6 ms·

To all those saying that those companies can afford it themselves, remember that there are reasons they don't. The economics don't add up. Companies tend to do

To all those saying that those companies can afford it themselves, remember that there are reasons they don't. The economics don't add up. Companies tend to do what is in their economic interest to do. Something like this can change the economics, which could be a good thing.

bdhess 5y ago
+1. I'd also guess that these companies getting together to start a joint venture is not really feasible, due to anti-monopoly laws.
- genericone 5y ago
  It's only a monopoly if the government says you are using market position anti-competitively and/or against the common good. If the US government says that chip production capability is now a national focus, companies can expect government cooperation for a joint venture.
  - dragonwriter 5y ago
    > It's only a monopoly if the government says you are using market position anti-competitively and/or against the common good. No, its a monopoly if you have market power. It’s only illegal if you are abusing market power.
throwaway481048 5y ago
Can you please elaborate? I struggle to discern the ultimate effect of private capital versus government funds in this situation. Ideally, a business’ problems are handled by itself, not via the federal government using taxpayer monies.
- bpodgursky 5y ago
  If Google thought they could get a solid return on investing $50B rather than holding cash, they would do so. The fact they are holding it as cash is an indication they are not bullish on the fundamentals.
- foobarbaz33 5y ago
  In a vacuum, sure. But these companies are competing with foreign governments using taxpayer monies to make a product. Cheaper just to buy from the foreign government? sure. But if a product is considered core to survival it may be good to have domestic production. Whether it's food, weapons, computer chips, water supply, etc.
- mkipper 5y ago
  The basic argument is that domestic production of integrated circuits isn't economical for American businesses. Having a more flexible supply chain is beneficial to these companies (e.g. when a global pandemic hits), but the required investment outweighs these benefits. On the other hand, the government potentially has a lot to lose if domestic companies are completely unable to produce hardware needed for critical infrastructure. The government also benefits from these companies expanding their supply chain to include domestic production, so the companies are asking the government to provide enough capital/tax breaks to make domestic production viable, and they're trying to convince the government that this provides enough value to the USA for it to be worth it. But this is being pushed by lobbyists paid for by giant corporations, so it's fair to be skeptical. In reality, the $50B number probably sits somewhere between "the bare minimum needed to make this viable" and "a handout pocketed by greedy corporations".
- deleted 5y ago
  [deleted]
- robbrown451 5y ago
  Obviously there is a difference in that private capital invests in what will help that particular company, while government funds should go toward what benefits the nation as a whole. A company might say "we won't bother investing, let our competition invest, and we'll just get the components from whoever will sell them to us cheapest." That can make sense individually (and especially in the short term), but as a whole (whether talking about industry as a whole, or nation as a whole), they are worse off. Essentially, a prisoner's dilemma. There is also the fact that American companies are competing against Chinese companies, where the government can subsidize various Chinese companies and initiatives. China is communist, of course, which does sort of favor this sort of thing. If the US was to close itself off to China, then it's a lot easier to be 100% capitalist as in your ideal scenario.
phkahler 5y ago
>> To all those saying that those companies can afford it themselves, remember that there are reasons they don't. Automotive chips for example tend to be produced on older nodes, not fancy 14nm and below at TSMC. I'm not talking about SoC used in infotainment but all the micro controllers all over the car. There is really zero incentive for a chip maker to expand capacity of old nodes since they are obsolete in some sense. It doesn't pay to upgrade to a new node without a product that demands something from the new node, and even then it's still an obsolete node. Think 130nm, 90nm, or even 45nm, the world could use more capacity at all of those but would you really want to invest heavily in any of those? I suspect the end game for most of the industry is commodity priced chips at every "last node" where that term means the last node that doesn't require X, and X is a technology change like immersion lithography, multi-patterning, material change, or EUV. With that kind of environment nobody can afford to increase capacity much. I'm not arguing for government funding here, just pointing to what I suspect is one of the problems.
- coredog64 5y ago
  I used to work for OnSemi, so take the following for what you will. On sells a variety of components -- some are completely commodity and are produced in super cheap fabs in Malaysia. Some are mid-tier and are (or were) made at fabs in Phoenix or Pocatello. And some are high-end and come out of the Gresham fabs that they bought when LSI went fabless. There's value in producing the commodity stuff. Obviously they're not going to enter a bidding war with TSMC for cutting edge manufacturing equipment to make commodity voltage regulators. But they still invest in fab technology at the lower end. I don't think ONN is particularly special in this space. They had plenty of competitors and they worked to distinguish themselves on cost, depth of their product catalog, and ability to execute.
  - kingsuper20 5y ago
    By having in-country fabs, have you just pushed the problem to some sort of precursor materials or parts? For that matter, I wonder how a government-subsidized fab could compete with an old overseas fab making lower end parts that has been long-ago paid for?
jollybean 5y ago
It doesn't matter what the economics adds up to when the government is printing trillions of dollars and spending it on 'what it thinks needs to happen', whereupon trillionaire companies can lobby for some of that money. Perhaps these companies should create a fund to start a few foundries etc. because they can definitely afford it.
