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Are you saying that Chinese semiconductor companies are outcompeting US semiconductor companies because they have greater access to capital? That doesn't seem r

Are you saying that Chinese semiconductor companies are outcompeting US semiconductor companies because they have greater access to capital? That doesn't seem right to me.

UncleOxidant 6y ago
I'm saying that the Chinese government has determined that semiconductors are strategically important and is willing to pour yuan into fabs and developing their own process equipment industry. Semiconductor manufacturing is a very capital intensive business and the short-term market view in the West isn't well suited to remaining competitive in that space. Silicon Valley has very little to do with silicon anymore because our markets decided to pour money into other areas where the payoff is quicker.
- scott_codie 6y ago
  Thats great for them and great for US semiconductor companies since we are trading partners.
  - UncleOxidant 6y ago
    That would be fine if the US and China were great friends and allies - like if it was the UK instead of China that was the semiconductor powerhouse. But things look stormy on the horizon. Even discounting a military conflict with China (not likely anytime soon, I think) an economic conflict seems very possible. As China begins to manufacture a larger share of semiconductors they could easily decide to favor their own internal industries that are customers of said semiconductors and not allow state-of-the-art chips to be sold outside (or to certain countries). We (the US) have done similar things in the past.
    - CyanBird 6y ago
      > But things look stormy on the horizon What do you even mean? Be explicit It certainly wasn't China the one that started the tarrifs debacle throwing the world economy into disarray
  - totalZero 6y ago
    No. Dependence upon East Asian semi fabrication is a liability even if you're best buddies (as with Taiwan). TSMC was founded by Morris Chang -- hard to find a more reasonable, US-friendly, capitalist person in the industry -- but every time a butterfly flaps its wings in Asia-Pacific, we have to worry about the sanctity and continuity of our semiconductor supply chain. NVDA just reported earnings and, while booming, it was not the blowout that you'd expect in the context of the greater demand picture for their products. That's in an environment where you don't have open multinational warfare in Asia-Pacific and their manufacturing partner TSMC is firing on almost all cylinders (water shortage excepted). Fabs in the US and elsewhere in the Americas are more defensible in times of war, and more likely to prioritize demand from US companies when supply tightens.
    - wbl 6y ago
      Anyone can own stock in NVDA no matter where they live.
      - totalZero 6y ago
        I genuinely don't understand the link between your comment and my own.
ralph84 6y ago
US sources of capital tend to have much higher time preference. Chinese sources of capital (i.e government entities) are willing to play the long game and accept below-market returns on capital for an extended period of time when it's building a strategically important industry.
vmception 6y ago
A state capital system with a comparable gdp is very efficient at quickly allocating resources to sectors China is that
AnthonyMouse 6y ago
> Are you saying that Chinese semiconductor companies are outcompeting US semiconductor companies because they have greater access to capital? That doesn't seem right to me. Suppose you have two companies in an industry where the start up cost is ten billion dollars. One can borrow ten billion dollars at 0% interest for the next five years, but they have to pay it back. The other just gets ten billion dollars from the government that they can keep. Obviously the second company has a competitive advantage. The first has to charge higher prices in order to pay back the loan, which they can't do if the second undercuts them in the market. This has been China's business model for decades. Then once all the competition is out of business they can raise prices to the point of profitability, but not to the point that anyone who hasn't already paid off their fixed costs can enter the market, and use the profits to do the same thing to the next industry.
- Udik 6y ago
  Isn't that equivalent to starting up with VC money (and stocks, later)? You get billions to start up, and if you fail you don't have to pay anything back. It's the business model of Amazon, Uber, Tesla, Airbnb...
  - AnthonyMouse 6y ago
    All of your examples are companies that were pioneers in immature markets. And then if you succeed, the VCs own your company. It's not charity. Whereas China will give a Chinese company billions of dollars to unseat an incumbent in a mature industry and expect nothing in return except for that industry to be in China.
    - yellowapple 6y ago
      > and expect nothing in return Aside from the expectation of unwavering loyalty to the Communist Party of China, you mean.
      - AnthonyMouse 6y ago
totalZero 6y ago
It is right. US public companies are judged by the efficiency and timeframe of their returns on capital, which means that big long-term projects have to be carefully planned and justified. That's not the case when the government gets involved. We've already seen China build a lot of other infrastructure for no reason. Highways, skyscrapers... Additionally, Chinese companies operate in an environment where it's OK to steal foreign IP as long as the Chinese government approves of your business activity. So it's not just capital that the government uses to fertilize growth in its corporate nursery.
- vkou 6y ago
  > That's not the case when the government gets involved. We've already seen China build a lot of other infrastructure for no reason. Highways, skyscrapers... China urbanized 550 million people in the last 30 years. They aren't building cities and highways to stand empty. They are building them in advance of demand. Sometimes the demand arrives a few months, or a few years after the infrastructure is in place. [1] All those ghost cities you read about last decade? Most of them are now brimming with people. In contrast, here in the US, we don't build housing until a decade after we need it (and when we do, the supply is anemic), so we have a crippling housing shortage in all major metro areas, which leads to sky-high rents. And through all that, we still have the occasional real estate bubble exploding, in a way that takes the entire world's economy down with it. [1] https://en.wikipedia.org/wiki/Under-occupied_developments_in_China#Criticism https://en.wikipedia.org/wiki/Under-occupied_developments_in...
  - totalZero 6y ago
    No corporation would finish construction of a factory ten years prior to the existence of demand. Companies like to lay out capex as close to income generation as possible. That comes from a shareholder-driven pressure for operational efficiency. It looks bad if Samsung (for example) spends $30B on a fab for which there is little demand. Fab utilization needs to be as close to 100% as possible; even at high utilization, the company doesn't break even on the fab for several years. Even if you assume 100% utilization, a fab may take a decade or more (from the time ground is broken on the facility) to break even on the investment. In contrast, governments can leg out risk on big capital-intensive projects. Read the citations in the wikipedia article you referenced (avoid the blog post and the China-based publication) and you will see what I am talking about. A government's ability to build infrastructure without knowing whether there will be demand upon completion is how we end up with projects like HZMB that don't serve an existing commercial or private purpose.

