Endgame with Gita Wirjawan - Philip Wong - America vs Everybody: Will The US Win The Chip Race?

Episode Date: May 8, 2024

Join Endgame YouTube Channel Membership! Support us and get early access to our videos + more perks in return: https://sgpp.me/becomemember ---------------------- Chips have been playing a central role in modern societies across the globe. From airplanes to smartphones; from defibrillators to factory robots. It is everywhere. Therefore, it is hard to imagine a world without it. The advancement of chips—and thus humanity—will only be possible if, and only if, open science and international cooperation continue to persist. With the current geopolitical turmoil, who is going to pay the cost of chip innovation slow-down? About the Guest: Philip Wong is a Willard R. and Inez Kerr Bell Professor in the School of Engineering, at Stanford University. He was the Vice President of Corporate Research at TSMC (2018—2020) and has remained the Chief Scientist of TSMC in a consulting and advisory role. Prior to Stanford, he was with the IBM T.J. Watson Research Center for almost two decades (1988—2004). About the Host: Gita Wirjawan is an Indonesian entrepreneur, educator, and Honorary Professor of Politics and International Relations at the School of Politics and International Relations, University of Nottingham. He is also a visiting scholar at The Shorenstein Asia-Pacific Research Center (APARC) at Stanford University (2022—2024) and a fellow at Harvard Kennedy School's Belfer Center for Science and International Affairs. #Endgame #GitaWirjawan #PhilipWong ---------------------- Content: Prof. Wong's Childhood & Cultural Background Education Journey STEM vs Social Sciences Migrating Story Semiconductor 101 Moore's Law: A Self-fulfilling Prophecy? The Future of Moore’s Law “Geopolitics Could Go Wrong” TSMC's Secret Recipe Comparing Asia, Middle East & US AI Chip: Modern Sputnik Race? Logic, Memory, Special Chips How Chips Unite the World How Much Is Too Much of Protectionism? Are Chips The New Oil? Message for Southeast Asia Onshoring ------------------ Earn a Master of Public Policy degree and be Indonesia's future narrator. More info: [e-mail] | https://admissions.sgpp.ac.id | https://wa.me/628111522504 Visit and subscribe:  @SGPPIndonesia  |  @Endgame_Clips 

that a lot of people think company like TSM is a collection of factories and tools, or even just factory workers. That's about it. But reading is not. Professor Philip Wong. Professor in the School of Engineering at Stanford University. He's an I-Tripple-E fellow. He's published a book, has over 50 patents and over 600 publications. And was the vice president of corporate research at TSMC. TSM is a main contract chip maker to Apple and Invidio. Today we mark one of the largest investments ever in our nation's history in semiconductor manufacturing.

AI would really help with the U.S. and more advanced countries to get back into the game of manufacturing. Let me explain why. What about China? U.S. no longer manufactures the most innovative chips. You don't want to have the world's technology of relying on. on just one region. Solve this fundamental, foundational technology, make this foundational technology better

so that we can all go out and save the world. For technology to advance, you really need open science. You need collaboration. So now being that there are two camps, you don't talk to each other, that means things are gonna go slower. Now, the question is,

who's gonna absorb those costs? Hi friends, I want to take this opportunity to thank you for being with us ever since we started Endgame some years ago. The conversations have been invariably elevating and animating. At least from my personal point of view, it's been a tremendously rewarding experience. And I'm hopeful that you could be further supportive of us by way of clicking on the subscribe button. watching every episode as much as possible, if not as fully as possible. And also joining us as a member of the Endgame channel. I can only promise you that whatever we're going to be doing going forward

will try to make Endgame a better experience for all of you. Thank you. Hi, today we're honored to have Professor Philip Wong, who's a professor at the electrical engineering department at Stanford University, and he's also the chief technologist or chief scientist for TSM in an advisory role. Philip, thank you so much for gracing our show. Thank you for the invitation. You know, I want to pick your brains on a lot of stuff with regards to, you know, the semiconductor industry.

But I want to start out with your childhood. How did you grow up? You grew up in Hong Kong and how did you get interested in whatever ended up, you know, in your field right now? All right. I grew up in Hong Kong. Hong Kong was a British colony at a time. And most people in Hong Kong were rather relatively poor. At the time, it was like a developing, I mean, it's not a country, it's a colony.

It's a developing society. and most people were not very well educated at the time. In my parents' generation, they all get clobbered by the wall and the World War II, and the education were interrupted, and many of them don't formally go to school, and both my parents did not finish high school, but they were just like many Asian parents. They are very adamant that all the,

Children should be well-educated, and that's what they put the emphasis on. So I went through a very grassroots-type family. We live in very cramped departments, and when I was at a very young age, we kind of won the lottery from the government, because at the time, the government was building plenty of government housing. High-rise apartments. High rise, apartments that have, they rent out to the population at very low prices, low rent. And so we sort of won the wall lottery and moved into one of those. And that really changed our trajectory.

And we stayed there. I grew up there in this housing project. And later on, as our family got a little bit more resources, we moved out to private housing. but the early years we grew up in a housing project, which really immersed us into the general public of the society, which gave me a pretty good perspective of what the society is about. Who would have put more premium on education amongst your parents? Was it your dad or your mom?

