Chris Miller, chosen by Financial Times as the best economics book of the year. And the Explanation from the company ASLM itself.