paganel 5y ago
> Companies tend to do what is in their economic interest to do It will be in their economic interest when the PLA will show up at TSMC's door. Of course, that won't probably happen in the next few quarters, so on that you are correct, it's not in their short economic interest. What these companies are basically doing is asking the US government to subsidise the costs incurred by geo-politics.
- spaced-out 5y ago
  >It will be in their economic interest when the PLA will show up at TSMC's door. Not necessarily, maybe those companies can just make a deal with the CCP to keep access to TSMC's fabs.
  - KptMarchewa 5y ago
    Taiwan Army can use scorched earth tactics to make sure that it does not happen.
ClumsyPilot 5y ago
"To all those saying that those companies can afford it themselves, remember that there are reasons they don't." This sounds a lot like "God moves in mysterious ways and has a plan for everyone, everything happens for a reason". No actual analysis and reasoning required. This free market religion is what gave us 2008 and will keep giving.
- ErikVandeWater 5y ago
  Ah yes, the free market utopia every libertarian dreamed of existed in 2008. There were only just over 100,000 pages of federal law and regulations. Not to mention state and local laws.
  - ClumsyPilot 5y ago
    I see, if we had 0 pages of regulations, then banks would be ethical, then they would not create CDOs and then synthetic CDOs and destroy globaln economy.
    - ErikVandeWater 5y ago
      Strawman argument.
      - ClumsyPilot 5y ago
        You mean the one about 100,000 pages? How is that of any relevance to CDOs?
        ErikVandeWater 5y ago
        Fannie Mae and Freddie Mac
- robbrown451 5y ago
  I'm confused, my comment you replied to was the opposite of free market religion. Also kind of the opposite of "mysterious ways."
rsj_hn 5y ago
Rather than advocate for a specific conclusion, I'd like to propose a way of looking at this problem: What matters is a society's capacity to produce. Not whether something is "fair", not whether an industry deserves this or that. Not whether some cherished economic theory is being honored. Specifically, what matters is the creation and support of productive ecosystems, which are networks of credit, knowledge acquisition and transfer, skilled workers, skilled product managers, and supplier/vendor/retailer relationships. A key part of these productive ecosystems is jobs. If you want to learn how to build bridges, you do not set up schools to teach engineering, you fund the building of bridges, and people will figure out how to build them on the job, and the demand for civil engineers will pull students to study this and then universities will open up programs to cater to that demand. The jobs come first. Only 5% of China's population attends university, yet they are able to build all the infrastructure they need because they have a laser like attention to creating jobs. They will even build bridges for America, as long as Chinese workers get to make them. They will build a port for anyone who wants it, as long as Chinese workers are the ones building the port. The entire Belt and Road initiative is an attempt to import infrastructure jobs by sending workers all over the world to build infrastructure, as long as China gets to build it. They know that half these projects will default and not make any money, but what they get out of that is a skilled workforce, and with a skilled workforce they can do anything. They will let American companies set up factories in China as long as there is a knowledge transfer as part of the deal. That all their state owned enterprises are losing money is not important, the acquisition of skills and the creation of productive ecosystems is what matters. I wonder when the US will realize this. Western economic thinking is focused on P&L, rule of law, etc, and assumes as an article of faith that in such an environment, productive ecosystems will just arise all on their own, like rats being created from piles of trash. It will just happen, because in the past it just happened. So we are focused on abstract principles, but what the last 30 years has shown us is productive ecosystems being destroyed right and left as production migrates over to Asia. Apparently these abstract principles don't work in all cases, so people are going to need to abandon their faith in free markets just as much as they need to abandon their concerns over some fat cat getting a subsidy -- unless they want their nation to completely deindustrialize. However abandoning our faith in what worked before still leaves as muddied the concerns of what will work now, because it's not so clear that Asia's economic model can be successfully copied. Latin America tried to adopt this model in the 1970s -- a policy of import substitution, production subsidies and taxes on consumption. But it didn't work. Similar policies were tried in Africa in the 1980s and they also didn't work. So apparently you need more than just a policy of subsidizing production. What is that X-factor? One proposal is that the X-Factor is human capital. Whether cultural or genetic or literary, for some reason China has human capital for which these policies work well but in Latin America/Africa they don't. Another proposal is that the X-Factor is exports - it's not enough to just subsidize production you need to subsidize exports as well. A third proposal is that the X-Factor is state organizational capacity (a kind way of saying "less democracy, more centralization"). A fourth is nationalism -- being willing to sacrifice some of your own wealth for the benefit of the nation, rather than say boosting your bonus by outsourcing. And last, there is the notion of practicality. The West is often quite fanatical in holding to beliefs that no longer work, because our wealth has made us take for granted so much that we have the luxury of rigid moral views when other nations are just focused on acquiring skilled jobs. Whatever that X-factor really is, Latin America and Africa didn't have it but the East Asian nations do, even though all of these tried to subsidize investment. What I think is worthwhile is to start adopting explicit policies to nurture productive ecosystems rather than insisting that more of whatever we believed before is needed now. Because we are rapidly deindustrializing, the foreign sector already owns 40% of the nation's productive capacity and very little is still produced in the West at all. Clearly the old beliefs need to change.