Both of them, because they didn't have a chance to go through formal education, and so they realized, and right after the war, Everybody needs a bigger living, so to speak. And so there wasn't much of opportunity for them to get a formal education. So they are very, very insisting that everybody should, in the family, should be well educated. How did you discover electrical engineering? I mean, you could have done other things, right? Yeah, I could have done other things.

that was, I guess the society at a time, gravitated towards a STEM-type education because that seems to be a kind of like a ticket to a better life, better career, and the humanities and the arts are less well-defined. For example, if you're licensed to become an engineer, then of course you're a license to practice, you've got a good career and so on whereas the other profession seems to be more nebulous and that's well defined and so a lot of kids at the time who did well in school tend to pick one of the stem

fields to go into and so no exception for me follow follow the crowd and enter kind of go into like a science type of curriculum. And out of the science type of curriculum, the physics and the chemistry is part of the science curriculum is more kind of quantitative and formal and makes it easier to quantify

and at least for me it easier to understand. And rather than, for example, in biology, for example, it's more a, to me, at the time it looks like a more observational science. You need to remember a lot of things. And I'm not very good at remembering things. They're being modest.

So the physics and the chemistry looks better. Now, when I was about to enter college or university at a time, the careers for people who study basic science is rather limited because it's not like a basic science research. as in the U.S. it is today. But being a basic science researcher is not a career in outcome at a time. So most of the science-type careers

are more practical engineering is one of them. So many of our contemporaries becomes engineers. And out of all the engineering, electrical engineering is closest to physics. And you use many of the same concepts. in physics, you know, quantum mechanics, and electromagnetic and so on.

They are more closer to physics, so that's why I get attracted to it. You know, it's, I think it's probably safe to assume that countries or nations or governments or political cultures within each that would have put strong emphasis on STEM, it tend to have done well, as opposed to those that probably put less emphasis on STEM, right? Would you attribute this to the political culture in your household or sort of like the pervasive political culture at any dimension at any level? Or you think this would have been something that would have been driven by the leadership of that country,

that nation, or the government? I think if you talk, I think if you look at many of the Asian countries, they have to strong emphasis on STEM. And my crude understanding is that from an economic development point of view, you do need these skills from economic development point of view. If you want to build infrastructure, you need engineers to build the bridges and roads and so on and so forth. If you want to have industry, you need people who can do the engineering, mechanical engineering, African engineering, and so on and so forth.

That's, I think, mostly it's coming from the point of view of economics. development. But I should say that economic development in and of itself only takes you so far. At some point, their society will need things other than economic development. And that's where the amenities and the arts and so on comes in, that people in society are not just simply satisfied with the money. But beyond, there's a lot more than making a living. Once you are comfortable about making a living, then you look for something else.

I think that is the part that a lot of the Asian countries may not have recognized. I'm just sensing that there's quite still quite a lot of countries that have not focused on STEM, as much as some countries that we might have seen. Why so? Not sure. I mean, I'm in the camp that believes that I think a higher degree of focus on STEM

is correlated with your ability to move marginal productivity because that's correlated with innovation and all that good stuff, right? And being able to combine that with liberal arts or humanities, I think that makes it even more. good combination. But some countries, I think, tend to focus a lot less on STEM. And that, that I think, has hampered development to some extent. And I'm just happy with how Hong Kong, you know, has put a lot of emphasis on STEM, along with some other Asian countries, you know, such as Korea, China, Japan.

And now recently, you know, you've talked about Vietnam and Southeast Asia, right? Yeah. You can see that in the tenacity with which the people of Vietnam, I think, are focusing on STEM. I come from a region, you know, called Southeast Asia, where I think the focus on STEM needs to be, you know, more emphasized going forward. You went to Hong Kong University. Yeah. Then you decided to move to the U.S. Why?

Well, very simple. I am interested in kind of more advanced knowledge beyond the bachelor's degrees type of education. I was looking for a place where I could get a PhD. At a time, it was in early 80s. None of the universities in Hong Kong are what you would call a research university. They're basically teaching universities. In the colonial days, the universities in Hong Kong managed to train bureaucrats for the civil servants in service of the government, and they're not interested in doing research.

So there's really no opportunity to do any research in Hong Kong. So I came to the US. it's worked out okay with you. So far, I'm okay, I guess. Now, I want to shift gear to your area of focus. I mean, I know you're teaching electrical engineering and you're one of the few people that understand semi-conductor, you know, sector.

Why is it called semi, not full-conductor? That's interesting. But before I get into that, let me just finish by other your previous question. I think my kind of journey from Hong Kong to the U.S. is a very typical journey for many immigrants who are in the technology field. They came, they get educated in their home country and came to the U.S. saw an opportunity to get better education, and then many of them do stay. And that's, I think, it's a very important source of talent for the U.S. And maybe we could come back to that later.

But I think it's really important. If you look around in academia, in industry, many of them do come through this route. Yeah. Come and getting an advanced degree and an up staying. It's been the main source of innovation in the U.S. Absolutely. If you look at top management CEOs of big companies, many of them are, come through this route. Yeah.

That's very important. Yeah. Well, while on this, I mean, do you see that as something that's likely to continue given? I think that's in Japanese. Okay. Given the recent... This is the political calculus seems to be... Yeah, this seems to be the pendulum has swung to the other side in recent years.

And you see a lot of soul searching about immigrants or foreign students and openness. in research and things like that. And that, I think that creates an environment in which when, for a potential student from other countries looking at the U.S., and they would begin to think about whether this is the right place for them or rather they would go to some other countries to get your education and experience. When I was just graduating from college, that answer is very obvious. where you go?

The U.S., of course. Yeah. But now you've got optionalities. Now you've got options and also not only options from a pole point of view,

but from a push on a view. Correct. A lot of people felt that the U.S. may not be so welcoming as before. And so that,

I think that route or that flow of people is in somewhat in jeopardy. On the other question, why is it called

semi? Oh, why is it called semangard? Actually, I forgot who I heard it from when somebody talked about semiconductors and somebody who's not in the field

and asked, why semiconductor? How come a full conductor is not better? Cup half full? You know, come on. Well, what is a saman conductor? A semiconductor is a material that, as his name implies, not very conducting, not very insulating, and somewhere in between.

