Welcome to tech Stuff, a production from I Heart Radio. Hey there, and welcome to tech Stuff. I'm your host, Jonathan Strickland. I'm an executive producer with I Heart Radio. And how the tech are you? You know? One thing I have talked about a lot over the last couple of years has been the semiconductor chip shortage, which is impacting everything from PC manufacturing to the automotive industry too, you know, printer toner cartridges. And I frequently mentioned that many of the semiconductor fabrication facilities are in Taiwan. But then that got me to thinking, why are they in Taiwan? How did that happen? This was a big gap in my knowledge, so I thought I would look into it and then do an episode on it. And I am a big believer in context. I don't think you can just say our story begins in nineteen seventy four, because without an understanding of history and politics and social movements, you can't really grasp how Taiwan got to where it is and the different forces that are you know, present in Taiwan's economy in general and the semiconductor industry in particular. So we're going to do a super fast, high high level overview of Taiwan's history, because, as it turns out, history, politics, and economics i'll play a huge part in how and why Taiwan became and remains a critical component of the microchips supply chain. Also, keep in mind, again super high level, the history of Asia is far too complex for me to cover in depth. I mean I would have to dedicate an entire podcast and do you know, years of episodes to really even scratch the surface. But let's talk about Taiwan. First of all, Taiwan is an island. It's off the southeastern coast of mainland China. It's across from a province called Fu Chian. Also, my apologies for my pronunciation. Um, it's bad even in English. It's going to be terrible for Taiwanese and Chinese and other foreign names. As my relatives would say. I'm just laying that out here now because it's gonna happen. So, Taiwan is about a hundred miles or a hundred sixty kilometers off the coast of mainland China. The city of Taipei, on the northern tip of Taiwan is sort of the political center of the island. Even though it's on the northern tip. It's also the economic powerhouse of the island. But the fabrication plants or fabs or as you will sometimes here or sometimes you'll hear them called foundries, they're all the same thing. The foundry, fab fabrication plant. It just means in this case, a company that makes integrated circuits and semiconductors. All of these are are for the most part, are located in sin Chew. Again my apologies for pronunciation. Anyway, that's a city to the southwest of Taipei. It actually faces across from mainland China. Now, for at least ten thousand years, you had indigenous people living on Taiwan who were self governing, had different tribes of them, and you know, they had their own languages, they had their own conflicts with one another, etcetera. Beginning around a thousand years ago, people from what would become the Fuchian Province of China came to Taiwan um and like I said that that provinces in the southeast of China, it's essentially across the sea from Taiwan, and they would become known as the Hoklow and that migration would continue into the seventeenth century, so over the course of like six hundred years they were migrating. There was a second group from China known as the Hakka Uh and they began migrating to Taiwan as well. So you had these two different groups of mainland China uh folks who were migrating to Taiwan. The Hakka group were a group of people who frequently faced discrimination on the mainland. I've often seen them compared to other groups of folks who often were displaced in various regions, such as Jewish populations would frequently undergo this as well as Roma populations. Now, the Hoklo people's were greater in number, and they essentially claimed the coastal regions, the more favorable regions, and they forced the Hakka people's closer toward the interior. The aboriginals, the indigeno as people were even pushed further in. Today, the Hoklo and Hakka are considered the Taiwanese population. So the you have the aboriginals or indigenous people, and then you have the Taiwanese people. Those were the people who migrated from China, you know, between a thousand and you know, six hundred years ago, and they represent those people, the ones who migrated. They represent more than eight percent of Taiwan's population today. In fact, the Hoklore is the largest slice of that pie. I think it's something like between sixty and sixty of the population. But then after these migrations where people from mainland China began to settle in Taiwan, you had the era of colonization, and the Dutch and Spanish both established a presence on Taiwan. The Dutch actually pushed the Spanish out. The Dutch presence was really an outpost of the East India Company, one of the most powerful entities in the six hundreds, not to be confused with the British East India Company, another very powerful corporation at that time. The Dutch one was kind of an early example of a company dominating in supply chains, like in shipbuilding and things like that. So, you know, it kind of seems like history is a way of repeating itself, because Taiwan would again become an important link in supply chains later on. In sixteen sixty two, Ming Dynasty loyalists from China fled to Taiwan as the Ming dynasty was collapsing in the Shing dynasty began to establish itself. The Chinese pushed the Dutch from Taiwan and asserted control over the island. So you have the Taiwanese uh which were the earlier migrants from China, and now you have the Ming dynasty loyalists establishing themselves in China. In sixteen eighty three, the Shing forces displaced the Ming forces, but Taiwan remained under Chinese control for two hundred years. Now, Asia in the eighteen hundreds was a pretty chaotic place, filled with lots of intrigue. You had major powers all at play in the area, many of which were going through their own internal revolutions. So you had China obviously an empire UH. You had Russia, which at the time was a monarchy. Japan, which in the nineteenth century cast off its military government which was called a shogunate, and in name, at least it returned to being an empire, though really it would mark an era in which Japanese would rapidly modernize. You also had Korea, which had defended itself against Japanese invasions in the seventeenth century. By the eighteen hundreds, Korea had become very much an isolationist nation resisting all outside influence and modernization. Now, the reason I mentioned all this is that these different political alignments would shape the region over the following century. Both Japan and China tried to gain influence over Korea. That precipitated into an all out war between China and Japan, and the Japanese forces, which had more effectively modernized and were better organized than the Chinese forces, one pretty much every single battle that they had with the Chinese. So in eight China signs the treaty with Japan, and as part of that treaty, China seeds Taiwan to Japan. So the Japanese take control of Taiwan. So again we went from the indigenous peoples to the early Chinese migrants, to the Dutch, to the Ming loyalists, to the Shing loyalists, to Japanese occupation. Uh a really intense amount of change for this one island. While Taiwan was under Japanese control, something else huge was happening in China. Towards the end of the nineteenth century. The Shing dynasty was falling apart for lots of reasons, kind of like the Ming dynasty had done. Centuries earlier, there were a lot of internal conflicts. There were pressures from countries like Russia, Britain, Japan, Germany, France, and the United States. And to get into all the details would require a mini series of its own. But all this tension, combined with a growing distrust and imperialism within China itself, led to the Chinese Revolution. This was around nineteen eleven and nineteen twelve, so China would ultimately shift at least a name into a republic. The Shing dynasty was overthrown and the Republic of China or r o C was born UM, and even that story is super complicated. Part of that process also saw a nationalist party called k MT taking formation UM, which was initially suppressed by the first r o C president. Turns out the first presid that was actually more of a dictator. He even tried to turn China back into a monarchy, which failed, But I digress. So we then get to a truly chaotic era in China's history in which various provinces rebelled against the dictator slash president, and many regions ended up being led by military commanders who became known as warlords UH. The KMT party, which again was a very China centric party. It was very much based in nationalist philosophies, this idea of you know, China is China, and we need to unify and we need to expunge all the foreign influence that has been trying to to control China up to this point. But you had another political party come to power, the Chinese Communist Party or CCP. These two parties would actually work together in kind of an unsteady alliance for a couple of different brief eras the Soviet Communists were influencing and encouraging the CCP. So the alliance between the ultra nationalistic KMT and the Soviet backed c c P was always uneasy, but a common enemy Japan kept the two parties united at least temporarily, and the war with Japan would overlap with World War Two. So Japan once again won numerous conflicts against China and sapped much of the Republic of