China builds the chip factory for tomorrow. The chip shortage is about collaboration, not capacity.

China builds the chip factory for tomorrow. The chip shortage is about collaboration, not capacity.

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welcome to this week's pascal's china lens i'm going to talk about the chip shortages in the world and the role that china plays in it are they the cause of it or maybe the solution and how is that all going and why are companies or countries chipping in billions of dollars now into the chip industry what is happening and what does that mean for the future of the world now i know this week has been a special week i mean a scary week because the war in ukraine started and last week i made a video about that about this new world order and how china plays a role in that so a video that really is applicable today to watch again to understand what china's role in into all that and vision and position is nothing has changed from my video from last week so i recommend looking at it but there's also been some positive things the olympic games stopped and china won 15 medals and they did great and so that's the only positive note i feel from last week but today it's really challenging but i think it's hard to say what is going to happen now in ukraine and what china's position is they're kind of tap dancing right now it's really tough because they're in conflict with their own positioning very often because of their support to russia and their threat also in a way towards the us so how they're going to solve it let's wait a week or two and i probably will talk more about that then but for now i think talking about the chip self-sufficiency the chip crisis and how china can solve it or will solve it is a topic i want to talk about today if you haven't subscribed to my channel yet do so now i have more than 100 videos online and i will continue briefing you about my view on my lens on how china is evolving in the world and the impact it makes on all of us [Music] since the pandemic started two years ago now we've heard a lot about disruptions into the supply chain of micro electronics microchip silicon it doesn't get into the cars and other products anymore and we've been waiting sometimes for months on new devices and for cars some people have to wait more than a year to get their new car so all this has to do with the chip shortage and where did it come from and has china any fault on it and can china actually resolve it for the future well let's look a little bit back at what happened due to the pandemic the new demand just soared like crazy was like 50 more demand on digital products whether it was cloud or pcs or cell phones or even cars today the demands picked up again everybody wants to buy more electronic devices today than they were in 2019 and so the problem is that the supply cannot follow the demand this had to do a lot with the pandemic we all stayed at home we had time to buy stuff we also could buy new stuff we needed stuff for doing home or remote working and so this all created this disruption due to pandemic covet 19. but it was also the supply chain because many factories around the world were stuck customs were stuck i mean there was a lot of challenges with the pandemic and specifically with the outbreaks which means that a lot of containers got stuck very often at ports in los angeles they got stuck for a long time and so chips is just like any commodity it's like any product so if it's in that container it gets stuck while you don't get it and so that's a big problem then of course you have things like the suez canal where the container completely blocked the whole throughput to europe and so a lot of these disruptions happened in 2020 and 2021 and then there's something specifically about the stop and start what it means is that in the industry very often people at the beginning of the pandemic many industries specifically the car industry they were very worried that the demand would not pick up and so what they did is they stopped the orders they stopped ordering ships for new cars because they were worried they wouldn't be able to produce these cars because people wouldn't buy the cars because you couldn't drive around because many people were back in lockdowns the issue is that when the man picked up again well they had to wait back in the queue and so people that didn't want the chess before now had to wait for everybody else and because the demand searched well everybody who didn't place their order had to wait for that new demand first so a real disruption in some industries were really targeted and hit very badly and then there's been some fatalities like in japan there was a fap a silicon fab that took fire in malaysia there were issues in taiwan we had the covet issues that ashley stopped tsmc for a while and so lots of problems because of kovit 19. but kovit 19 is not the only reason why there's a disruption actually the biggest reason why the disruption is because before covet 19 before 2020 there was already an issue in the industry and the industry had an issue that actually most of the chips are fabricated in asia east asia is fabricating about 75 percent of all the ships in the world and that is just in a few factories it's with samsung it's with tsmc with smick in in china and so there's not a lot of these big fat manufacturers and so when you look at these manufacturers in the east in asia what you see is that samsung and tsmc they're going for the really high end which means high profit margin chips but lower quantities but because cell phones need a lot they still have a lot of quantities make a lot of money and that is their focus while in china they've been focusing