And why do I want something in between? It's because a full conductor would be something like a piece of metal, like copper or silver or that kind of thing. So a full conductor. Now, not a full, but a real conductor, basically. Why semiconductors? The semiconductor is used to build switches, like electrical switches, wall switches, flip on the switch and turn on the lights. And computers are actually a bunch of switches.

They be compelled by designing the organization arranging switches, how to route to the switchers around. In the early days, the telephone, you have a switch. switchboard. And you have real people who connect one line with another in a switchboard. And all these are replaced by chips today, of course. And so computers do computation by flipping switches, basically. So a semiconductor can be turned on to be conducting or be turned off to be not conducting. And that basically is what a switch is about. So a semiconductor is a semiconductor is. used to build switches. And so that's why some conductors are useful, because it can be turned on or turn off. Gordon Moore, he came up with his prognosis decades ago that, you know, things were going to behave in a certain way by way of the capacity growth, the speed growth, you know, it's been very, very accurate. Yes. Right. Every year and a half to two, the doubling of the capacity and the speed.

What's going to happen with Moore's Law? Okay, first of all, that Moore's Law, which would refer to doubling of something. Initially, he was just suggesting doubling the number of transistors on a chip. And later on, people modified it and doubled anything, which is not really what he meant. But people tend to associate it with Moor's Law that way. But that one is basically a self-fulfitting prophecy. And it's actually a rather unusual situation for a technology or for industry. I believe one of my colleagues of Professor Jim Palmer once said that he's not aware of any other industry that has this kind of self-fulfitting property.

It namely that everybody thinks that in X number of years, such things will happen. And so because companies are competing, because there's a protection out there, companies are trying to either meet or exceed that protection so that you can be better than your competitor. So as a result of that competition to get to that particular goal, that goal is satisfied. because of the intense competition. And also, that also, not only just the desire to compete, but also having a goal allows everybody up and down the chain, the entire chain of events, from materials to device technology

to circuit design and architecture and so on, so forth, up and down the chain to have a predictable cadence. Let's say, let's say I'm designing something. I need what I designed to be run on some kind of chip. Now, I cannot start designing the chip unless I know what the chip technology can do, what the capability is. Just like if you try to run a marathon, I cannot win the marathon unless I know what my capability is. So you need to know what the capability is before you can design your chip.

Now, without that prediction, you wouldn't be able to say, I'm going to design this based on this assumption that the chip technology will give me this kind of performance. I cannot do that. But with this kind of self-fulfitting prophecy, I know in two years the chip technology will advance to a point where I could count on that particular performance. And so therefore, I will tater my design based on. and that's assumption. And that's very powerful. Very powerful. It sort of framed the behavior of the industries.

Absolutely. Right? Consistently. Consistently for that case. I gave the example of designing chips. Even down to the material supplier. The material supplier knows that the chip manufacturer will need this kind of material or will need this kind of material to have that kind of performance

in two years. So therefore, I work on developing it. With the phone on, it's that when I get done, I would have a customer. That risk mitigation is very important. If I develop something, I spent millions, multi-million dollars developing something.

I didn't know whether there's a customer. That's bad. But in this case, I know. You know, at the risk of quoting you in previous conversations, at the rate that the percentage of how the chips

occupy our lives, if not lifestyles at an increasing rate. Whether it's opening your window in the car, turning on your toaster, turning on your microwave oven, whatever, before you get to the more complex stuff. What's going to happen to Moore's law?

Is it likely be, is it likely to be more exponential than whatever we have seen in the last few decades? I think there are two dimensions of it. Well, for short answer, yes, there's going to be more explanation. Why do I say that? First, for the last several decades, we know that there's one way to improve the performance of the chips,

which is to make it smaller. and there are a lot of physics involved to explain why making it smaller is better. So we know that it's one way and we've been kind of turning that knob for several decades now. And that knob has kind of saturated a little bit just like anything else.

You put the gas pedal, it hits the floor. In the beginning you're accelerating, but then pretty soon you hit the floor. floor, right? So that's so true, but that doesn't mean that progress will not continue if we made because there are many other knobs. There are many other ways to make progress. It's just what the knowledge you like to have is for the past 50 years, we've been walking inside a tunnel. There's only one way ahead. We know what the goal is when we just want to make progress and to make progress. That's one making devices, making transitions.

and memory smaller will allow us to pack more devices on the same chip and get more, therefore get more functionality, better performance, so on. That method is one method that we know and that is saturating, but it's more like walking inside the tunnel.

There's no way to go. It's the only way forward. But now we're at the exit of the tunnel. Now in the exit of a tunnel, there are two ways to interpret it. One, you fall off the cliff, you're dead. second

is the world is open, wide open. No more confining you cannot go left or right. You can go anywhere you want. I think my interpretation is we're the exit of a tunnel. There's so many possibilities

and we will continue to grow in capability in an exponential way or even faster. Now, why am I so optimistic? about that is because necessity is the model of inventions. And that arise, my optimism, optimism arise from the fact that society demand more from these chips, not less. To society will demand more and more from semiconductor technologies of chip technology

in the coming decades than we have done in the past few decades. So because it's coming from the demands, innovation will come up and bring the technology up in a much faster pace by before because we are not confined by the tunnel anymore. What could go wrong? What could go wrong? Geopolitics go wrong. I think that's a very important aspect that wasn't there just maybe like a handful of years ago. I think that is an important part because research and development thrives on collaboration. And there are many, many examples.