China's resources in the process. Uh the KMT was plagued with corruption and infighting, and meanwhile the Communist Party, the CCP, was growing more unified and more confident. Then we get to nineteen forty five and the end of World War Two and Japan surrenders, and as part of that, it seeds Taiwan back to China. Now, the last time China controlled Taiwan, it was the Shing dynasty that was in control. Now it was the Republic of China, which for all practical purposes really meant the KMT, that political party of nationalist China philosophy. But the c c P was rising in power and the k m T was in turmoil, and once again China entered into a civil war, and the c c P made massive strides against the KMT within China. So in nineteen forty nine, the Republic of China government fled to Taiwan and the Communist UH, the Chinese Communist Party, takes control of mainland China. So in nineteen forty nine we entered into the era of two China's up. Interestingly, the United States did not recognize mainland China's government as quote unquote China until nineteen seventy nine. I would say that's largely because of the Cold War, the fear of Soviet influence UH. And even though the Republic of China was essentially confined to Taiwan and the surrounding area. The that was what was recognized as quote unquote China. In nineteen seventy nine, that switched and now the United States still only recognizes China, it doesn't recognize Taiwan as being a separate country. So now it just recognizes the the mainland China government as the actual China in U s I S. So, yeah, we have to China's there's there's the mainland under the control of the Chinese Communist Party, and there is Taiwan, which is under the control of the Republic of China. And for decades, for practical purposes, that was just the KMT. More than a million Chinese fled to Taiwan in ninety nine as well, and the Republic of China in Taiwan would issue some emergency decrees in ninety forty nine as in order to try and maintain order in Taiwan uh and they were pretty restrictive, like one of them banned the formation of new political parties, so it kind of secured KMT as the party in power indefinitely. There were a couple of other smaller, mostly ineffective political parties that were active at the time, but KMT was was absolutely dominant, so they were effectively synonymous with the government of Taiwan. They also got rid of stuff like term limits, so it was really like just making sure that they had this on lockdown. The Republic of China would pursue a brutal anti communist campaign in Taiwan for decades. It was actually known as the White Terror that extended all the way into the nineteen nineties. In fact, that the Republic of China would declare martial law in Taiwan, which would last from nineteen nine to nineteen eight seven. So Taiwan's emergence as a player in the semiconductor space actually happened while all this was still a thing. So you might wonder why is he even talking about this, because these were policies that were actually active when Taiwan began to establish its semiconductor industry. Okay, we've got some more history to get through, and then I swear we're gonna talk about semi conductors. But first let's take a quick break. Okay, we're back mainland China. It gave the People's Republic of China, ruled by the Communist Party, maintains that Taiwan is still part of China. Uh. The k m T s platform in in Taiwan that that one maintains that Taiwan is separate from mainland China, but it views the Unified China idea as critical for trade and political relationships with the mainland. Uh. If I'm being honest, there's some subtleties here that I don't fully understand because it almost seems like the KMT is saying we also believe in the unified China, just you know, we're separate from them, and I it almost seems like double thing to me. But I'm sure that it's you know, fully logical, and I just don't grasp it because I haven't really been immersed in research enough to be able to understand it. Anyway, the tensions between Taiwan and China are key to understanding Taiwan's place in the semiconductor industry today and how like people are starting to wake up to the potential dangers of this uh, this tension between China and Taiwan. So since the mid forties, the Republic of China has maintained control of Taiwan. The KMT dominated the Republic of China for most of that period, but more recently that has changed. In two thousand, a candidate for the Democratic Progressive Party or DPP, defeated the KMT candidate for President of Taiwan. The DPP platform centered largely on the concept of a Taiwanese republic with independent sovereignty. So this is more of a party that says we are our own nation, we should be considered as such. And you can say that the DPP in general favors closer ties with the United States and independence from China, while the KMT has tendencies of maintaining closer relationships with China. Uh A lot of the members of KMT are people who migrated from China to Taiwan, so they want to maintain those those ties, both economic and political. Now I mentioned that the population of Taiwan is ethnically more than eight percent Taiwanese. Again, those are the people who migrated from China hundreds of years ago, most of those being Hucklo or Fushian Chinese settlers. About two percent of the population are indigenous peoples whose history on the island stretches back thousands of years, and about fourteen percent of the population are mainland Chinese who relocated to Taiwan or a descended directly from you know, a generation that located relocated from China to Taiwan. Since two thousand, the power has shifted a couple of times between the KMT and the d p P, and currently the DPP controls a majority of the government of Taiwan. The island has had a few eras of industrialization, mostly that got started during the era of Japanese occupation, and so there was some industrialization that was occurring in Taiwan around World War One and World War Two. Under the Republic of China in the nineteen fifties and sixties, Taiwan experienced an incredibly rapid industrialization very it mostly in areas like textiles and light manufacturing, but it was happening at a pace that was well beyond what we saw develop in other countries like the United Kingdom. One of the practices that led to this, both in Taiwan and on mainland China, was a new policy that encouraged students to study abroad in fields like engineering before returning home to apply what they had learned and build out industry in their home country. Now hold that thought. We're going to shift gears for a second to talk about integrated circuits. Okay, before nineteen fifty nine, circuits consisted of electronic components that were connected to each other with physical wires to create a circuit. Uh, the invention of the transistor meant that circuits could be much smaller than they had been. The transistor was able to replace a component like the vacuum tube, and that's what allowed for the invention of things like the transistor radio, which was a device small enough to carry in your hand, whereas the radios of old those were like big table top or sometimes consoles, like a piece of furniture all on themselves. But transistors brought in the era of miniaturization. However, circuits were still kind of bulky. You know, you still had to use wires. You couldn't get too small because it became too difficult to connect the individual electronic components to two wires and you just reached a point of diminishing returns. But then Robert Noyce, who was working at Fairchild, and Jack Kilby who was working at Texas Instruments, each independently came up with a similar idea. What if you were to build out a circuit on a single silicon chip and you could etch connectors to every component, and you could build directly onto the chip and all the components would be integrated on that chip. It would be an integrated circuit or I see that could reduce the size of circuits even more than the shift from vacuum tubes to transistors did. Noise would ultimately get the patent for that invention from the patent office. They both filed for a patent. Noise just you know one. He just got it first, but both of them are credited in at least in most places, as being the inventor of the integrated circuit. Now, it's one thing to design an integrated circuit, it's another thing to produce them at scale. Production is a tough challenge, and it's made even tougher by the fact that as designs evolve and components shrink in size, you actually have to overhaul your entire manufacturing process in order to meet that design right Like, you can't just keep using the same process. It isn't designed to make things smaller. You have to actually reconfigure everything. So for that reason, it really didn't take very long after the invention of the integrated circuit for a lot of companies to see a problem. The cost of creating fabrication facilities was considerable, and the cost of overhauling them meant you couldn't just right off as a one time thing. You couldn't say, well, will invest fifteen million dollars to build out a facility and then we're done. No, it'd be we'll have to invest fifteen million dollars in a facility and then in a year we will have to spend another five million to update the facility. Now this opened up an opportunity a company could specialize in the manufacture of integrated circuits that had been designed by other companies. So you would have some companies just working in R and D and they would build out new designs for semiconductor