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Company that solves hard problems in key industry gets high profit margins, news at 11. The longer I've worked in tech, the more it becomes obvious why traditi
by lumost 5y ago
Company that solves hard problems in key industry gets high profit margins, news at 11.
The longer I've worked in tech, the more it becomes obvious why traditional business school approaches do not work in innovative fields. Between 2000 and 2016 Semi firms focused on outsourcing the expensive and high risk portion of their product to firms like TSMC, starting around 2016 a lot of companies looked at the risks and costs of further node shrinks in what they believed was a commodity business - shrugged their shoulders and decided they wouldn't chase after it.
In 2022, TSMC is effectively the only game in town for the latest generation of chips - and isn't letting up. Anyone who wants to "catch-up" is now stuck with the daunting prospect of spending ~100 billion dollars to re-create a commodity business.
- joe_the_user 5y agoThe only thing I'd add is "key industries" would be highly capitalized industries. Chip making is the largest scale, most highly capitalize industry in human history. Chip plants are the largest buildings in the world, suppliers for chip manufacturers are themselves large and highly capitalized.
- lumost 5y agoTrue, other good recent examples include Moderna, and Biontech.
- latch 5y agoHow does it actually compare to other industries, namely defense, aerospace and oil. These are all capital intensive, and if you want to be generous re the term "building", some of those refineries and shipyards are gigantic.
- Jensson 5y agoCommunist states managed aerospace, defence and oil. But they failed to make modern computer chips even after trying, instead they started importing computers from capitalist countries.
- ralfd 5y agoEven worse: There was an export embargo for computers by the West, so the soviet union had to reverse engineer western chips and manufacture their own. Inspired by an Apple II https://en.wikipedia.org/wiki/Agat_(computer) https://en.wikipedia.org/wiki/Agat_(computer) clone of the Intel 8086 CPU https://en.wikipedia.org/wiki/K1810VM86 https://en.wikipedia.org/wiki/K1810VM86
- retrac 5y ago> How does it actually compare to other industries, namely defense, aerospace and oil. The $12 billion given as the cost for TSMC's new Phoenix fab would buy you approximately 1 new Ford-class American aircraft carrier or a ~10% share in Canada's oil extraction industry. Chip manufacturing really is the industrial big leagues.
- hyperbovine 5y ago> 1 new Ford-class American aircraft And that's the bullshit, $30,000-toilet seat, parts-manufactured-in-every-congressional-district, Defense Contractor Special™ price. It should really buy you three or four aircraft carriers.
- post_from_work 5y agoYeah the Ford-class is obnoxiously overpriced. There is no way the key metrics of an aircraft carrier (sustained sortie generation rate, survivability, long-term maintenance) improved by the leaps-and-bounds necessary to justify tripling the price compared to a late-model Nimitz-class.
- Denvercoder9 5y ago> tripling the price The last Nimitz-class carrier, CVN-77, cost $6.2 billion and was ordered in 2001, while the Ford cost $13 billion and was ordered in 2008. After adjustment for inflation in that period, it's only about 1.5x as expensive.
- duped 5y agoTwo comparable industries are aerospace and nuclear energy (nuclear facilities cost 2-3x of a fab and nuclear weapons are on a different level of expense).
- khuey 5y agoNuclear weapons are a lot easier than cutting edge semiconductors.
- ksec 5y ago>Company that solves hard problems in key industry gets high profit margins, news at 11. And yet this has to be repeated time and time again on HN. It is actually quite tiring. People used to look at Intel spending $10B in CapEx and felt the number is unsustainable. ( Part of the reason why Intel lost ), while TSMC is on track to spend ~$50B in 2023.
- seibelj 5y agoIn the sci-fi novel Dune there is the Space Guild that became so advanced with shipbuilding that no other entity can possibly compete with them, and they internalized all the knowledge. This made all the noble houses have to deal with them. Perhaps some technologies are just so advanced and difficult, with so many people and specialized knowledge, that firms like TSMC are unbeatable. No one can compete and their global power is assured.