We can go into that a little bit more later. But it thrives on collaboration. And if geopolitics cause collaboration should not happen, then the rate of progress will be severely curtailed. I think that could, is something that could go wrong. You know, we're going through this era of what I call multipolarity, right? And I've said it before that ironically in a multipolar world, multilateralization becomes more difficult because there's this tendency of revisionism by the new mental powers or a grower.

greater than middle powers, right? And the pre-existing superpowers are not comfortable in embracing this new mode of multipolarity. I want to put this in the context of what you've been affiliated with, TSM, right? They've basically created a recipe for success that involved a lot of collaborative undertakings, right? from a supply chain standpoint, from a research and development standpoint,

from what have you, not just amongst enterprises, but also between academia and policymaking and entrepreneurship, right? What made them the way they were or they are? I think your observation is extremely astute in the sense that a lot of people think company like the SMC is a collection of factories and tools, or even just factory workers. And that's about it. But really, it is not. It is a enterprise that involves a lot of collaborations that thrive on the network of customers,

network of suppliers, network of collaborators in research and development, network of collaboration with the broader society which they live in, the Taiwan society. It is a network of all these things, and even more, perhaps, I didn't go into. So that piece, that's,

collection of relationship is what makes this company the way it is. Let's say we all of a sudden transplant this company to another country or another place that doesn't have the same political economic system. It is highly questionable whether they continue to operate the way it is. Yeah. So how do we, how do other countries try to replicate just any bit of what TSM might have been able to do? And I'm not single singling TSMC out here. There have been others that have been legendary and great, right? Samsung's of the world, the intels of the world. Absolutely. But I think TSM has proven itself to be very.

very resilient and very different. And their success seems to be sustainable so far. So far, yes. And go back to the history of how it came about. Go back to that conversation between Morris Chang, the legendary Morris Chang, with somebody or some people in Taiwan that made it the way it has become. I think there are two, if not more, at least two very important elements.

One, technology competition is really a talent competition. First, talent. Second, the broader society's support of the industry, not just the company, but the industry itself. They all lead a infrastructure for the company to exist and suppliers, customers and so on. So let's talk about talent first. Taiwan in the early days of the 60s, 70s through the 80s and 90s have sent, well, it's not that the government sent them, but students from that era all after the graduate from college, they all went out to the U.S., to Europe outside of Taiwan who has more advanced education achievements. in their universities to get education. And many of them stayed in the local host countries

to gain work experience. And in time, many of them go back to Taiwan to pursue to continue the career for a variety of reasons. Want to be closer to home. And I guess that's maybe perhaps one of the biggest draw or closer to the home or perhaps a perceived better career opportunity

in the home country so like playing in the home field which people sometimes feel more advantageous and being knowing the culture and the people well so talent the flow of talent is one of the most

important thing if you look at the leaders of the tech industry in Taiwan today many of them were educated in the U.S. Through this route, getting educated in college, go to other countries, the U.S., Europe, and so on, and go back to Taiwan, have the work experience, go back to Taiwan,

bring the work experience, bring the knowledge with them. And that is very important. That is, I would say, I wouldn't, perhaps is the, One of the major ingredients for this success. And it's not just limited to Taiwan and Korea as well. We look at many top management in Samsung and Sainix and so on. Many of them were educated in the U.S. So that's one part of it.

But that's only, that's one piece. But the other piece, which is important, is support of the society. If you think about how the same way of the industry was started in Taiwan, It was really supported by the government. It's industrial policy, basically. Taiwan government decided that this is an industry they want to get into and they support it with building industrial parks, with starting it, the Industrial Technology Research Institute, which spun off TSM and many other companies as well. So the government really

had a really robust industrial policy. Now, of course, industrial policy may or may not succeed. If you bet on the wrong thing, that's bad. And that's really, of course, if you're in the U.S., you know that

the U.S. feels that they don't need an industrial policy. And we don't go into that. But in this particular case, industrial policy worked out for them. and the government really supported it, building industrial parks, finding other pieces of the puzzle to fill in the infrastructure for this, for the same way like the industry, and also basically the technology industry. Back in the 80s and 90s and the early 2000s, Taiwan basically manufacturer, but basically it's the world's manufacturing. manufacturer for PCs and everything, even bicycles.

In bicycles. And so the government really supported it with really strong industrial policy. That's amazing. Now, you know, in early days, a lot of the intellectual property with respect to the microchip technology was done in the U.S. Do you think that with the benefit of hindsight of the U.S. were to decide otherwise? meaning they would have wanted to onshore the manufacturing capabilities as opposed to offshore the manufacturing capabilities.

Would things have been different? This is a very complex problem that I've been thinking about more recently and I haven't come to any reasonable resolution or answer yet. I can tell you what the what the kind of disconnect or problems are.

One is, in the U.S., this, as I said, this is a technology competition, the talent competition. If you look at the cost of talents in Asian countries and in the U.S., the cost differential is pretty high. Yeah.

So for a... It's getting smaller, but back then it was huge. It was huge. It was huge, right? So, to get talented people working on hard engineering problems in, let's say

in Taiwan or in Singapore or in Korea is way less costly than it is in the U.S. So in other words, they could deploy many high-scale talents to solve engineering problem, whereas the U.S.

is at a disadvantage in terms of cost. Not capital costs, but just talent costs. Give an example. I recently went through more than 20 years of TSM's annual report. Every year, the report on the education level of the employees. Starting from 1999, about 40% of the employees have a bachelor's degree and above. Today, 80%.

Wow. Now, that coincides precisely with the steady climb in the technology letter, the leadership race, the steady climb from beginning, they were licensing it from our CA, icing technology from the US, and bring it back to Taiwan. Gradually, they learned how to do things themselves, and the way to do that is to talented people so they started from 40% people employees who has a bachelor's degree and above to today 80%. And so that really tells you technology competition is a talent competition. Okay in this context, which other countries do you think have done as much or just about the same

amount that Taiwan has done. And I mean, you know, when you think about talent, you think about human capital, you think about countries that have shown, right, abilities to project intellectual capital, right? Within Asia or within the world, which, which countries do you think are likely to be able to emulate the kinds of successes that we've seen in Taiwan? Well, I've seen like countries like Singapore, Korea have been tremendously successful. But Korea, I remember back in the 60s and 70s, Korea was nowhere to be found. And then later on, they have kind of Me Too type products.