chips, but they wouldn't be ready, they wouldn't be capable of manufacturing those on a scale that would allow them to you know, use them as products. So then they would partner with a fabrication company. They would become a customer of the fabrication company. In the fabrication company would just focus on building out integrated circuits at scale. That scale thing is important because if you are able to operate at scale, you can bring down the cost of the individual components that you need in order to actually make the thing. As the costs come down, if the price stays the same, then you you make profit. All right. So let's get back to Taiwan in in Sincho City, and again my apologies for all the terrible pronunciations. The Industrial Technology Research Institute or I t r I was founded. It's a nonprofit organization. And you might say, by whom who was it that founded the I t r I. I am not entirely sure. My research just gave me that date and the fact that it was founded. I looked in lots of places and unfortunately a ton of them have nearly identical wording, which tells me that they're all drawing from the same source. So I don't have more information on that. I'm sure people out there know who are listening to this. They can let me know tech stuff hsw on Twitter because I'm curious anyway. I t r I is a technology R and D institution that would play a key role in launching the semiconductor industry in Taiwan. And then we get a story that goes like this, at a group of seven people, among them Taiwan's Minister of Economic affairs, and another one was a Chinese born executive who worked at Radio Corporation of America or r c A. I've done multiple episodes about r c A, so you can listen to those to learn about how influential and important that company was. Uh. They met for breakfast at a stall in Taipei again along with like five other people. This was in nineteen seventy four, and they were talking about how Taiwan could be part of the semiconductor manufacturing industry. Now, the story says that the r c A executive or Taiwanese officials to invest in building out fabrication facilities for integrated circuits, and the officials were eager to bolster Taiwan's economy. This is nineteen seventy four. That means this is following in the wake of the nineteen seventy three oil crisis, which in itself was the result of a massive political disagreement, which is putting it lightly. That happened on a global scale, and even countries that weren't directly connected to the oil crisis got affected by it through you know, the fact that countries that were affected, uh, you know, the international commerce meant that this was a ripple effect across the entire world, so Taiwan was hit by that. Now the case was made that Taiwan could build up fabrication facilities and other companies could rely upon those facilities to build their designed circuits. The integrated circuit was less than twenty years old at this point, and already they were getting complicated enough that small fabrication facilities were beginning to get left behind. And this is really where Moore's law comes into play. So Moore's law is really an observation rather than a law. Gordon Moore observed a trend driven by economic demand in which companies were doubling the number of discrete components on integrated circuits every two years or so. Today we tend to think of this as computers get twice as powerful every two years, So the computers of today are twice as powerful as the computers of two years ago. But the original observation was that economic factors primarily drove companies so that they would put our cram twice as many components on a on a one inch wafer of silicon. Every two years they would double. So if you have you know in year one, if you have a transistor with a thousand components, then by year three year building circuits that have two thousand components, and then by or five you're talking about four thousand components and so on, and that gets really big, really fast. This was opening up tons of pathways in technology, but it also stood as a huge challenge to manufacture chips at scale. Meanwhile, the companies doing the R and D and chip design weren't necessarily in a position to build out their own fab facilities. So it was an area of opportunity Taiwan could lay the foundation to be a link in the supply chain, the place where companies would have their designs actually manufactured. Those finished chips could then be sent elsewhere, maybe for packaging or even into incorporation and other technologies you know, from handheld electronics to military systems, to weapons to vehicles and everything in between. Now, this was not going to happen overnight. The r c A executive estimated it would take ten million dollars in investment in four years to just get things moving in the right direction. See when I say you've got to build up fabric a facilities, that sounds pretty straightforward, but you have to understand that chip fabrication requires incredibly specialized equipment as well as knowledge and skill. Taiwan would have to secure all of those in order to make this work. Taiwan at the time had not advanced beyond the assembly stage of production in the semiconductor industry. So, in other words, the companies in Taiwan at that point they were putting together components that had been made by you know, companies in other countries, and they were just assembling them. Typically, you would then see, if you know, Taiwan was to follow the normal evolutionary path, you would see Taiwanese companies jump into developing transistors next. But the Taiwanese officials decided they needed a faster route, and so they made the decision to acquire the technologies they needed to go straight into integrated circuit fabrication, skipping over the whole transistor manufacturing stage. In nineteen s R. C A agreed to transfer semiconductor technology to Taiwan. Specifically, it was the seven micrometer c MOSS or complementary metal oxide semiconductor process technology. You will sometimes hear the word node used in semiconductors, and you'll hear a measurement right you'll hear a size like seven micrometers is pretty small. Uh, it's nowhere near as small as the components that are on chips these days. But yeah, seven micrometers nodes. Uh. If you hear the word note, it's just talking about the process that's being used to create these particular types of semiconductor chips. Engineers from Taiwan traveled to the United States to train at our c A facilities. They stayed there for a full year to learn the ropes of semiconductor manufacturing. It wasn't unusual for Taiwanese students to study overseas. They were continuously encouraged to do so, and they would often take jobs with Pani's in Silicon Valley. They would build up their knowledge and experience, and then they would return to Taiwan to bolster the burgeoning industry back home. Now. To do that, organizers working on behalf of Taiwan established the Electronics Research and Service Organization or e r s O in the United States. The e r s O would help secure knowledge and technology necessary to power Taiwan's efforts at home, among many many other duties. The r s O was actually critical in this endeavor Okay, we've got more to cover, but we need to take another quick break. Okay, we're back. Between nineteen seventy six and ninety nine, the collaborative efforts of organizations like the Electronics Research and Service Organization you know E r s O and I t R I and many many others established a demonstration factory where foreign trained engineers could return to Taiwan and put their knowledge to work, and established manufacturing best practices for semiconductors. It was kind of like training for the big game. It was all about, all right, let's find out what works best so that we can hit the ground running when we're ready to open for business and accept customers. The following years saw more investments into the semiconductor manufacturing UH space in Taiwan. The size of the discrete components on chips shrunk from seven micrometers to three and a half micrometers. Thanks More's law, I t r I was able to secure technology from overseas and distribute it to Taiwanese firms as well as to I t r eyes own pilot plant. In I t R I spun off a group that had been working on integrated chip manufacturing, and that group would become Taiwan's first private integrated circuit fab facility. It was called United micro Electronics Corporation or u m C, and several folks who were at I t R I, which in itself again is a nonprofit organization. Several of them would then go on to found companies in Taiwan in the semiconductor space, so it became kind of an incubator. But the really big player in Taiwan would emerge in nineteen eight seven thanks to Morris Chang. Now. Chang was born in China, but he earned advanced degrees in engineering at M I T and Stanford and then worked at Texas Instruments for twenty five years, specifically in semiconductor design and manufacturing in NIVE. The Taiwanese government contacted Chang to bring his expertise back to Taiwan, so Chang went to Taiwan and he joined the I t R I. He became the chairman and president of the organization in nineteen eighty six and he oversaw the launch of a sophisticated semiconductor wafer fab plant on I t r I s campus, and in nineteen eight seven he took the lead on establishing the Taiwan Semiconductor Manufacturing Company, or t s MC. The company received financial backing from the Taiwanese government and from the Dutch company Phillips, and from private investors. Chang's