much more on smaller or larger volumes but smaller margins and that means like a 200 millimeter or 100 millimeter wafers it also means like 20 or 28 nanometers not the 14 or 10 nanometers and so this is a big difference and so the issue is that over the past years these factories which cost billions and billions of dollars to invest in these faps were not invested and so they kept a mentality in the industry of having like 80 capacity on an average and this is like the 1920 pork cycle business i don't know if you if you know that but at that time it was like there was an oversupply and an under supply of pork in the u.s that's constantly going above and below like the 80 so what that means is that as long as you keep at 80 percent you can always keep the up and the downward uh happening but that means that your factory is actually designed for an 80 capacity and so when you suddenly have a 50 surge like we have now well you really have a problem and you can't just increase capacity but the biggest issue is that actually the last years before biden trump had a real war with china so there's two things that created because of this war one of the things in the chip industry is that smick and other companies in china that wear faps like 28 nanometer and so on which is most of the chips are not the lowest nanometer but it's actually more common commodity chips these chips could not be produced anymore because trump said you cannot actually buy or smith cannot buy the new technology from asml and other manufacturers which means the machines to produce these chips and so they could go to 20 nanometer but they can't go to 10 or 7 or 5 because they don't get the machines anymore which means that these companies many of the companies in the us suddenly were banned from working with these companies there were a lot of on the entity list on the blacklist from the us which means that they had to go to now tsmc to samsung to intel in the us to ask for these chips that they normally got from china and the issue there is that they already were at over capacity these other manufacturers so how are they going to produce for people that they didn't have as customer before and suddenly new customers flood in and that is because of trump's trade war so this created a lot of tensions and a lot of disruption the result is also that there's been a lot of hoarding and that has to do with the huawei effect trump said huawei cannot get any more chips from the us not the high-end chips and so then can't be fabricated or built in taiwan with tsmc and other places so what that means is that a lot of these companies in china were starting to hoard these chips they started to buy millions and millions of chips to make sure they had enough for at least one year or two years huawei did that many companies did that but there's also a lot of people that said well now is a good time to buy all these chips because the price is going to go up and that means that i can sell them at a higher price later on and so this created a price increase on chips which of course created even more competition in the industry and so this was a nightmare for the industry where many big companies even car manufacturers like ford and volvo and a lot of them could not get the chips because of this whole disruption and china was at the center of it asia of course is very important in this whole thing now when we look at the industries and we look at the products not everybody is hit in the same way the automotive was hit very badly and the main reason why automotive was hit badly is simply because they have so many chips in the car i mean there's more than a thousand sometimes four thousand chips in one car and so there just has to be one chip that you can't get and suddenly you can't build the car and so a friend of mine works at volvo in ghent in belgium and he's only working like three days a week because fridays and and mondays is closed because they cannot produce enough cars because there's not enough chips and so most of the industries most of the devices where there's multiple chips could be medical devices or any kind of communication device that had more chips in there like a car smart devices these devices were hit very badly and then there was this big competition between the electronics world which was going up everybody wants a smartphone now everybody works from home they want a laptop they want a camera they want games to play games because they have time to play games that was the pandemic situation they were fighting competing against the car manufacturers and the device manufacturers and so this is where many companies like even apple decide oh we're gonna focus on the phones but the laptops were gonna wait a little bit and so everybody had to make their own decision and do a lot of lobby work and that is where it created that pension tsmc specifically was the real real issue because they have the most advanced chips and so that means that unless this company can actually produce a higher capacity which is now needed 50 more capacity for all devices well everything gets stuck and just one device lacking is actually creating a disruption throughout the whole chain so this was the problem and then the other companies that were dealing with china a lot for assembly they also needed chips and china is one of the biggest i mean it's the biggest importer of chips in the world although there's a ban on china for chips for many of the high-end chips they're importing more than anybody else which means if they have a disruption in their supply chain to get the chips well it simply means they can't assemble it they can't build the devices the drones and the games and all the things that we want