Ben there, done that for Nov. 24, 2021
Where have all the computer chips gone
Microchips surround us: essential components of everything from our cell phones to dishwashers to automobiles and nearly all of life’s amenities. An unparalleled level of convenience and ease to various aspects of our lives depends on microchips. Just consider all the devices you interact with on a daily basis. All of this is made possible by the near-miraculous technology of computerized chips. Yet, for something that makes such a big impact on our daily lives, they remain shrouded in technical complexity. The recent disruptions to the supply chain bringing this technology into the spotlight presents a perfect opportunity to dig a bit deeper into this topic. So, allow me to pull back the metaphorical curtain.
Microchips or “integrated circuits,” their official name, are composed of transistors. Transistors are essentially tiny gates that can toggle on and off the flow of electrical current through them. The ability to regulate the flow of current is made possible because of a group of materials called “semiconductors.” Unlike conductive and insulative materials, semiconductive ones can change back and forth between the two states based on different environmental conditions. Herein is the basis for all digital technology: turning tiny electric gates on and off.
Microchips are rated on the size of their transistors - the smaller the better. Right now, the most advanced chips on the market are using transistors that are 5 or 7 nanometers in size. For reference, that is the width of 2-3 strands of DNA. Over the last decades, the size of transistors has shrunk at an exponential rate. In 1999, the cutting-edge chips used transistors that were 180 nanometers in size. As the size has continued to shrink to nearly unimaginable dimensions, to shave off more nanometers is progressively harder. Plus, each generation is achieving smaller gains. Currently, the tiniest transistors are sculpted with concentrated beams of UV light, pushing toward the limits of physics.
You might ask: Why push for ever-smaller transistors? It all comes down to size and efficiency. Smaller gates allow more to be fit into the same size chip, resulting in more computing power for the same amount of real estate. Additionally, smaller gates consume significantly less power which dramatically improves battery life and reduces the amount of heat a chip puts off. The improvements in this area are most visible in smartphones. The smartphones of today are radically more powerful than the ones released even just a few years ago, while somehow getting better battery life. This is not due to any major advance in battery technology, but a result of improvements in microchip design.
As you can imagine, the manufacturing process for such complex circuitry is insanely sensitive. The massive factories that produce these chips are known as “foundries” or “fabs.” A number of companies run such complexes; however, only two can produce the most advanced 5 and 7-nanometer chips. Samsung and Taiwan Semiconductor Manufacturing Company (TSMC) are the twin titans of the industry, together producing over 70% of all chips. Meaning, you most likely have some of their handiwork in your pocket right now.
Just how extremely dominant Samsung and TSMC are in chip production is hard to overstate. Due to the sensitive and advanced manufacturing process, new companies are unable to break into the market, prohibited by cost and industry know-how. Microchip manufacturing is unlike other industries that can quickly pivot, upscale or change. Additionally, the cost of building a new high-end fab is estimated to be in the tens of billions of dollars and take several years to complete. This is extremely important to understand when looking at the chip shortage.
While Samsung primarily makes integrated circuits for its own devices and a few other companies, TSMC exclusively makes chips for other companies. Because of the tight margins for overall chip production capacity, recipient companies generally need to book their projects many months or years in advance. Here’s what disrupted the supply chain recently: automakers, anticipating lower car sales, canceled their orders while demand for other computer devices increased as working from home escalated. That increase in necessity for work-from-home devices did not subside before car sales suddenly began to skyrocket. Because of the long lead times, some automakers were forced to remove smart features because they couldn’t get the required chips. On their own, either spike in demand would stretch the industry super thin. However, increased manufacturing requirements broke the supply chain. Cost increases of 10-20% in most electronic devices is another repercussion. Just how reliant are we on this vital technology? Judging by the supply and demand ripple effects – extremely reliant.