leadership established several practices that secured Taiwan's place as a key link in the semiconductor supply chain. For one, he set prices for semiconductor manufacturing ahead of the cost curve. This was a big controversial decision at the time, so his logic was that he would sacrifice short term profits in order to get a firm hold of market share, and then he could hit a manufacturing scale that would bring costs down, but the price would remain steady. So again, like bye bye, producing at scale, the individual components he needed would end up coming down. It's like buying in bulk, right. If you buy in bulk, the individual price for each unit comes down typically, So if you do that, but the product you're selling remains steady at its price, well you have long term profits that way. Not everyone thought this was gonna work, but boy howdy did it work. The competitive pricing brought t s MC lots of customers early on. This was particularly impressive because the company was actually a couple of nodes behind the industry leaders. Remember nodes referred to processes to make semiconductor chips. And when I say a couple of nodes behind, typically what we're talking about is the size of the components that you can you can make on a chip. The more components you can make on a chip, the more sophisticated the chip is, the more powerful it can be. Not everything needs that kind of a chip, right, Like if you're talking about a toaster, you probably don't need a super sophisticated chip. So t SMC starts getting customers that are looking for a cost effective but not necessarily bleeding edge semiconductor fabrication facility, and in the meantime, the company kept reinvesting in itself in order to try and catch up with its competitors, which it did like Over time, it started to close that gap so that it was able to to build out the facilities and to acquire the technology necessary to produce chips at nodes that were more like the the leading UH standard, So they were able to both operate as a business and to advance their own technology at the same time. It's pretty impressive. Another practice that chain oversaw a t SMC was creating an efficient design cycle so that the time to market would be as short as possible. This was for t SMCS customers. In other words, the fabrication facility made it easy for chip designers to go from their idea to production. They created processes that made that very efficient so that there was not much of a delay from the point where you say, here's what we want and being able to produce it at scale. So that made t SMC a go to fabrication partner for tons of fabulous chip designers. Fabulous just means it's a company that designs chips, but it doesn't manufacture them. Heck, t SMC is the dominant company in that industry today. They have somewhere around fifty three to fifty six percent of the global market share and semiconductor fabrication. So it's not really an exaggeration to say that there's a fifty fifty chance that any semiconductor chip you come across was produced it was manufactured at t SMC. Not designed there necessarily, but produced there. It's one of just a few company eas another one being Samsung that has a fab facility that can make chips using the five nanometer node process. Once upon a time, as I said, those sizes that we refer to in processes actually related to the components on chips, Like seven micrometers had a direct relationship with the size of components that were on a chip. These days, when we're talking about things like five nanometers, we're no longer really talking about the size of anything on that chip anymore. It's now more or less just a designation to say the next generation of you know, chip process design, and even that's on borrowed time. T SMC plans to commercialize the three nanometer node process this year, so it will be replaced possibly about the time this episode comes out. So t s MC essentially cornered the market on semiconductor fabrication in lots of respects. And as integrated circuits get more complicated, building out a foundry that can make those kinds of circuits gets more expensive. So there's this increasingly high hurdle for anyone else to overcome if they want to get into that business, and as we've seen over the last couple of years, that can be a big problem. Uh, it's essentially the the issue of putting all your eggs in one basket. Demand for chips has been incredibly high, but lots of factors have impacted t SMC recently and their capability of producing and shipping chips. One of those is actually political tensions between the United States and China. Both the US and China play a very important role in the semiconductor chain. Taiwan ships a lot of semiconductors to China. China represents an enormous revenue source for Taiwan, especially in the semiconductor industry, so that is a big concern for Taiwan. And the United States has the lion's share of the chip design companies in the world, so they are big customers of those foundries, and the trade war between the United States and China kind of puts Taiwan in the middle and things get pretty hairy. Like t SMC, for example, stopped making chips for the Chinese telecom company Huawei in the wake of accusations that Huawei was potentially using tech to conduct surveillance on other countries through those countries owned telecommunications systems. So you know, like the United States builds out a cellular network and the cellular network has Huahwei components in it. The fear was, Oh, the Chinese could be using that too, you know, listen in on conversations and steal information from the United States, or to compromise the integrity of the telecommunication system in the US. And there's this ongoing concern about that. So t s MC decided to side with the United States on this one. Uh and there are always tensions that China could potentially try to force Taiwan to reunify with mainland China. In fact, Taiwan has held a few notable war games to simulate a Chinese invasion to train for that eventuality, or perhaps just to provide a type of military theater to show that the island is willing to fight to retain its semi independence from mainland China. COVID also really hit the supply chain hard, and that's really pulled back the curtain on how dangerous it is to be so dependent upon a single region, really a single company for the majority of semiconductor chips, right Like. It has really shown that when that there's something that interferes with that, it has this massive impact around the world. Both the United States and China are pushing to establish uh FAT foundries in their respective countries, so they're trying to build out fab facilities within the United States or within China. In fact, SMC has been has been tapped with establishing a foundry in the United States. The current estimation is that China, their technology for semiconductor fabrication, is about ten years behind everybody else technologically speaking, and that due to the speed at which tech evolves, it will be very hard for China to close that gap at least in the near future. The United States is much further along technologically, but we still have to invest billions of dollars to build out foundries, so there's an economic barrier, not a technological barrier. Now it really raises questions also about Taiwan's future in this space. I mean, it may well be that in a decade Taiwan will no longer be the dominant party for semiconductor fabrication. We may see that built out in other parts of the world where we've dispersed that a bit, which in some ways is good obviously because it means that you know, the supply chain becomes more becomes stronger. Obviously, a chain is only as strong as its weakest links. So if something happens to one link, then everything beyond that is affected, and uh, we've seen that with the semiconductor shortage. So the idea being if we can have more fabrication facilities that are capable of producing at scale, we can avoid that kind of thing in the future. But it also potentially means a massive economic impact on Taiwan. They make billions of dollars. T SMC generates billions of dollars of revenue every quarter. I want to say that the most recent quarter the company reported six billion dollars in revenue. That's a lot of money, so it could be a massive blow to Taiwan as well. Meanwhile, obviously the the political and social changes in Taiwan are further distancing itself from what's going on in mainland China. Anyway. That is kind of the short version forty minutes plus of why Taiwan is so associated with semiconductor manufacturing. It literally is because we reached a point where someone was going to have to make that huge investment in order to meet the demands of chip designers, and the Taiwanese government were willing to put forth that kind of investment to establish themselves as that party, and that's how it happened. Um, but yeah, I hope you enjoyed this this episode, I highly recommend that you read up on the history of China, the history of Taiwan, the history of Asia really for that that whole period I was talking about, because it really explains why things are the way they are today and how these very geopolitical issues can end up being a huge challenge for for global businesses today. If you have suggestions for topics I should cover in future episodes of tech Stuff, please do not hesitate to reach out. The Twitter handle for our show is text Stuff hs W and I'll talk to you again really soon. Text Stuff is an I Heart Radio production. 