bdhess 5y ago

+1. I'd also guess that these companies getting together to start a joint venture is not really feasible, due to anti-monopoly laws.

genericone 5y ago
It's only a monopoly if the government says you are using market position anti-competitively and/or against the common good. If the US government says that chip production capability is now a national focus, companies can expect government cooperation for a joint venture.
- dragonwriter 5y ago
  > It's only a monopoly if the government says you are using market position anti-competitively and/or against the common good. No, its a monopoly if you have market power. It’s only illegal if you are abusing market power.

throwaway481048 5y ago

Can you please elaborate? I struggle to discern the ultimate effect of private capital versus government funds in this situation. Ideally, a business’ problems are handled by itself, not via the federal government using taxpayer monies.

bpodgursky 5y ago
If Google thought they could get a solid return on investing $50B rather than holding cash, they would do so. The fact they are holding it as cash is an indication they are not bullish on the fundamentals.
foobarbaz33 5y ago
In a vacuum, sure. But these companies are competing with foreign governments using taxpayer monies to make a product. Cheaper just to buy from the foreign government? sure. But if a product is considered core to survival it may be good to have domestic production. Whether it's food, weapons, computer chips, water supply, etc.
mkipper 5y ago
The basic argument is that domestic production of integrated circuits isn't economical for American businesses. Having a more flexible supply chain is beneficial to these companies (e.g. when a global pandemic hits), but the required investment outweighs these benefits. On the other hand, the government potentially has a lot to lose if domestic companies are completely unable to produce hardware needed for critical infrastructure. The government also benefits from these companies expanding their supply chain to include domestic production, so the companies are asking the government to provide enough capital/tax breaks to make domestic production viable, and they're trying to convince the government that this provides enough value to the USA for it to be worth it. But this is being pushed by lobbyists paid for by giant corporations, so it's fair to be skeptical. In reality, the $50B number probably sits somewhere between "the bare minimum needed to make this viable" and "a handout pocketed by greedy corporations".
deleted 5y ago
[deleted]
robbrown451 5y ago
Obviously there is a difference in that private capital invests in what will help that particular company, while government funds should go toward what benefits the nation as a whole. A company might say "we won't bother investing, let our competition invest, and we'll just get the components from whoever will sell them to us cheapest." That can make sense individually (and especially in the short term), but as a whole (whether talking about industry as a whole, or nation as a whole), they are worse off. Essentially, a prisoner's dilemma. There is also the fact that American companies are competing against Chinese companies, where the government can subsidize various Chinese companies and initiatives. China is communist, of course, which does sort of favor this sort of thing. If the US was to close itself off to China, then it's a lot easier to be 100% capitalist as in your ideal scenario.