Are you saying that Chinese semiconductor companies are outcompeting US semiconductor companies because they have greater access to capital? That doesn't seem right to me.

UncleOxidant 6y ago

I'm saying that the Chinese government has determined that semiconductors are strategically important and is willing to pour yuan into fabs and developing their own process equipment industry. Semiconductor manufacturing is a very capital intensive business and the short-term market view in the West isn't well suited to remaining competitive in that space. Silicon Valley has very little to do with silicon anymore because our markets decided to pour money into other areas where the payoff is quicker.

scott_codie 6y ago
Thats great for them and great for US semiconductor companies since we are trading partners.
- UncleOxidant 6y ago
  That would be fine if the US and China were great friends and allies - like if it was the UK instead of China that was the semiconductor powerhouse. But things look stormy on the horizon. Even discounting a military conflict with China (not likely anytime soon, I think) an economic conflict seems very possible. As China begins to manufacture a larger share of semiconductors they could easily decide to favor their own internal industries that are customers of said semiconductors and not allow state-of-the-art chips to be sold outside (or to certain countries). We (the US) have done similar things in the past.
  - CyanBird 6y ago
    > But things look stormy on the horizon What do you even mean? Be explicit It certainly wasn't China the one that started the tarrifs debacle throwing the world economy into disarray
- totalZero 6y ago
  No. Dependence upon East Asian semi fabrication is a liability even if you're best buddies (as with Taiwan). TSMC was founded by Morris Chang -- hard to find a more reasonable, US-friendly, capitalist person in the industry -- but every time a butterfly flaps its wings in Asia-Pacific, we have to worry about the sanctity and continuity of our semiconductor supply chain. NVDA just reported earnings and, while booming, it was not the blowout that you'd expect in the context of the greater demand picture for their products. That's in an environment where you don't have open multinational warfare in Asia-Pacific and their manufacturing partner TSMC is firing on almost all cylinders (water shortage excepted). Fabs in the US and elsewhere in the Americas are more defensible in times of war, and more likely to prioritize demand from US companies when supply tightens.
  - wbl 6y ago
    Anyone can own stock in NVDA no matter where they live.
    - totalZero 6y ago
      I genuinely don't understand the link between your comment and my own.