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Welcome to tech Stuff, a production from I Heart Radio. Hey there, and welcome to tech Stuff. I'm your host, Jonathan Strickland. I'm an executive producer with I Heart Radio. And how the tech are you? You know? One thing I have talked about a lot over the last couple of years has been the semiconductor chip shortage, which is impacting everything from PC manufacturing to the automotive industry too, you know, printer toner cartridges. And I frequently mentioned that many of the semiconductor fabrication facilities are in Taiwan. But then that got me to thinking, why are they in Taiwan? How did that happen? This was a big gap in my knowledge, so I thought I would look into it and then do an episode on it. And I am a big believer in context. I don't think you can just say our story begins in nineteen seventy four, because without an understanding of history and politics and social movements, you can't really grasp how Taiwan got to where it is and the different forces that are you know, present in Taiwan's economy in general and the semiconductor industry in particular. So we're going to do a super fast, high high level overview of Taiwan's history, because, as it turns out, history, politics, and economics i'll play a huge part in how and why Taiwan became and remains a critical component of the microchips supply chain. Also, keep in mind, again super high level, the history of Asia is far too complex for me to cover in depth. I mean I would have to dedicate an entire podcast and do you know, years of episodes to really even scratch the surface. But let's talk about Taiwan. First of all, Taiwan is an island. It's off the southeastern coast of mainland China. It's across from a province called Fu Chian. Also, my apologies for my pronunciation. Um, it's bad even in English. It's going to be terrible for Taiwanese and Chinese and other foreign names. As my relatives would say. I'm just laying that out here now because it's gonna happen. So, Taiwan is about a hundred miles or a hundred sixty kilometers off the coast of mainland China. The city of Taipei, on the northern tip of Taiwan is sort of the political center of the island. Even though it's on the northern tip. It's also the economic powerhouse of the island. But the fabrication plants or fabs or as you will sometimes here or sometimes you'll hear them called foundries, they're all the same thing. The foundry, fab fabrication plant. It just means in this case, a company that makes integrated circuits and semiconductors. All of these are are for the most part, are located in sin Chew. Again my apologies for pronunciation. Anyway, that's a city to the southwest of Taipei. It actually faces across from mainland China. Now, for at least ten thousand years, you had indigenous people living on Taiwan who were self governing, had different tribes of them, and you know, they had their own languages, they had their own conflicts with one another, etcetera. Beginning around a thousand years ago, people from what would become the Fuchian Province of China came to Taiwan um and like I said that that provinces in the southeast of China, it's essentially across the sea from Taiwan, and they would become known as the Hoklow and that migration would continue into the seventeenth century, so over the course of like six hundred years they were migrating. There was a second group from China known as the Hakka Uh and they began migrating to Taiwan as well. So you had these two different groups of mainland China uh folks who were migrating to Taiwan. The Hakka group were a group of people who frequently faced discrimination on the mainland. I've often seen them compared to other groups of folks who often were displaced in various regions, such as Jewish populations would frequently undergo this as well as Roma populations. Now, the Hoklo people's were greater in number, and they essentially claimed the coastal regions, the more favorable regions, and they forced the Hakka people's closer toward the interior. The aboriginals, the indigeno as people were even pushed further in. Today, the Hoklo and Hakka are considered the Taiwanese population. So the you have the aboriginals or indigenous people, and then you have the Taiwanese people. Those were the people who migrated from China, you know, between a thousand and you know, six hundred years ago, and they represent those people, the ones who migrated. They represent more than eight percent of Taiwan's population today. In fact, the Hoklore is the largest slice of that pie. I think it's something like between sixty and sixty of the population. But then after these migrations where people from mainland China began to settle in Taiwan, you had the era of colonization, and the Dutch and Spanish both established a presence on Taiwan. The Dutch actually pushed the Spanish out. The Dutch presence was really an outpost of the East India Company, one of the most powerful entities in the six hundreds, not to be confused with the British East India Company, another very powerful corporation at that time. The Dutch one was kind of an early example of a company dominating in supply chains, like in shipbuilding and things like that. So, you know, it kind of seems like history is a way of repeating itself, because Taiwan would again become an important link in supply chains later on. In sixteen sixty two, Ming Dynasty loyalists from China fled to Taiwan as the Ming dynasty was collapsing in the Shing dynasty began to establish itself. The Chinese pushed the Dutch from Taiwan and asserted control over the island. So you have the Taiwanese uh which were the earlier migrants from China, and now you have the Ming dynasty loyalists establishing themselves in China. In sixteen eighty three, the Shing forces displaced the Ming forces, but Taiwan remained under Chinese control for two hundred years. Now, Asia in the eighteen hundreds was a pretty chaotic place, filled with lots of intrigue. You had major powers all at play in the area, many of which were going through their own internal revolutions. So you had China obviously an empire UH. You had Russia, which at the time was a monarchy. Japan, which in the nineteenth century cast off its military government which was called a shogunate, and in name, at least it returned to being an empire, though really it would mark an era in which Japanese would rapidly modernize. You also had Korea, which had defended itself against Japanese invasions in the seventeenth century. By the eighteen hundreds, Korea had become very much an isolationist nation resisting all outside influence and modernization. Now, the reason I mentioned all this is that these different political alignments would shape the region over the following century. Both Japan and China tried to gain influence over Korea. That precipitated into an all out war between China and Japan, and the Japanese forces, which had more effectively modernized and were better organized than the Chinese forces, one pretty much every single battle that they had with the Chinese. So in eight China signs the treaty with Japan, and as part of that treaty, China seeds Taiwan to Japan. So the Japanese take control of Taiwan. So again we went from the indigenous peoples to the early Chinese migrants, to the Dutch, to the Ming loyalists, to the Shing loyalists, to Japanese occupation. Uh a really intense amount of change for this one island. While Taiwan was under Japanese control, something else huge was happening in China. Towards the end of the nineteenth century. The Shing dynasty was falling apart for lots of reasons, kind of like the Ming dynasty had done. Centuries earlier, there were a lot of internal conflicts. There were pressures from countries like Russia, Britain, Japan, Germany, France, and the United States. And to get into all the details would require a mini series of its own. But all this tension, combined with a growing distrust and imperialism within China itself, led to the Chinese Revolution. This was around nineteen eleven and nineteen twelve, so China would ultimately shift at least a name into a republic. The Shing dynasty was overthrown and the Republic of China or r o C was born UM, and even that story is super complicated. Part of that process also saw a nationalist party called k MT taking formation UM, which was initially suppressed by the first r o C president. Turns out the first presid that was actually more of a dictator. He even tried to turn China back into a monarchy, which failed, But I digress. So we then get to a truly chaotic era in China's history in which various provinces rebelled against the dictator slash president, and many regions ended up being led by military commanders who became known as warlords UH. The KMT party, which again was a very China centric party. It was very much based in nationalist philosophies, this idea of you know, China is China, and we need to unify and we need to expunge all the foreign influence that has been trying to to control China up to this point. But you had another political party come to power, the Chinese Communist Party or CCP. These two parties would actually work together in kind of an unsteady alliance for a couple of different brief eras the Soviet Communists were influencing and encouraging the CCP. So the alliance between the ultra nationalistic KMT and the Soviet backed c c P was always uneasy, but a common enemy Japan kept the two parties united at least temporarily, and the war with Japan would overlap with World War Two. So Japan once again won numerous conflicts against China and sapped much of the Republic of