- halpert 5y agoThere are many examples of such phenomenon throughout history. However, there are always economic incentives for those with knowledge to strike out on their own to increase their personal gain. That’s generally why such knowledge-monopolies end. An example of this is how textile machines were built in the US by memorizing plans from Britain.
- e4e78a06 5y agoMaking a textile factory is a lot less capital intensive than a semiconductor fab.
- barry-cotter 5y agoThink in terms of available capital at the time, and availability of the requisite skilled labour and technical knowledge.
- roenxi 5y agoThat lacks something of the "so what" follow up. TSMC is in the usual economic vice. 1) If they charge a lot and don't innovate, then there will be a huge reward waiting for whoever invests capital to compete with them. 2) If they are innovative and cheap, then they can fend off competition and nobody cares because they are innovative and cheap.
- jollybean 5y ago"Company that solves hard problems in key industry gets high profit margins, news at 11." Well ... its' the company that develops power in the value chain, gets the big profit margins! In this case, probably the 'hardest problems' are solved by ASML, in the Netherlands the sole provider of the key equipment TSMC uses to make their gear. TSMC is the operating entity that uses their various bits of operational advantage, know-how and positioning to great effect. It's almost like TSMC and ASML should be both talked about in every article, and that both Europe and US should be contemplating strategic initiatives in the operational part of leveraging the fact that their is a lot of money being left on the table in their home turf. Edit: one of the hard parts about saying 'let's make the chips here' ... is that the 'stuff' that uses the chips are often made in China and Taiwan! Not always, but often. You can see the effects of China 'creeping up the value chain' - it's hard to displace certain things if they control 'all the other moving parts, even the not very profitable one's' ...
- steelstraw 5y ago> Anyone who wants to "catch-up" is now stuck with the daunting prospect of spending ~100 billion dollars to re-create a commodity business. Is this cause for concern given the risk of China taking Taiwan?
- jdavis703 5y agoNo, $100B is a tiny, single digit fraction of NATO military spending. I’m more concerned about the time and knowledge to spin up more manufacturing capacity.
- totalZero 5y agoWe can't spin it up until we build more fabs. And we need infrastructure for energy, water, and logistics before we can simply build a bunch of fabs.
- rospaya 5y ago> No, $100B is a tiny, single digit fraction of NATO military spending Are you sure about that math? Total NATO spending is 1.2T.
- jagged-chisel 5y ago$100B is ~8% of $1.2T. Single digit, yes. Tiny - guess that's more subjective than I thought.
- wincy 5y agoI’ve heard it’s less of a concern because by the time troops got to the fabs they’d be useless to the Chinese.
- sorry_outta_gas 5y agosure but you still get the people while denying/disrupting your war enemy since the US and China may likely be in a shooting war if that were to happen
- mhh__ 5y agoOr convincing a government to bankroll you
- anonu 5y agoThat was true in the early years of TSMC. We're so far from government subsidies now that I think it's a moot point.
- mhh__ 5y agoI mean for a new player.
- mycall 5y agoLikely this will come from multilateral government forced break up of TSMC if they get too big.
- bee_rider 5y agoI believe the government of Taiwan seen TSMC as existentially important -- the company is so valuable and unique that attacking them is essentially an attack on the world economy.
- squarefoot 5y agoWhat about a slow seemingly unarmed takeover? I think it's unlikely that the west would respond militarily, and that's probably what the Chinese govt counts on.
- bee_rider 5y agoI mean, I guess if China convinces Taiwan to peacefully rejoin them, that's their right, and it'd really be none of our business, right? It seems like it would be quite a stretch, though, given recent events in the area. In any case, such a change would be slow enough that we could switch over gracefully. Intel and Samsung are only a couple nodes behind, it would be expensive and annoying to change over but we'd manage it. I mean, go back 5 years, right? Computers have not massively changed since then.
- neximo64 5y agoGee it sounds alot like strategy to manage risk doesn't pay out in a world where you have to innovate and get paid for it.
- ip26 5y agoIt's rational for chip making to consolidate as the capex grows. 5nm would probably not exist in volume today without a successful pure play foundry. As a consumer, I just hope we stabilize with two or three leading competitors, such as TSMC, Intel, and Samsung. ASML & EUV is a stronger example of a high risk gambit in an innovative field locking down the market.