ralph84 6y ago

US sources of capital tend to have much higher time preference. Chinese sources of capital (i.e government entities) are willing to play the long game and accept below-market returns on capital for an extended period of time when it's building a strategically important industry.

vmception 6y ago

A state capital system with a comparable gdp is very efficient at quickly allocating resources to sectors China is that

AnthonyMouse 6y ago

> Are you saying that Chinese semiconductor companies are outcompeting US semiconductor companies because they have greater access to capital? That doesn't seem right to me. Suppose you have two companies in an industry where the start up cost is ten billion dollars. One can borrow ten billion dollars at 0% interest for the next five years, but they have to pay it back. The other just gets ten billion dollars from the government that they can keep. Obviously the second company has a competitive advantage. The first has to charge higher prices in order to pay back the loan, which they can't do if the second undercuts them in the market. This has been China's business model for decades. Then once all the competition is out of business they can raise prices to the point of profitability, but not to the point that anyone who hasn't already paid off their fixed costs can enter the market, and use the profits to do the same thing to the next industry.

Udik 6y ago
Isn't that equivalent to starting up with VC money (and stocks, later)? You get billions to start up, and if you fail you don't have to pay anything back. It's the business model of Amazon, Uber, Tesla, Airbnb...
- AnthonyMouse 6y ago
  All of your examples are companies that were pioneers in immature markets. And then if you succeed, the VCs own your company. It's not charity. Whereas China will give a Chinese company billions of dollars to unseat an incumbent in a mature industry and expect nothing in return except for that industry to be in China.
  - yellowapple 6y ago
    > and expect nothing in return Aside from the expectation of unwavering loyalty to the Communist Party of China, you mean.
    - AnthonyMouse 6y ago

totalZero 6y ago

It is right. US public companies are judged by the efficiency and timeframe of their returns on capital, which means that big long-term projects have to be carefully planned and justified. That's not the case when the government gets involved. We've already seen China build a lot of other infrastructure for no reason. Highways, skyscrapers... Additionally, Chinese companies operate in an environment where it's OK to steal foreign IP as long as the Chinese government approves of your business activity. So it's not just capital that the government uses to fertilize growth in its corporate nursery.

vkou 6y ago
> That's not the case when the government gets involved. We've already seen China build a lot of other infrastructure for no reason. Highways, skyscrapers... China urbanized 550 million people in the last 30 years. They aren't building cities and highways to stand empty. They are building them in advance of demand. Sometimes the demand arrives a few months, or a few years after the infrastructure is in place. [1] All those ghost cities you read about last decade? Most of them are now brimming with people. In contrast, here in the US, we don't build housing until a decade after we need it (and when we do, the supply is anemic), so we have a crippling housing shortage in all major metro areas, which leads to sky-high rents. And through all that, we still have the occasional real estate bubble exploding, in a way that takes the entire world's economy down with it. [1] https://en.wikipedia.org/wiki/Under-occupied_developments_in_China#Criticism https://en.wikipedia.org/wiki/Under-occupied_developments_in...
- totalZero 6y ago
  No corporation would finish construction of a factory ten years prior to the existence of demand. Companies like to lay out capex as close to income generation as possible. That comes from a shareholder-driven pressure for operational efficiency. It looks bad if Samsung (for example) spends $30B on a fab for which there is little demand. Fab utilization needs to be as close to 100% as possible; even at high utilization, the company doesn't break even on the fab for several years. Even if you assume 100% utilization, a fab may take a decade or more (from the time ground is broken on the facility) to break even on the investment. In contrast, governments can leg out risk on big capital-intensive projects. Read the citations in the wikipedia article you referenced (avoid the blog post and the China-based publication) and you will see what I am talking about. A government's ability to build infrastructure without knowing whether there will be demand upon completion is how we end up with projects like HZMB that don't serve an existing commercial or private purpose.