from a hardware perspective so china became a bottleneck not because they can't or don't want to build but simply because they couldn't get the chips and some of them were banned and so just one device one chip and the whole thing is broken the whole chain is broken so it really depends what industry you were in but everybody was under stress that's clear and it will get resolved probably next year this year will still be very tough but it's not so easy so how they're going to resolve it well the whole world specifically the us the eu asia they all woke up and suddenly they realized wow we are dependent on just a few factories tsmc in taiwan samsung in korea it may be intel in um in the us and and smick in china and a few more and so we're really dependent on these big factories and so we need to invest more so what biden did he created this big 250 dollar bipartisan tech bill of which 52 billion will go to this to the chip industry intel is going to get more than half of that probably they're going to have a new plant in ohio it's going to be 100 billion dollars almost investment i mean everybody's literally chipping in billions of dollars to create their own independency from um from an industry point of view they want to make sure that they are decoupling from the dependency from those few suppliers specifically those in china the eu did the same they started uh lobbying to get much more money we're talking about also 20 to 40 billion us dollars investment that they're planning to do in the chip industry in my country belgium there's a company called imac the top notch when it comes to semiconductors design and research and they're going to get lots of money from the european union normally why because we need that independency same happens with samsung they're going to invest 250 billion dsmc is going to invest 100 billion over the next three years i mean it's like crazy numbers china same thing in 2021 in 2022 they're investing a lot of new faps we're talking about 140 billion in new faps that are being developed so everybody's chipping in everybody's letting that money roll because they understand every country understands that the chip industry is now critical to be more self-sufficient now china has been saying this for many years they want 70 self-sufficiency on chips but many other countries now are understanding this is a priority so billions are going to roll but the question is are we going to use that money effect effectively efficiently because if you look at the us i mean it's all going to go most of it to intel and maybe a few others i mean there's a few players and they're going to focus probably again on the high end europe for sure they want to go up to two nanometers they want to go to top-notch silicon same as tsmc and so what everybody's doing in many of these countries and many of these big players is going again into the high quantity high quality top-notch development research and the most advanced chips and that is needed why because our world has become more complex everything is digital and we need these ships like in a smartphone to make it work efficiently but what we're forgetting is that today it's a much more complex world it's not all about your smartphone there's like things like iot there's things like connected devices and so many of these devices before when you had a toaster or a washing machine you didn't need a smart chip now you need a smarter chip for those devices that are connected but you still don't need a two nanometer chip to make it work and so who is filling that in and that's where china comes in now what's interesting is that over the past year 2021 even in 2020 it started really that suddenly china understood with the ban that trump uh started on china getting chips and buying chips and importing chips is that they wanted to really focus on this industry and the difference with before where the government said we need to create this industry on chips is that now suddenly the industry also realized it in 2021 we had a 33 percent growth on on basically semiconductor output in china i mean a huge output more revenue more money smig did great business in 2021 so that's why they're investing a few billion again and new faps and so everybody in china is now growing in terms of the chip industry maybe not the five or seven nanometers but might be 20 nanometers 28 nanometers 40 nanometers but that's where they're going there the output is really growing very quickly and they're starting to gain market share but the most important thing about the industry now is that this industry in china it's not just a chip manufacturer that says i want to become a chip manufacturer or i want to grow i want to grow my capacity like you see with tsmc with samsung no every technology company in china wants to build or at least design their own chips whether they're an internet company or you see a cloud company a cell phone company a car company every company in china tech company that is actually successful is building their own chips and so they're working together with fabs they're working together with designers they want to go to the five nanometer designs they want to make sure that they get their own chips that they can control themselves their own future and so now it's bottom up and that's the big difference where in the west you see that chain still being a top down decision where the big players are making the difference you now see in china that bottom up scale up startups everybody's wantings to be part of that industry last year in 2020 not last year 2020 there were 32 ipos we all know 2021 has been a very tough year on ipos in china because of the regulation but 2022 will be back 32 ipos in 2020 all in the