China's resources in the process. Uh the KMT was plagued with corruption and infighting, and meanwhile the Communist Party, the CCP, was growing more unified and more confident. Then we get to nineteen forty five and the end of World War Two and Japan surrenders, and as part of that, it seeds Taiwan back to China. Now, the last time China controlled Taiwan, it was the Shing dynasty that was in control. Now it was the Republic of China, which for all practical purposes really meant the KMT, that political party of nationalist China philosophy. But the c c P was rising in power and the k m T was in turmoil, and once again China entered into a civil war, and the c c P made massive strides against the KMT within China. So in nineteen forty nine, the Republic of China government fled to Taiwan and the Communist UH, the Chinese Communist Party, takes control of mainland China. So in nineteen forty nine we entered into the era of two China's up. Interestingly, the United States did not recognize mainland China's government as quote unquote China until nineteen seventy nine. I would say that's largely because of the Cold War, the fear of Soviet influence UH. And even though the Republic of China was essentially confined to Taiwan and the surrounding area. The that was what was recognized as quote unquote China. In nineteen seventy nine, that switched and now the United States still only recognizes China, it doesn't recognize Taiwan as being a separate country. So now it just recognizes the the mainland China government as the actual China in U s I S. So, yeah, we have to China's there's there's the mainland under the control of the Chinese Communist Party, and there is Taiwan, which is under the control of the Republic of China. And for decades, for practical purposes, that was just the KMT. More than a million Chinese fled to Taiwan in ninety nine as well, and the Republic of China in Taiwan would issue some emergency decrees in ninety forty nine as in order to try and maintain order in Taiwan uh and they were pretty restrictive, like one of them banned the formation of new political parties, so it kind of secured KMT as the party in power indefinitely. There were a couple of other smaller, mostly ineffective political parties that were active at the time, but KMT was was absolutely dominant, so they were effectively synonymous with the government of Taiwan. They also got rid of stuff like term limits, so it was really like just making sure that they had this on lockdown. The Republic of China would pursue a brutal anti communist campaign in Taiwan for decades. It was actually known as the White Terror that extended all the way into the nineteen nineties. In fact, that the Republic of China would declare martial law in Taiwan, which would last from nineteen nine to nineteen eight seven. So Taiwan's emergence as a player in the semiconductor space actually happened while all this was still a thing. So you might wonder why is he even talking about this, because these were policies that were actually active when Taiwan began to establish its semiconductor industry. Okay, we've got some more history to get through, and then I swear we're gonna talk about semi conductors. But first let's take a quick break. Okay, we're back mainland China. It gave the People's Republic of China, ruled by the Communist Party, maintains that Taiwan is still part of China. Uh. The k m T s platform in in Taiwan that that one maintains that Taiwan is separate from mainland China, but it views the Unified China idea as critical for trade and political relationships with the mainland. Uh. If I'm being honest, there's some subtleties here that I don't fully understand because it almost seems like the KMT is saying we also believe in the unified China, just you know, we're separate from them, and I it almost seems like double thing to me. But I'm sure that it's you know, fully logical, and I just don't grasp it because I haven't really been immersed in research enough to be able to understand it. Anyway, the tensions between Taiwan and China are key to understanding Taiwan's place in the semiconductor industry today and how like people are starting to wake up to the potential dangers of this uh, this tension between China and Taiwan. So since the mid forties, the Republic of China has maintained control of Taiwan. The KMT dominated the Republic of China for most of that period, but more recently that has changed. In two thousand, a candidate for the Democratic Progressive Party or DPP, defeated the KMT candidate for President of Taiwan. The DPP platform centered largely on the concept of a Taiwanese republic with independent sovereignty. So this is more of a party that says we are our own nation, we should be considered as such. And you can say that the DPP in general favors closer ties with the United States and independence from China, while the KMT has tendencies of maintaining closer relationships with China. Uh A lot of the members of KMT are people who migrated from China to Taiwan, so they want to maintain those those ties, both economic and political. Now I mentioned that the population of Taiwan is ethnically more than eight percent Taiwanese. Again, those are the people who migrated from China hundreds of years ago, most of those being Hucklo or Fushian Chinese settlers. About two percent of the population are indigenous peoples whose history on the island stretches back thousands of years, and about fourteen percent of the population are mainland Chinese who relocated to Taiwan or a descended directly from you know, a generation that located relocated from China to Taiwan. Since two thousand, the power has shifted a couple of times between the KMT and the d p P, and currently the DPP controls a majority of the government of Taiwan. The island has had a few eras of industrialization, mostly that got started during the era of Japanese occupation, and so there was some industrialization that was occurring in Taiwan around World War One and World War Two. Under the Republic of China in the nineteen fifties and sixties, Taiwan experienced an incredibly rapid industrialization very it mostly in areas like textiles and light manufacturing, but it was happening at a pace that was well beyond what we saw develop in other countries like the United Kingdom. One of the practices that led to this, both in Taiwan and on mainland China, was a new policy that encouraged students to study abroad in fields like engineering before returning home to apply what they had learned and build out industry in their home country. Now hold that thought. We're going to shift gears for a second to talk about integrated circuits. Okay, before nineteen fifty nine, circuits consisted of electronic components that were connected to each other with physical wires to create a circuit. Uh, the invention of the transistor meant that circuits could be much smaller than they had been. The transistor was able to replace a component like the vacuum tube, and that's what allowed for the invention of things like the transistor radio, which was a device small enough to carry in your hand, whereas the radios of old those were like big table top or sometimes consoles, like a piece of furniture all on themselves. But transistors brought in the era of miniaturization. However, circuits were still kind of bulky. You know, you still had to use wires. You couldn't get too small because it became too difficult to connect the individual electronic components to two wires and you just reached a point of diminishing returns. But then Robert Noyce, who was working at Fairchild, and Jack Kilby who was working at Texas Instruments, each independently came up with a similar idea. What if you were to build out a circuit on a single silicon chip and you could etch connectors to every component, and you could build directly onto the chip and all the components would be integrated on that chip. It would be an integrated circuit or I see that could reduce the size of circuits even more than the shift from vacuum tubes to transistors did. Noise would ultimately get the patent for that invention from the patent office. They both filed for a patent. Noise just you know one. He just got it first, but both of them are credited in at least in most places, as being the inventor of the integrated circuit. Now, it's one thing to design an integrated circuit, it's another thing to produce them at scale. Production is a tough challenge, and it's made even tougher by the fact that as designs evolve and components shrink in size, you actually have to overhaul your entire manufacturing process in order to meet that design right Like, you can't just keep using the same process. It isn't designed to make things smaller. You have to actually reconfigure everything. So for that reason, it really didn't take very long after the invention of the integrated circuit for a lot of companies to see a problem. The cost of creating fabrication facilities was considerable, and the cost of overhauling them meant you couldn't just right off as a one time thing. You couldn't say, well, will invest fifteen million dollars to build out a facility and then we're done. No, it'd be we'll have to invest fifteen million dollars in a facility and then in a year we will have to spend another five million to update the facility. Now this opened up an opportunity a company could specialize in the manufacture of integrated circuits that had been designed by other companies. So you would have some companies just working in R and D and they would build out new designs for semiconductor