And we associate those kinds of products. Well, you usually start out with Me Too's. Yeah, start on Me Too. Then you start being innovative and unique. Exactly. And then slowly they climb up the learning curve. And I remember years ago, when you see Samsung, what the heck is this? Not reliable.

now's the best thing in the world. So these countries have done quite well. What about China? China is, I don't think we could ignore their capability. Let me talk about something that I'm familiar with, just research. Right. I'm academia. I know research.

Years ago, we have technical conferences. and we see papers from China and say, ah, forget it. Just quality is so bad. It's not even competitive. That was probably in the 80s and the 90s. Now, they're better than us. They're better than us.

If you look at, I look at papers, publications, data from key conferences in the chip spaces. For example, in the international electronic devices meeting, which is a device technology conference, the biggest one in our field, International Circus Circus Conference, the Circus and System Conference in our field,

the two biggest conference in our field. You basically flipped. Years ago, the U.S. had the majority of the papers. I remember they were roughly about 40, 60, 40, 40 to 50% of the papers from the US and China, maybe 20, 30 years ago, there were nobody to be found. Today, China and Asia, the papers are more than 40%, almost close to 50%. Oh, gosh. And the US has steadily declined from 40, 50% to 30 to 40% to 40%.

And the rest of the world, principally Europe and Japan has basically fallen off the country. clip. So the research and development, the research capability in Asian countries, China, Korea, Taiwan, Singapore, and so on, have really become the strongest region in terms of producing good quality research. I'm not just talking about quantity, just quality. And the only thing that I see that the US is still a little bit ahead is in coming up with the new ideas. What the Chinese always say going from zero to one, namely starting from nowhere, nothing, and come up with this really new idea. and if I look at what I would call new idea that is not been discussed before,

the US still, you read the research papers, the US still is the principal place where these new ideas come from. But once these new ideas become no, then you see mushrooming of this. New ideas in other places. Exactly. And I field it in my everyday research with my students. My gosh. Any new ideas that we come up, new ideas that we come up with,

once they become known, this is a good idea. The next week will show up in China. It will show them in China, not only that they do it better than you. Yeah. I cannot compete anymore. They have better resources. They have more students. They have more funding from the government.

I cannot compete anymore. I have to get out of that field. I want to get back to this, but I want to ask you about two countries like India and Israel. I mean, they have tremendous human capital, right? Do you see them as contenders in being able to, you know, replicate the kinds of successes that have seen in Taiwan? It has tremendous potential. Their human capital is unbelievable. not only they are a very popular a very popular country

of course they got scale yeah they got scale right and the statistics work out for them right when you have scale

then there are going to be outliers who are really smart and very innovative and so on just like China right

so that that they have that's very important I think they have tremendous potential if they do things right

because they got, they got scaled, the people are smart, right? And in terms of Israel, they don't have scale. A small country. But they are smart people,

obviously. The difficulty they have is lack of scale. A bit like Singapore, then. Yeah, a bit like Singapore. A lot of smart people.

Five million people. Yeah, 5.5. Yeah. That's finite. Yeah, finite. They don't have scale. Okay.

Going back to China, you know, with the advent of AI, how do you think the speed of new ideas creation is going to be impacted? I think the speed of new ideas. You can get AI to create a paper, right? Yeah, but I think ideas still come from people. It's the acceleration from an idea to something useful that AI will be able to help with. The idea still come from people. But today, there are a lot of barriers and times and efforts required to bring some idea to fruition. Perhaps the advent of AI would shorten that lifecycle.

But the idea still come from people, I believe. Now, AI would really help with the U.S. and more advanced countries. to get back into the game of manufacturing. Let me explain why. I mentioned earlier that the cost of human capital is, you cannot ignore it. The differential is there because of the standards of living and so on so forth.

It's there. Now, with AI and robotics, we should be able to make a lot of progress in advanced manufacturing. Because in advanced manufacturing, you need many high-skilled people because those manufacturers are so complex

it's not like doing repeatedly doing things over and over again according to a recipe you need to be able to understand the process, improve on it and those require high-skilled people, highly educated people. Now, the developed world

have very high cost for human capital. That being the case, you want to make really good use of those people. Those productivity has to be made higher. And the event of AI robotics would allow developed countries to deploy these highly skilled people much more effectively than before. And so using that would allow us to level the playing field

a little bit about the cost of high-skilled labor. In the next 10 to 20 years, How do you see the landscape of the competition? You know, in terms of countries, I mean, I think China is definitely pouring a lot more money onto this. The United States seems to be wanting to put more money onto this, not just on the IP site, but also on the manufacturing site. Korea seems to be very tenacious, right? How do you see the landscape? It's

I mean, it's a bit like a sputnik moment kind of, yes You know, from a chip standpoint And not only chip, but many technology as well Right Many other technologies You can think about like, you know, electric vehicles, batteries and so on

They're all like that, right? So the world is becoming a little bit The world of manufacturing or technology becomes a little bit more polarized, right? So you kind of separate into two camps or two and a half camps and things like that. And people need to, some camps with some countries, we need to play both sides and find their way around. But generally speaking, we think of it as two camps, right?

Now, that being the case, then as I mentioned earlier, for technology to advance, you really need open science. You need collaboration. So now being that there are two camps, you don't talk to each other. that means things are going to go slower. What does that mean? That means the society is going to benefit less because things are going to go slow.