phkahler 5y ago

>> To all those saying that those companies can afford it themselves, remember that there are reasons they don't. Automotive chips for example tend to be produced on older nodes, not fancy 14nm and below at TSMC. I'm not talking about SoC used in infotainment but all the micro controllers all over the car. There is really zero incentive for a chip maker to expand capacity of old nodes since they are obsolete in some sense. It doesn't pay to upgrade to a new node without a product that demands something from the new node, and even then it's still an obsolete node. Think 130nm, 90nm, or even 45nm, the world could use more capacity at all of those but would you really want to invest heavily in any of those? I suspect the end game for most of the industry is commodity priced chips at every "last node" where that term means the last node that doesn't require X, and X is a technology change like immersion lithography, multi-patterning, material change, or EUV. With that kind of environment nobody can afford to increase capacity much. I'm not arguing for government funding here, just pointing to what I suspect is one of the problems.

coredog64 5y ago
I used to work for OnSemi, so take the following for what you will. On sells a variety of components -- some are completely commodity and are produced in super cheap fabs in Malaysia. Some are mid-tier and are (or were) made at fabs in Phoenix or Pocatello. And some are high-end and come out of the Gresham fabs that they bought when LSI went fabless. There's value in producing the commodity stuff. Obviously they're not going to enter a bidding war with TSMC for cutting edge manufacturing equipment to make commodity voltage regulators. But they still invest in fab technology at the lower end. I don't think ONN is particularly special in this space. They had plenty of competitors and they worked to distinguish themselves on cost, depth of their product catalog, and ability to execute.
- kingsuper20 5y ago
  By having in-country fabs, have you just pushed the problem to some sort of precursor materials or parts? For that matter, I wonder how a government-subsidized fab could compete with an old overseas fab making lower end parts that has been long-ago paid for?

jollybean 5y ago

It doesn't matter what the economics adds up to when the government is printing trillions of dollars and spending it on 'what it thinks needs to happen', whereupon trillionaire companies can lobby for some of that money. Perhaps these companies should create a fund to start a few foundries etc. because they can definitely afford it.

paganel 5y ago

> Companies tend to do what is in their economic interest to do It will be in their economic interest when the PLA will show up at TSMC's door. Of course, that won't probably happen in the next few quarters, so on that you are correct, it's not in their short economic interest. What these companies are basically doing is asking the US government to subsidise the costs incurred by geo-politics.

spaced-out 5y ago
>It will be in their economic interest when the PLA will show up at TSMC's door. Not necessarily, maybe those companies can just make a deal with the CCP to keep access to TSMC's fabs.
- KptMarchewa 5y ago
  Taiwan Army can use scorched earth tactics to make sure that it does not happen.

ClumsyPilot 5y ago

"To all those saying that those companies can afford it themselves, remember that there are reasons they don't." This sounds a lot like "God moves in mysterious ways and has a plan for everyone, everything happens for a reason". No actual analysis and reasoning required. This free market religion is what gave us 2008 and will keep giving.

