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Yeah PRC probably going to dump 1T into indigenize semi efforts by end of decade, but IMO good chance they're going to treat strategic semi as commodity utility

by maxglute 10mo ago

Yeah PRC probably going to dump 1T into indigenize semi efforts by end of decade, but IMO good chance they're going to treat strategic semi as commodity utility business than make NASDAQ lines go up model. When western semi has 1st tier suppliers taking 30% margin, asml taking 50%, tsmc taking 50%, nvidia taking lol 70%, there's alot of fat on the pyramid to trim. PRC doing cost plus 10-20% will basically be able to brrrt chips stupid cheap if they have mature domestic tool scaling, enough to wipe litho+yield inefficiencies. Western semi still "safe" since west+co aren't going to source from PRC leading edge due to national security, but pretty soon they're either going to need to compress margins to compete which means cutting costs, which means cutting R&D because shareholder going to get theirs or western semi business model going to run on permenant subsidies. Which is what will probably happen considering their performance is why stonk lines go up right now. That 1T PRC spend and choose to simply discount for utility chips is going to wipe multipel trillion of western semi market cap and all the economic implications that entails so it might not even be bad idea.

MoravecsParadox 10mo ago
"your margin is my opportunity" - bezos
barfoure 10mo ago
Your analysis is out of date I think. This has already happened. Poor NXP just got their asses handed to them by the PRC. The fab they have in Italy looks nice but PRC has many of those.
- maxglute 10mo ago
  Also Texas Instruments, STMicro, Onsemi, Microchip Tech, i.e. what PRC is doing after going big in mature nodes last few years they likely will also do in leading edge. IMO there's argument that since leading edge will definitely be strategically bifurcated PRC and western semi can pseudo collude to maintain higher margins, especially if PRC wants to claw back investment. But if western semi continues to drive economy/growth there's also incentive to weaponize margins.
  - deleted 10mo ago
    [deleted]
roenxi 10mo ago
The NASDAQ line go up model is why the AI boom is happening and a major factor in why it is Western companies leading the charge. The more bigger issue is that the west refused to sell chips to China so they had to figure out how to make their own. And margin compression is what free markets do. That is one of the big motivators to putting free markets everywhere, the freer the market the more compressed the margins become. All the people working hard at crappy jobs start working hard at high paying jobs instead until the competition drives the money out of the sector. There is a theme in the industries China does well in - western regulators ban cut-throat competition, China competes very hard and wins. The situation at scale is pretty straightforward. Usually it is environmental or labour policy, so this case of the root cause being sanctions is a bit unusual. But, once again, how Nvidia is meant to compete in China when their best products can't be sold there?
- hkt 10mo ago
  > margin compression is what free markets do Except the market pretty much can't do this with Nvidia. Nobody is showing any sign of catching up: it is entirely possible we are seeing a runaway train and without the intervention of a massive state like China to create a viable competitor, there will never be one.
  - terminalshort 10mo ago
    This situation has been going on for 5 years now. It's ridiculous to assume there will never be competition. You. could have said the same about Intel a couple of decades ago.
- maxglute 10mo ago
  Free markets suppose to compress margins, perfect market theoretically drive profits down to zero (aka involution). But you compress margin and you lose current western semi business model that is functionally monopoly suppliers/producers who can sustain 50%+ margins to keep their monopoly. Shed those margins down to 20% because competitor enters market, harder to fund R&D to keep lead, it's still "enough" to be profitable, but then western commercial companies have to think harder how to split that compressed margin between investors and R&D. Right now we know what this leads to. Investors get paid, companies beg for subsidies. Not that PRC companies aren't concerned, look at PRC stock capitlization, not nearly to the same degree.
CuriouslyC 10mo ago
The absolute irony of China being more capitalist than the US in some ways.

MoravecsParadox 10mo ago

"your margin is my opportunity" - bezos

barfoure 10mo ago

Your analysis is out of date I think. This has already happened. Poor NXP just got their asses handed to them by the PRC. The fab they have in Italy looks nice but PRC has many of those.

maxglute 10mo ago
Also Texas Instruments, STMicro, Onsemi, Microchip Tech, i.e. what PRC is doing after going big in mature nodes last few years they likely will also do in leading edge. IMO there's argument that since leading edge will definitely be strategically bifurcated PRC and western semi can pseudo collude to maintain higher margins, especially if PRC wants to claw back investment. But if western semi continues to drive economy/growth there's also incentive to weaponize margins.
- deleted 10mo ago
  [deleted]

roenxi 10mo ago

The NASDAQ line go up model is why the AI boom is happening and a major factor in why it is Western companies leading the charge. The more bigger issue is that the west refused to sell chips to China so they had to figure out how to make their own. And margin compression is what free markets do. That is one of the big motivators to putting free markets everywhere, the freer the market the more compressed the margins become. All the people working hard at crappy jobs start working hard at high paying jobs instead until the competition drives the money out of the sector. There is a theme in the industries China does well in - western regulators ban cut-throat competition, China competes very hard and wins. The situation at scale is pretty straightforward. Usually it is environmental or labour policy, so this case of the root cause being sanctions is a bit unusual. But, once again, how Nvidia is meant to compete in China when their best products can't be sold there?

hkt 10mo ago
> margin compression is what free markets do Except the market pretty much can't do this with Nvidia. Nobody is showing any sign of catching up: it is entirely possible we are seeing a runaway train and without the intervention of a massive state like China to create a viable competitor, there will never be one.
- terminalshort 10mo ago
  This situation has been going on for 5 years now. It's ridiculous to assume there will never be competition. You. could have said the same about Intel a couple of decades ago.
maxglute 10mo ago
Free markets suppose to compress margins, perfect market theoretically drive profits down to zero (aka involution). But you compress margin and you lose current western semi business model that is functionally monopoly suppliers/producers who can sustain 50%+ margins to keep their monopoly. Shed those margins down to 20% because competitor enters market, harder to fund R&D to keep lead, it's still "enough" to be profitable, but then western commercial companies have to think harder how to split that compressed margin between investors and R&D. Right now we know what this leads to. Investors get paid, companies beg for subsidies. Not that PRC companies aren't concerned, look at PRC stock capitlization, not nearly to the same degree.

CuriouslyC 10mo ago

The absolute irony of China being more capitalist than the US in some ways.