- luckyscs 5y agoDo we really need so many cutting edge chips?
- fennecfoxen 5y agoThe world wouldn't come to an end or anything, but if we didn't have so many cutting edge chips, we'd generally be spending more money to use lesser chips to perform fewer and lesser tasks while consuming more resources to do so.
- deleted 5y ago[deleted]
- totalZero 5y agoThey reduce power consumption and thermal management needs. That means more compute per a given battery constraint or thermal envelope. High-end mobile phones and laptops benefit.
- vbezhenar 5y agoThankfully web developers took care of that.
- luckyscs 5y agoIs consumer computing really the major demand now and going forward. Or is it senors, automation, networking, and cloud compute? And I can almost garuentee it's better for the environment if I continue using my device or an old one rather than upgrading to the new iphone soon.
- nradov 5y agoSeveral of the TSMC top executives were educated at traditional business schools so at least some of those approaches seem to be working. https://www.tsmc.com/english/aboutTSMC/executives https://www.tsmc.com/english/aboutTSMC/executives Having diverse experiences and educational background on the team is usually helpful in avoiding groupthink and strategic errors.
- N1H1L 5y agoThe fact that so many materials science PhDs are on their board is very interesting.
- silisili 5y agoI'd go as far as to argue most chips TSMC produce, especially mobile, are no longer a commodity. In consumer devices at least, people want TSMC vs say, Samsung. Their last couple efforts for Qualcomm have been quite horrendous. So much so that they're cutting a TSMC 8 gen 1 release soon.
- hbgl 5y agoIn 2022, TSMC is effectively the only game in town for the latest generation of chips - and isn't letting up. Anyone who wants to "catch-up" is now stuck with the daunting prospect of spending ~100 billion dollars to re-create a commodity business. Maybe the fact that TSMC files around 1000 patents a year has also something to do with the lack of competition. https://www.taipeitimes.com/News/biz/archives/2021/03/15/2003753830#:~:text=Data%20compiled%20by%20the%20office,patent%20applications%2C%20the%20office%20said https://www.taipeitimes.com/News/biz/archives/2021/03/15/200....
- throwawaylinux 5y agoSamsung Foundry is still in the game, and Intel hasn't dropped out yet. They're both trailing TSMC at the moment, but not by a whole lot more than in TSMC has trailed Intel in the (somewhat) recent past. Samsung allegedly will have 3nm in production early this year while TSMC 3nm has slipped to late this year. Remains to be seen how that actually ramps, but barring a significant problem for either, they will be close. TSMC I think has tended to have an edge at the same node size name recently, although that can flip. Samsung will have GAA while TSMC will be on FinFET for example, so the 3nm battle will be interesting. I don't think TSMC has quite emerged as the sole survivor just yet. Although it's also not clear that the industry trend for consolidation and competition gradually dropping out has changed to a more stable equilibrium.
- JetSetWilly 5y ago> Samsung allegedly will have 3nm in production early this year while TSMC 3nm has slipped to late this year. You're making the mistake of taking their process names at face value. Samsung 3nm is less dense than TSMC's 5nm which has been shipping since 2020. They are more than 2 years behind, as they still haven't matched TSMC 5nm even when their new 3nm launches.
- colejohnson66 5y agoWhen did this whole “process node isn’t actually the size” nonsense start?
- detaro 5y agoafaik 45nm->32nm, so 2007->2010, because that hit the limit of "simple" scaling.
- throwawaylinux 5y ago> You're making the mistake of taking their process names at face value. You're missing where I said in the next paragraph you snipped off that TSMC has been ahead at the "node size name". > Samsung 3nm is less dense than TSMC's 5nm which has been shipping since 2020. They are more than 2 years behind, as they still haven't matched TSMC 5nm even when their new 3nm launches. For high performance logic, drive currents, leakage, switching power, metal resistance, etc can all be equally or more important than density.
- PicassoCTs 5y agoMakes one wonder when "listening to business school majors" will be taken into economic school books as "value destructing behavior".