ErikVandeWater 5y ago
Ah yes, the free market utopia every libertarian dreamed of existed in 2008. There were only just over 100,000 pages of federal law and regulations. Not to mention state and local laws.
- ClumsyPilot 5y ago
  I see, if we had 0 pages of regulations, then banks would be ethical, then they would not create CDOs and then synthetic CDOs and destroy globaln economy.
  - ErikVandeWater 5y ago
    Strawman argument.
    - ClumsyPilot 5y ago
      You mean the one about 100,000 pages? How is that of any relevance to CDOs?
      - ErikVandeWater 5y ago
        Fannie Mae and Freddie Mac
robbrown451 5y ago
I'm confused, my comment you replied to was the opposite of free market religion. Also kind of the opposite of "mysterious ways."

rsj_hn 5y ago

Rather than advocate for a specific conclusion, I'd like to propose a way of looking at this problem: What matters is a society's capacity to produce. Not whether something is "fair", not whether an industry deserves this or that. Not whether some cherished economic theory is being honored. Specifically, what matters is the creation and support of productive ecosystems, which are networks of credit, knowledge acquisition and transfer, skilled workers, skilled product managers, and supplier/vendor/retailer relationships. A key part of these productive ecosystems is jobs. If you want to learn how to build bridges, you do not set up schools to teach engineering, you fund the building of bridges, and people will figure out how to build them on the job, and the demand for civil engineers will pull students to study this and then universities will open up programs to cater to that demand. The jobs come first. Only 5% of China's population attends university, yet they are able to build all the infrastructure they need because they have a laser like attention to creating jobs. They will even build bridges for America, as long as Chinese workers get to make them. They will build a port for anyone who wants it, as long as Chinese workers are the ones building the port. The entire Belt and Road initiative is an attempt to import infrastructure jobs by sending workers all over the world to build infrastructure, as long as China gets to build it. They know that half these projects will default and not make any money, but what they get out of that is a skilled workforce, and with a skilled workforce they can do anything. They will let American companies set up factories in China as long as there is a knowledge transfer as part of the deal. That all their state owned enterprises are losing money is not important, the acquisition of skills and the creation of productive ecosystems is what matters. I wonder when the US will realize this. Western economic thinking is focused on P&L, rule of law, etc, and assumes as an article of faith that in such an environment, productive ecosystems will just arise all on their own, like rats being created from piles of trash. It will just happen, because in the past it just happened. So we are focused on abstract principles, but what the last 30 years has shown us is productive ecosystems being destroyed right and left as production migrates over to Asia. Apparently these abstract principles don't work in all cases, so people are going to need to abandon their faith in free markets just as much as they need to abandon their concerns over some fat cat getting a subsidy -- unless they want their nation to completely deindustrialize. However abandoning our faith in what worked before still leaves as muddied the concerns of what will work now, because it's not so clear that Asia's economic model can be successfully copied. Latin America tried to adopt this model in the 1970s -- a policy of import substitution, production subsidies and taxes on consumption. But it didn't work. Similar policies were tried in Africa in the 1980s and they also didn't work. So apparently you need more than just a policy of subsidizing production. What is that X-factor? One proposal is that the X-Factor is human capital. Whether cultural or genetic or literary, for some reason China has human capital for which these policies work well but in Latin America/Africa they don't. Another proposal is that the X-Factor is exports - it's not enough to just subsidize production you need to subsidize exports as well. A third proposal is that the X-Factor is state organizational capacity (a kind way of saying "less democracy, more centralization"). A fourth is nationalism -- being willing to sacrifice some of your own wealth for the benefit of the nation, rather than say boosting your bonus by outsourcing. And last, there is the notion of practicality. The West is often quite fanatical in holding to beliefs that no longer work, because our wealth has made us take for granted so much that we have the luxury of rigid moral views when other nations are just focused on acquiring skilled jobs. Whatever that X-factor really is, Latin America and Africa didn't have it but the East Asian nations do, even though all of these tried to subsidize investment. What I think is worthwhile is to start adopting explicit policies to nurture productive ecosystems rather than insisting that more of whatever we believed before is needed now. Because we are rapidly deindustrializing, the foreign sector already owns 40% of the nation's productive capacity and very little is still produced in the West at all. Clearly the old beliefs need to change.