Second is the separation of supply chain costs will go up. You need to find your suppliers, not the lowest bidders, but thinking about geopolitical situation, so cost is going to go up. Now, the real question is, who's going to absorb those costs? And it's not clear who's going to absorb those costs.

And today, if you look at, in part, why manufacturing in the U.S. is such a bad situation today, is in part, I believe, I'm no economist, I'm just guessing I'm an engineer, right? Maybe an economist listening to this podcast would say, wait a minute, once this guys are talking about, right? But my guess is that the distribution of profits is not equitable across the entire chain. The companies who are operating at the top of the food chain, the glean most of the profits.

I'll give you an example. I was just at Western Digital the other day. And they told me that if you want to buy iPhone with more storage, they charge you $100 or $300 more. But the people who make the chips to make it happen, get a few dollars. You were talking about level playing field? Right.

There's not a lot of equity there. There's not an equity there, right? This situation needs to be corrected. Otherwise, the manufacturing in the U.S. is not going to go well. I remember, for example, we talk about talent. I was once in a panel discussion with a bunch of Saman Semiconductor companies. And one person from company lamented that, oh, could hire people. nobody wants to join my company,

we have positions with the field and so on and so forth, lack of talent, lack of workforce. So I asked him, how much do you pay them? It went silent. He couldn't answer my question.

Why? Because they couldn't pay them to compete with the other people who have better who whips the profit. And because they couldn't

pay them, they couldn't get enough profits so that's why they couldn't pay them and so they couldn't hide the people So this scarcity of talent is really structural It is structural It's not so much

A lot of people thought that Oh We just need to tell the universities To offer more courses No Not gonna happen Not gonna happen You need to have the demand

I could offer 10 courses But if nobody take my course It wouldn't help you at all, right? You need to have the demand from the students. And where do you get the demand from students? The students need to know that. They have a bright career in front of them. If they take these courses, if they go into this field, they will have a good career. Today is not the case for many of these manufacturing-related jobs. So you're suggesting, if I get you correctly, there's likely to be a deceleration

of the competition by way of the polarization. If we haven't managed it right. Right. Well, hopefully we'll manage it better, right? And also the scarcity of talent. A scarcity of talent. I think it applies on both sides. Yeah, exactly.

The scarcity of talent is because... It's not just on this side of the Pacific. I think it's on the other side of the Pacific, too, given the scale, of course. Exactly, exactly. And that has to do with how the profits are fairly shared. Right. Because the companies who are doing the manufacturing and all the things below in the supply chain are not getting enough profits to offer good compensation,

to offer good working environments to the employees. So even within the supply chain, there's some players that are actually making disproportionately more than the other. Oh, yeah. Okay. Oh yeah. That's a structural impediment. Yeah, it is. To the desired speed with which you want to move. It is. I think the policy makers and the economists should have to recognize that. Otherwise, it's structural. The aspiration to onshore in the U.S. You know, there's been some conversations, discussions, and initiatives for TSM to build a plant here and there in the U.S.

including in Arizona. Do you see that moving smoothly or as smoothly as aspired? Well, I was at this big conference in December. I told you earlier a few speakers' biggest conference. I saw all my colleagues from around the world, from Europe and Japan and so my Japanese friends are all laughing at us. You guys are the slowest. That's public knowledge, I guess. Wow. Now, talk about, you know, there's the logic chips, there's a memory chips,

and there's a special chips, right? We call it discrete or whatever. How old that fare going forward in terms of who's going to be more dominant than the others within each one of those three categories? I think those three categories, they're all important. It's not like one is more important than the other. It's more important. Like, for example, we're doing this podcast, right? You need computers to crunch the data and stream the thing out. Oh, into storage, too, somewhere.

Yeah. And it's storage to store it, right? And the microphones, the video cameras, they all made the chips. Those are specialty chips. Yeah. Right. So they are important. And so we couldn't say, oh, we can't.

We can do without one of them. No, we cannot. They are important. Now, as far as resources goes, today, as of today, the development of logic chips requires a lot of it, the most of the resources. Because they are the ones who are driving in our kind of industry. It's a technology driver.

the requirements drive the development of new technology, new equipment, new processes, new materials, new devices, new design. Those applications drive the, with AI, it drives big computers that can crunch this numbers for the AI models. and it also drives development of computing chips that are so energy efficient you can do things on the edge, what they call on the edge of the internet. You go buy a VALAR headset today. You have to have a battery pack to come with it.

And that's not the end state of VALAI headset. I'm pretty sure about that. In the final analysis, BIAIS is not going to operate like that. But this is kind of like the intermediate stage that you need to go through. Just like cell phones used to be like size of a brick. I remember those.

You remember those, right? In the early 90s. In the early 90s, right? And those can only make a call and cannot do anything else. And I repel your story. When I was at IBM, I used to work on imaging, image sensors. and in the mid-90s, I had that idea.

I want to file, I want a file the invention of disclosure about putting a camera on a phone or a cell phone. This was in the 90s, right? It was in the 90s. And the IBM lawyers said, who wants a camera with a phone? We're not filing this. No more. After that months, I finally convinced him to file that. We do have a patent on that.

They have a great ability of prognosticating about the future. So all these things, all the progress that we desire the chips to have to we desire the chips to have these capability. Today is driven by

computing. Computing means. But it doesn't mean that it will continue to be the case. It doesn't mean that. And also it doesn't mean that there's no real need for innovation in other places. For example, just take image sensors, for example, tremendous innovation in image sensor. And they offer new capability in VRAL headsets. You need to have new innovations in image sensor and the way they received the signal, converted,

and do processing right up front, right at the sensor end and not back in the mainframe computer. So all these innovation needs to happen in order to kind of satisfy our society's demand for technology in general. If you look at, for example, the 17 sustainable development goals of the United Nations, I basically go through all of them and say, hey, at least 12, 13 of them require advances in computing technology and chips technology in general. So without those, all those development goals will be severely curtailed.