chips, but they wouldn't be ready, they wouldn't be capable of manufacturing those on a scale that would allow them to you know, use them as products. So then they would partner with a fabrication company. They would become a customer of the fabrication company. In the fabrication company would just focus on building out integrated circuits at scale. That scale thing is important because if you are able to operate at scale, you can bring down the cost of the individual components that you need in order to actually make the thing. As the costs come down, if the price stays the same, then you you make profit. All right. So let's get back to Taiwan in in Sincho City, and again my apologies for all the terrible pronunciations. The Industrial Technology Research Institute or I t r I was founded. It's a nonprofit organization. And you might say, by whom who was it that founded the I t r I. I am not entirely sure. My research just gave me that date and the fact that it was founded. I looked in lots of places and unfortunately a ton of them have nearly identical wording, which tells me that they're all drawing from the same source. So I don't have more information on that. I'm sure people out there know who are listening to this. They can let me know tech stuff hsw on Twitter because I'm curious anyway. I t r I is a technology R and D institution that would play a key role in launching the semiconductor industry in Taiwan. And then we get a story that goes like this, at a group of seven people, among them Taiwan's Minister of Economic affairs, and another one was a Chinese born executive who worked at Radio Corporation of America or r c A. I've done multiple episodes about r c A, so you can listen to those to learn about how influential and important that company was. Uh. They met for breakfast at a stall in Taipei again along with like five other people. This was in nineteen seventy four, and they were talking about how Taiwan could be part of the semiconductor manufacturing industry. Now, the story says that the r c A executive or Taiwanese officials to invest in building out fabrication facilities for integrated circuits, and the officials were eager to bolster Taiwan's economy. This is nineteen seventy four. That means this is following in the wake of the nineteen seventy three oil crisis, which in itself was the result of a massive political disagreement, which is putting it lightly. That happened on a global scale, and even countries that weren't directly connected to the oil crisis got affected by it through you know, the fact that countries that were affected, uh, you know, the international commerce meant that this was a ripple effect across the entire world, so Taiwan was hit by that. Now the case was made that Taiwan could build up fabrication facilities and other companies could rely upon those facilities to build their designed circuits. The integrated circuit was less than twenty years old at this point, and already they were getting complicated enough that small fabrication facilities were beginning to get left behind. And this is really where Moore's law comes into play. So Moore's law is really an observation rather than a law. Gordon Moore observed a trend driven by economic demand in which companies were doubling the number of discrete components on integrated circuits every two years or so. Today we tend to think of this as computers get twice as powerful every two years, So the computers of today are twice as powerful as the computers of two years ago. But the original observation was that economic factors primarily drove companies so that they would put our cram twice as many components on a on a one inch wafer of silicon. Every two years they would double. So if you have you know in year one, if you have a transistor with a thousand components, then by year three year building circuits that have two thousand components, and then by or five you're talking about four thousand components and so on, and that gets really big, really fast. This was opening up tons of pathways in technology, but it also stood as a huge challenge to manufacture chips at scale. Meanwhile, the companies doing the R and D and chip design weren't necessarily in a position to build out their own fab facilities. So it was an area of opportunity Taiwan could lay the foundation to be a link in the supply chain, the place where companies would have their designs actually manufactured. Those finished chips could then be sent elsewhere, maybe for packaging or even into incorporation and other technologies you know, from handheld electronics to military systems, to weapons to vehicles and everything in between. Now, this was not going to happen overnight. The r c A executive estimated it would take ten million dollars in investment in four years to just get things moving in the right direction. See when I say you've got to build up fabric a facilities, that sounds pretty straightforward, but you have to understand that chip fabrication requires incredibly specialized equipment as well as knowledge and skill. Taiwan would have to secure all of those in order to make this work. Taiwan at the time had not advanced beyond the assembly stage of production in the semiconductor industry. So, in other words, the companies in Taiwan at that point they were putting together components that had been made by you know, companies in other countries, and they were just assembling them. Typically, you would then see, if you know, Taiwan was to follow the normal evolutionary path, you would see Taiwanese companies jump into developing transistors next. But the Taiwanese officials decided they needed a faster route, and so they made the decision to acquire the technologies they needed to go straight into integrated circuit fabrication, skipping over the whole transistor manufacturing stage. In nineteen s R. C A agreed to transfer semiconductor technology to Taiwan. Specifically, it was the seven micrometer c MOSS or complementary metal oxide semiconductor process technology. You will sometimes hear the word node used in semiconductors, and you'll hear a measurement right you'll hear a size like seven micrometers is pretty small. Uh, it's nowhere near as small as the components that are on chips these days. But yeah, seven micrometers nodes. Uh. If you hear the word note, it's just talking about the process that's being used to create these particular types of semiconductor chips. Engineers from Taiwan traveled to the United States to train at our c A facilities. They stayed there for a full year to learn the ropes of semiconductor manufacturing. It wasn't unusual for Taiwanese students to study overseas. They were continuously encouraged to do so, and they would often take jobs with Pani's in Silicon Valley. They would build up their knowledge and experience, and then they would return to Taiwan to bolster the burgeoning industry back home. Now. To do that, organizers working on behalf of Taiwan established the Electronics Research and Service Organization or e r s O in the United States. The e r s O would help secure knowledge and technology necessary to power Taiwan's efforts at home, among many many other duties. The r s O was actually critical in this endeavor Okay, we've got more to cover, but we need to take another quick break. Okay, we're back. Between nineteen seventy six and ninety nine, the collaborative efforts of organizations like the Electronics Research and Service Organization you know E r s O and I t R I and many many others established a demonstration factory where foreign trained engineers could return to Taiwan and put their knowledge to work, and established manufacturing best practices for semiconductors. It was kind of like training for the big game. It was all about, all right, let's find out what works best so that we can hit the ground running when we're ready to open for business and accept customers. The following years saw more investments into the semiconductor manufacturing UH space in Taiwan. The size of the discrete components on chips shrunk from seven micrometers to three and a half micrometers. Thanks More's law, I t r I was able to secure technology from overseas and distribute it to Taiwanese firms as well as to I t r eyes own pilot plant. In I t R I spun off a group that had been working on integrated chip manufacturing, and that group would become Taiwan's first private integrated circuit fab facility. It was called United micro Electronics Corporation or u m C, and several folks who were at I t R I, which in itself again is a nonprofit organization. Several of them would then go on to found companies in Taiwan in the semiconductor space, so it became kind of an incubator. But the really big player in Taiwan would emerge in nineteen eight seven thanks to Morris Chang. Now. Chang was born in China, but he earned advanced degrees in engineering at M I T and Stanford and then worked at Texas Instruments for twenty five years, specifically in semiconductor design and manufacturing in NIVE. The Taiwanese government contacted Chang to bring his expertise back to Taiwan, so Chang went to Taiwan and he joined the I t R I. He became the chairman and president of the organization in nineteen eighty six and he oversaw the launch of a sophisticated semiconductor wafer fab plant on I t r I s campus, and in nineteen eight seven he took the lead on establishing the Taiwan Semiconductor Manufacturing Company, or t s MC. The company received financial backing from the Taiwanese government and from the Dutch company Phillips, and from private investors. Chang's