Artificial Intelligence

Why Semiconductors Are a Really Big Deal

Tiny semiconductor chips are now used in almost everything, from refrigerators and cars to smartphones and missiles. Manufacturing them requires complex technology and substantial capital. In the age of AI and smart manufacturing, semiconductors are the new oil and the US has acted to block China’s access to critical technology and machinery.

Laboratory technician holds a powerful processor in his hands. CPU computer processor shallow focus. CPU socket of the computer’s motherboard. Concept of computer, motherboard, hardware and technology © mpohodzhay /

February 14, 2023 03:31 EDT

Semiconductors have been in the news lately. Taiwan is a key manufacturer. China has been growing in importance. Last year, the US decided to cut China off at its knees. 

Apparently, we need them for everything. These days, washing machines, refrigerators, cars and almost everything we use have semiconductors. So do more complicated things such as ships, planes and rockets for outer space.

The ongoing Russia-Ukraine War has demonstrated that semiconductors are essential for weaponry too. Precision-guided bombs, missiles, drones, fighter jets and naval vessels are all reliant on semiconductors. They have become the new magic technology that underpins almost everything.

What are semiconductors?

Simply put, semiconductors are integrated circuits (ICs), also known as microchips. A microchip “is a set of electronic circuits on a small flat piece of silicon.” Transistors on this chip act as electrical switches that turn electrical current on or off. These switches are tiny. Advanced manufacturing creates an intricate pattern of multilayered latticework of interconnected shapes on silicon wafer.

Semiconductors first became important back in the 1950s. Nobel laureate William Shockley brought a brilliant group of scientists and technologists to Mountain View in sunny California. By then, a perfect “convergence” of many factors was about to make the San Francisco Bay Area the ideal place for high technology manufacturing. 

To keep away from German spies, the military had been conducting research in this idyllic valley of orange groves close to the Pacific Ocean. In 1939, Stanford graduates Bill Hewlett and David Packard had started their iconic company in the latter’s garage. They soon moved to Stanford Industrial Park where other tenants included Eastman Kodak, General Electric and Lockheed.

Shockley pioneered the modern semiconductor. He was the genius who came up with the idea of using silicon to make the transistors.  These regulated or controlled current or voltage flow as well as amplifying and generating electrical signals and acting as a switch or gate for them. Shockley turned out to be a much better scientist and technologist than a manager or entrepreneur. His best brains left to create a new company. Shockley immortalized them as “the traitorous eight” and founded Fairchild. The modern semiconductor industry was born.

Don C. Hoefler’s term, “Silicon Valley,” has come to be the name for this part of the world south of the stunning city of San Francisco. Crystal Fire, an iconic book by Michael Riordan and Lillian Hoddeson, chronicles how semiconductors led to the birth of the information age. Today’s tech giants are located close to where Shockley set up shop. Google is headquartered in Mountain View, Apple is in Cupertino and Facebook is in Menlo Park.

Yet semiconductors are no longer manufactured in Silicon Valley. In fact, only 12% of the world’s semiconductors are now made in the US in Oregon, Arizona, Vermont, Massachusetts, Idaho and Utah. In 2022, the average export price per chip was $2.16 for the US in contrast to $0.19 for China. So, the US mainly makes complex, high-value chips. With cheaper cost bases, four other major global semiconductor producers—China, South Korea, Japan and Taiwan—have emerged. 

Some companies design, others fabricate (i.e. manufacture) semiconductors and semiconductor devices, such as transistors and integrated circuits, and still others do both. A few large companies such as Intel, TSMC and Samsung dominate the semiconductor industry.

The reason why big companies dominate this industry is because it now costs an arm and a leg to manufacture semiconductors. A foundry can “cost between $10-$20 billion and can take three to five years to build.” A semiconductor fabrication foundry, also known as a semiconductor fab, is a specialized factory that needs expensive high-precision equipment. It has to be maintained and updated regularly to perform complex processes such as photolithography, etching, doping and deposition.

Why are semiconductors important?

In the age of computers, smartphones and smart appliances, demand for semiconductors has shot up. The Semiconductor Industry Association (SIA) tells us that the industry “shipped a record 1.15 trillion semiconductor units in 2021.” The dollar value of these units was $555.9 billion. Yet their importance goes far beyond their dollar value.

Semiconductors have been rightly called the “brains of modern electronics.” During the last half-century, they have made “electronic devices smaller, faster, and more reliable.” Today, there are more than 100 billion semiconductors—the same number as the stars in the Milky Way. The SIA tells us that “in 1984, mobile phones weighed about 2 lbs., cost around $4,000, and held a charge for only about 30 minutes of talk time.” The reason you are reading this on a laptop or a smartphone is because of the semiconductors powering your device.

As mentioned earlier, everything from dishwashers to missiles uses semiconductors. The future might involve even more of the same. The age of artificial intelligence (AI) and smart manufacturing depends on humble semiconductors that enable cheap computing power. Investor and philanthropist Antoine van Agtmael has repeatedly argued that brainbelts are the future, a smart new economy is around the corner and semiconductors are fundamental to both.

It is for this reason that the Biden administration launched a new policy to choke off Chinese access to AI and semiconductor technologies. Starting October 7, 2022, leading designers such as Nvidia and AMD can no longer sell their high-end semiconductor chips to China. In addition to cutting out China, the US is boosting semiconductor production at thome. The July 2022 CHIPS Act strengthens research, design and manufacturing of semiconductor chips in the US. The SIA informs us that this legislation would “fortify the economy and national security, and reinforce America’s chip supply chains.”

National security has come into question because most cheap chips come from China and a significant percentage of high-quality ones come from Taiwan. If war broke out between China and Taiwan, the US could be in trouble. Unsurprisingly, even fractious Washington, DC had to respond and it has done so decisively.

CNN tells us that the US “is pulling out all the stops to boost domestic semiconductor manufacturing.” Gone are the days of free trade. US President Joe Biden has launched a full scale industrial policy to dominate a critical technology. In the 1960s, the Soviet Union and the US embarked upon a space race. Now, a full on semiconductor fight has begun.

The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy.


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