The backers of all these are consisting of the designers and the manufacturers. Now, the Qualcomms of the world, the invidias of the world, they seem to be content with just designing. right? How do you see the progression going forward or the shifting going forward? Are they do you are you likely or are we likely to see them moving in the direction of manufacturing given the, you know, the complications or potential complications we might see in the context of this polarization? Wonderful observation. 30 some years ago when Morris Chang came up with this split between fabulous, namely companies that only designed. and do not have any factory for building chips and foundries and foundries focus on building chips and not designing anything. That's demarcation that split caused a blossoming of design activities because you don't, people who design do not need to own the capital and all the baggage of owning a factory. And so they could then specialize on doing design. At the same time, people who owns a factory can specialize on running the factory

and also having the benefits of having zillions of customers instead of one customer. If I manufacture my chip, I sell my chips directly to the customer, then I need only one customer. That's myself. That's not enough to have scale, to have this economy of scale for the manufacturing. So this split has really blossomed in terms of making the design ideas go a lot faster than before. And having created a lot of business opportunity that did not exist before. Because previously, you have to have tremendous capital investment before you can design your own chip.

Now you don't. You just have to design and somebody will make it. Now, that split has gone on really well for the last 30-some years, but today, if you look at the Fabless and the Foundry, they're not really split. They're actually together. Companies like Apple, Qualcomm, Inmedia, AMD, they show up at the foundries every day.

They tell the foundry, hey, run this wafer, try this experiment, show me the results, give me the wafer, so I could test it myself. So they are actually doing a lot of the development work of the chip itself. So the leading edge technology basically would are today co-developed between the foundry and the leading user. Whoever plays the largest order, have a big say in how the technology is going to be designed and optimized. But what about skin on the game, though, in terms of manufacturing capabilities? Are they likely to see it put more skin?

It seems to be the case. There are indicators in there already. For example, Sony putting money in Japan and kind of work with, collaborate with the SMC to build a factory in Europe, the collection of automobile companies having putting their money down to build a factory there. So you're seeing some of that. And how far you will go is not clear, but you're beginning to see some of that. Talk about this company in Amsterdam or in Netherlands, ASML.

They make a pretty fancy technology, right? Ultraviolet lithography. That's well needed for a bunch of things, right? Talk about that company's history. technology marvel. If you go into the details of how this machine, the EUVE machine, the extreme ultraviolet lithography machine, is really an engineering marvel.

Now, it is also a statement about two things. One, it's a statement about a global supply chain. The laser come from San Diego, the lens is polishing, Germany, the mechanical movement came from Connecticut. So it's not just the Netherlands. It's a global supply chain of not only the machine parts itself, but also a knowledge, a global supply chain of knowledge.

That's one. The other one is the, is an example, it's an example of open science. The first EUV papers were published in the late 80s by a group of Bell Labs, and then followed by a bunch of conferences in which researchers in Japan and in Europe all participated. And then the U.S. national labs participated in the development of the early prototypes in the Department of Energy, the National Labs. All these, and then companies start coming in, Intel, TSM, and so on, and start investing. And we're talking about global companies, not just one country, global companies investing in it.

And years later, 30-some years later, or maybe 40-some years later, you have this wonderful machine. And that's all coming from a global collaboration of researchers, generating knowledge, sharing the knowledge, and bootstrapping from themselves. And that's a very important lesson for us to learn, is that if you cordon yourself off from the rest of the world, you wouldn't be able to achieve that. Or even if you are able to do that, you would take a much longer time and you lose the window of a problem. opportunity. That's a very important lesson to learn in this day of age, days and age of geopolitical tension and everybody wants to kind of have everything to themselves and not sharing with each other. If you don't share, you don't gain. You gain back more than we share. I think that's basically what I think how I would characterize it.

a sense of optimism just by way of how the intertwining of different stakeholders in multiple countries you seem to suggest that that serves as a structural cohesive

force for that to be very it's very difficult to rip it apart right? Right? Yes. And if you do rip it apart, you lose. Everybody loses.

Everybody lose. Yeah. Yeah. Everybody lose. But, you know, given the fact that we're seeing so much political neurosis in many parts of the world, right? Sometimes people don't act rationally. Yes. They act based on what their heart tells you, not what their brain tells you.

Isn't that a risk? Yes, there's a risk. I think in some part, I think it's due to the lack of understanding rather than any bad intent. It's not because somebody's bad intention or anything like that, but I think it's more like a lack of understanding. I came to that observation by my, through my participation in a study from the Hoover Institution about two years ago, they are a study about U.S., China, Taiwan, and Semiconductors. And they're published, you know, after two years, they publish a report called Silicon

Triangle. You can go on a Uber website and download it. And through that participation, I understand. My observation is that many of the people in the policy circle, they don't understand the technology. Therefore, because of this lack of understanding, they would make policy that really doesn't make sense from a technology. If you do have this technology underpinning, it doesn't make sense. Now, it doesn't mean that the people making policy meant bad or anything like that. It's just a lack of understanding.

And it also doesn't mean that the people making policy are dumb or anything like that. It's not. Nobody understands everything under the world, right? Today, they may be making policy about the pandemic, and tomorrow they may be making policy for semiconductor chips and the next day may be nuclear arms. So there's no way anybody, any single person or even a group of person, going to send everything under the world. But I think policymaking would really be helped

if there are more people who have domain expertise are participating in the formulation of the policy. And today, I think we have very few people who understand, at least in the semi-enuctive space that I'm permitted with, who are materially participating in the formulation of the policies. And I think that is a big hole that we need to fill. Do you suggest a higher degree of cultural interaction? Oh, yeah, absolutely.