chip industry more than 11 billion dollars u.s dollars were invested as venture capital to startups and scale ups so there's a lot of money flowing into that industry and so what i think is happening now is very simple on the one side there's the government saying we need to keep that chip race with the rest of the world so we don't become dependent on the high-end chips and so the really big guys think about huawei these guys are looking together with smick and together with new developers to build the next generation chip but most of the industry is actually focusing on just that other generation that is one or two behind 20 nanometers maybe 10 nanometers over time 40 nanometers what that means is that there's a capacity that's been built in china to build really any chip anything in the world that you need for the connected world of tomorrow and that is going to change the world of silicon why because china is now building a platform and connecting all these players together just last month china announced that they will create a new global sourcing platform in shenzhen in the the greater bay area of china you know shenzhen macau hong kong and guangzhou that whole area guangdong that area and it's driven by beijing it's by the ministry driven and the national development and research center so it's really driven by beijing where they decided just like 40 years ago that shenzhen would become that new area where everything could open up now they're making that open platform for the chip industry and it's very interesting because they want to not just build a fap they want to build an ecosystem they want to build an ecosystem just to build an ecosystem around shenzhen and around guangzhou when it comes to smart manufacturing now it's all about building smart factory or chip factory and so it will leverage anybody who wants to purchase chips from anywhere in china or around the world because this is a platform where you can buy raw materials you can buy chips electronics sensors and sensors is interesting because that's going into all the iot devices in the world but it's also a place where talent and support will be provided to make that platform work when it comes to talent it's about bringing smarter people in that area to support designs of chips and create more ip create more chips in itself create more fabs anybody who can contribute to building that ecosystem will be welcome in that area and tax wise will be doing very well because china is supporting that growth but it's also about support and that's about import and export and so china is looking at its logistics and how they can help actually make sure that anything in that region that needs to be imported or exported in the chip industry for any industry whether it's car industry or the pc industry they want to make sure that it's fast and it's efficient and and that is going to be the support that they're going to do most likely blockchain is going to be part of it to make sure it's secure and efficient as well going through customs and then there's the innovation part they want to create this innovation area it's already the center of innovation for china when it comes combining hardware and software shenzhen is definitely but now they want to do that around the chip industry of course this is a long shot but i believe that this idea is actually the way to go it's not about building a new fap it's not about building more capacity that is of course needed as well it is about building hundreds and thousands of companies that all work together and all have their part to play this is not about control this is not about centralized it's about a decentralized environment which is kind of paradox almost or really strange to say that china is looking at a decentralized system in this industry while the rest of the world is looking at centralized system in this industry and so what i think is going to happen in the iot world of tomorrow the industry 4.0 world that we

talk about is that now you will need hundreds of billions of chips every year to be shipped around the world to make all the devices work and you will need that specifically to reach the climate goals because that's the way to measure everything you will need it for all the smart devices more and more people will want smart devices because work has changed and the whole way of living has changed what it means is that the high-end chips you will still be able to get them from tsmc from samsung from intel from nvidia from all these top players in the world but the 90 of the chips that are needing needed to make that connected smart world world work these chips will come from china and so they're building a whole ecosystem a whole new industry where the whole country the whole tech world is revolving around building and creating chips and also shipping them and creating platform and support for it and so it's going to be very difficult in the future to decouple from china and the chip industry not because we don't have an alternative but because china has everything and just like with the cars when you have thousands of sensors and thousands of chips in your car you only need a few that you can't get and you can't produce your car and this is where china will get the power over the world in the chip industry to make sure that everything keeps working and so we're gonna somehow have to figure out a way to trust china otherwise we're gonna be stuck with some chips that we can't get because china has started to get a monopoly because of its size and its scale of number of companies that are working as a new factory of our chip factory of tomorrow's world [Music] you

2022-03-05 19:32

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