GeoTech Wars - Semiconductors: The Most Complex Device in History with Syed Alam

You can listen to this episode on the CSIS website, or wherever you get your podcasts 

In this episode of GeoTech Wars, Kirti and Andrew dive into the semiconductor supply chain and manufacturing process, the most complex industrial system in human history. They are joined by guest Syed Alam, Global High Tech Industry Lead and Managing Director at Accenture. An engineer by training, Syed has over 20 years of experience in the semiconductor industry optimizing supply chains and manufacturing processes. 

As Syed explains, semiconductors, or chips, are among the most vital products in the modern world. They are the foundational devices in modern electronics, making them essential to economic and national security. Chips are everywhere in our daily lives, from cars to coffee makers, and they are numerically the most manufactured device in human history. The semiconductor industry produced over 1.1 trillion chips in 2021, approximately 140 chips per person. Further, chip innovation drives technological and economic development, for instance powering the computation needed to create effective artificial intelligence algorithms. 

While the prevalence of chips may suggest that they are easy to make, this could not be further from the truth. Chips are also the most complex device humans have ever produced. Dozens of different companies and countries are typically involved in the manufacturing process. Throughout the lifecycle of chips—from fabrication, to testing, to packaging—a single chip can travel over 25,000 miles and cross 70 borders. Further, dozens of companies support this process by providing key inputs such as equipment, chemicals, software, and raw materials. A machine which completes just one step in the manufacturing process may be made by a Dutch company, using advanced materials from a German company, chemicals from a Japanese company, and software from an Israeli company. 

Despite the importance of chips, however, there are dangerous chokepoints in the semiconductor supply chain. The chip industry is highly concentrated in certain areas, leaving the world susceptible to supply chain disruptions which can stunt economies. Chip manufacturing, for example, is dominated by companies in southeast Asia, which is currently a region fraught with geopolitical tensions.  

These chokepoints developed naturally. Competitive pressures drove companies to outsource manufacturing, while the high costs of building semiconductor manufacturing plants facilitated concentration in a few dominant companies. Indeed, semiconductors are truly the poster child for the economic benefits of globalization, as nations’ comparative advantages allowed for cost minimization while specialization facilitated the development of the expertise required to create such complex devices. 

Nevertheless, given geopolitical realities, countries are now focusing on developing resilience in their chip supply chain and reducing dependence on any single region. Nations increasingly consider national security goals in addition to economic ones. However, no country can become fully independent in its chip supply chain. Modern chip manufacturing is simply too complex.  

The United States is confronting this tension right now, as it attempts to reduce its dependence on China while maintaining trade relations. China is both the United States’ biggest competitor and among its biggest customers, which must be balanced. U.S. semiconductor firms generate one-third of their revenue on sales to China, with some relying on China for up to 70 percent. If the United States moves too quickly and without sufficient precision, it can greatly harm its domestic semiconductor companies while creating gaps which foreign competitors will fill. Given the fast innovation cycles and high capital expenditures in the semiconductor industry, lost revenue translates into decreased investment into research and development, which may impede U.S. semiconductor innovation and leadership. Today, national security and economic security go hand-in-hand. The United States must do a constant cost-benefit analysis as it strives to develop a secure semiconductor supply chain. 

This piece summarizes the discussion in GeoTech Wars, "Semiconductors: The Most Complex Device in History, with Syed Alam.” It does not represent the opinions of the hosts.