leadership established several practices that secured Taiwan's place as a key link in the semiconductor supply chain. For one, he set prices for semiconductor manufacturing ahead of the cost curve. This was a big controversial decision at the time, so his logic was that he would sacrifice short term profits in order to get a firm hold of market share, and then he could hit a manufacturing scale that would bring costs down, but the price would remain steady. So again, like bye bye, producing at scale, the individual components he needed would end up coming down. It's like buying in bulk, right. If you buy in bulk, the individual price for each unit comes down typically, So if you do that, but the product you're selling remains steady at its price, well you have long term profits that way. Not everyone thought this was gonna work, but boy howdy did it work. The competitive pricing brought t s MC lots of customers early on. This was particularly impressive because the company was actually a couple of nodes behind the industry leaders. Remember nodes referred to processes to make semiconductor chips. And when I say a couple of nodes behind, typically what we're talking about is the size of the components that you can you can make on a chip. The more components you can make on a chip, the more sophisticated the chip is, the more powerful it can be. Not everything needs that kind of a chip, right, Like if you're talking about a toaster, you probably don't need a super sophisticated chip. So t SMC starts getting customers that are looking for a cost effective but not necessarily bleeding edge semiconductor fabrication facility, and in the meantime, the company kept reinvesting in itself in order to try and catch up with its competitors, which it did like Over time, it started to close that gap so that it was able to to build out the facilities and to acquire the technology necessary to produce chips at nodes that were more like the the leading UH standard, So they were able to both operate as a business and to advance their own technology at the same time. It's pretty impressive. Another practice that chain oversaw a t SMC was creating an efficient design cycle so that the time to market would be as short as possible. This was for t SMCS customers. In other words, the fabrication facility made it easy for chip designers to go from their idea to production. They created processes that made that very efficient so that there was not much of a delay from the point where you say, here's what we want and being able to produce it at scale. So that made t SMC a go to fabrication partner for tons of fabulous chip designers. Fabulous just means it's a company that designs chips, but it doesn't manufacture them. Heck, t SMC is the dominant company in that industry today. They have somewhere around fifty three to fifty six percent of the global market share and semiconductor fabrication. So it's not really an exaggeration to say that there's a fifty fifty chance that any semiconductor chip you come across was produced it was manufactured at t SMC. Not designed there necessarily, but produced there. It's one of just a few company eas another one being Samsung that has a fab facility that can make chips using the five nanometer node process. Once upon a time, as I said, those sizes that we refer to in processes actually related to the components on chips, Like seven micrometers had a direct relationship with the size of components that were on a chip. These days, when we're talking about things like five nanometers, we're no longer really talking about the size of anything on that chip anymore. It's now more or less just a designation to say the next generation of you know, chip process design, and even that's on borrowed time. T SMC plans to commercialize the three nanometer node process this year, so it will be replaced possibly about the time this episode comes out. So t s MC essentially cornered the market on semiconductor fabrication in lots of respects. And as integrated circuits get more complicated, building out a foundry that can make those kinds of circuits gets more expensive. So there's this increasingly high hurdle for anyone else to overcome if they want to get into that business, and as we've seen over the last couple of years, that can be a big problem. Uh, it's essentially the the issue of putting all your eggs in one basket. Demand for chips has been incredibly high, but lots of factors have impacted t SMC recently and their capability of producing and shipping chips. One of those is actually political tensions between the United States and China. Both the US and China play a very important role in the semiconductor chain. Taiwan ships a lot of semiconductors to China. China represents an enormous revenue source for Taiwan, especially in the semiconductor industry, so that is a big concern for Taiwan. And the United States has the lion's share of the chip design companies in the world, so they are big customers of those foundries, and the trade war between the United States and China kind of puts Taiwan in the middle and things get pretty hairy. Like t SMC, for example, stopped making chips for the Chinese telecom company Huawei in the wake of accusations that Huawei was potentially using tech to conduct surveillance on other countries through those countries owned telecommunications systems. So you know, like the United States builds out a cellular network and the cellular network has Huahwei components in it. The fear was, Oh, the Chinese could be using that too, you know, listen in on conversations and steal information from the United States, or to compromise the integrity of the telecommunication system in the US. And there's this ongoing concern about that. So t s MC decided to side with the United States on this one. Uh and there are always tensions that China could potentially try to force Taiwan to reunify with mainland China. In fact, Taiwan has held a few notable war games to simulate a Chinese invasion to train for that eventuality, or perhaps just to provide a type of military theater to show that the island is willing to fight to retain its semi independence from mainland China. COVID also really hit the supply chain hard, and that's really pulled back the curtain on how dangerous it is to be so dependent upon a single region, really a single company for the majority of semiconductor chips, right Like. It has really shown that when that there's something that interferes with that, it has this massive impact around the world. Both the United States and China are pushing to establish uh FAT foundries in their respective countries, so they're trying to build out fab facilities within the United States or within China. In fact, SMC has been has been tapped with establishing a foundry in the United States. The current estimation is that China, their technology for semiconductor fabrication, is about ten years behind everybody else technologically speaking, and that due to the speed at which tech evolves, it will be very hard for China to close that gap at least in the near future. The United States is much further along technologically, but we still have to invest billions of dollars to build out foundries, so there's an economic barrier, not a technological barrier. Now it really raises questions also about Taiwan's future in this space. I mean, it may well be that in a decade Taiwan will no longer be the dominant party for semiconductor fabrication. We may see that built out in other parts of the world where we've dispersed that a bit, which in some ways is good obviously because it means that you know, the supply chain becomes more becomes stronger. Obviously, a chain is only as strong as its weakest links. So if something happens to one link, then everything beyond that is affected, and uh, we've seen that with the semiconductor shortage. So the idea being if we can have more fabrication facilities that are capable of producing at scale, we can avoid that kind of thing in the future. But it also potentially means a massive economic impact on Taiwan. They make billions of dollars. T SMC generates billions of dollars of revenue every quarter. I want to say that the most recent quarter the company reported six billion dollars in revenue. That's a lot of money, so it could be a massive blow to Taiwan as well. Meanwhile, obviously the the political and social changes in Taiwan are further distancing itself from what's going on in mainland China. Anyway. That is kind of the short version forty minutes plus of why Taiwan is so associated with semiconductor manufacturing. It literally is because we reached a point where someone was going to have to make that huge investment in order to meet the demands of chip designers, and the Taiwanese government were willing to put forth that kind of investment to establish themselves as that party, and that's how it happened. Um, but yeah, I hope you enjoyed this this episode, I highly recommend that you read up on the history of China, the history of Taiwan, the history of Asia really for that that whole period I was talking about, because it really explains why things are the way they are today and how these very geopolitical issues can end up being a huge challenge for for global businesses today. If you have suggestions for topics I should cover in future episodes of tech Stuff, please do not hesitate to reach out. The Twitter handle for our show is text Stuff hs W and I'll talk to you again really soon. Text Stuff is an I Heart Radio production. 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