I get the sense that people are not spending enough time in each other's place. Yes. Places. Absolutely. Like I said, I was participating in this Hoover study. Many of them are policy, people, China experts and so on. And at the end of the study, we all understand a little bit more about what the other people are expert about. I didn't know anything about China policy or industrial policy before, but I have some, at least some introductory understanding about it by now.

And my colleagues likewise have some introductory understanding about semiconductors. They wouldn't ask a question, why not a full conductor anymore? I have to ask you that. And I got to ask you, what's the difference between oil and chips? I know you've been asked that. What's the difference between oil and chips? Oh, what's the difference between oil and chips? Yeah, that's right.

I mean, people have been saying chips is a new oil. Yeah, yeah, yeah. Yeah, so, yeah. So I participate in this, participate in this Hoover Institution study, and a lot of people say, oh, chips, we need chips, and chips are everywhere. Anything that you need to turn on the power,

have a battery in it, or parking door will involve some kind of chips. You roll up your car window, there's a chip. You know, you listen to a podcast, you do the chip. Everything is a chip. So it's like commodity. It's like oil. We need oil. We need fossil fuel, right?

So people make a comparison between oil and chips. And that has, that comparison is pretty prevalent in a policy circle. Right. Okay. Now, but it's misplaced. I think it's totally misplaced. And when I made that comment at the study and people look at it and say, oh yeah. Okay.

Why is it different? Chips a lot like oil because oil has been in the ground for millions of years. it never changed. You dig it up today, you dig it up tomorrow is the same oil. The method of digging may be different, but the oil is the same.

Chips are not. You have phones, you have watches, you have your TVs. Would you like to use a phone that was made 20 years ago? Would you like to watch a TV that was made 20 years ago?

You don't. Because chips constantly advanced, and it has to constantly advance to show its value. People expect chips to continuously advance in its capability. Capability broadly defined as in among the things, the kind of things that they can do,

and also energy efficiency, don't burn up to so much energy or power, don't use up that that many battery, that much battery power, and so on. So the chips is useful to us because It's valuable to us because it advances constantly. It constantly renew itself. Chips today is different from chips tomorrow. You want the chips tomorrow, not the chips of yesterday.

Now, oil is not the same. You can stockpile oil, no doubt. And in America does that. Many countries do that too. You don't spot pile chips. A stockpile that you have is not useful. Very soon. Every couple of years, they're going to be obsolete.

Yeah, every couple of years obsolete. Yeah, exactly. Is it feasible to attain chip sovereignty or an absolute chip sovereignty? Given the nature that we just talk about, the global nation. I know, I'm just, I'm imagining. It's not possible. I think whoever suggests that in putting a policy circle, it's probably not having enough understanding about how the thing works.

Then I got to ask you the following question. In the worst case scenario, where we're seeing some unintended consequence or episode, you know, happening in the Taiwan Straits, what would happen? Well, let me quote two sources. one, according to a McKinsey report, it would be worse than the pandemic economically.

Second, you probably have seen the interview on TV of the GSMC chairman Mark Liu. Question was posted by the reporter, and I would like to quote his response. Such a thing happened, you have more things to worry about than just chips. let's make sure that it doesn't happen. I'll pray.

Let's make sure it doesn't happen. Well, we've talked a lot. Any final messages, Philip, to people in Southeast Asia or anywhere around the world so that they can feel more optimistic about they're becoming much more, you know,

positive and constructive about attaining STEM capabilities, hopefully some sort of manufacturing capabilities too, and being able to be collaborative with the rest of the world and all that. Well, one of the things that turned out to be positive thing for kind of developing countries or countries who are interested in advanced manufacturing, generally speaking, not just chips, but romance manufacturing,

is that because of the renewed sense of sensitization to supply chain, residencies, and so on, there is more of a diversification effort going on right now, that these countries who are historical in the past haven't really participated in this space, have a great opportunity right now. And that means they need to be prepared to take this opportunity that is opening up to them.

And that means, taking from the Taiwan experience that I mentioned to you that we discussed earlier, that means talent cultivation and government policies to support it. as general society, local society to support it. The, in terms of talent, by the way, a lot of people talk about workforce development. I actually don't want like that word that much.

I like to call it talent cultivation, because it's really talent, not just workers who repeatedly do the same thing, but really people who can continue would they learn and try do new things and understand the things what they're doing and be able to improve on it, those are what talent would do, right, not just generally workforce in the traditional sense of the world. And the other aspect is this general society's support of the industry. I'll give you another interesting story.

TSMC wanted to build a new factory in Zinju in the place where they have a lot of factories. And the government zoned a piece of land for them. Unfortunately, there is a temple, historical temple in that piece of land. I read about this in the newspaper. So, and of course, temple is sacred. and nobody wants to move to temple. But then at the end of the day, they decided to, okay, I can relocate the temple for you.

That's an important statement about how the general society support the economic development. They know where the priorities are. They know where the priorities are. And that's a really strong statements to support the society. Let me ask you, with the benefit of hindsight, if there wasn't a meeting between Morris Chang

and a public official who had the authority and also the vision, well, both of them had a vision, right, would there be in TSMC? Perhaps. Perhaps. I mean, history developed the way it is because of certain events, certain people, right? It's serendipitous. Yeah.

It's really, you know, there's a Chinese saying that whether is the situation that created a hero or the hero that created a situation, right? I think it's a little bit of both, right? Even if there is an official who started a conversation with a certain person, if that person is not a student. enough, then there's nothing that's going to happen. Or is there's a very visionary person, but there's no corresponding government official who sees things the same way. Nothing's going to happen. I think it's a little bit of both. And yeah, I think it's a little bit of both. And earlier, you asked about any lessons from, about Southeast Asian countries. I think there's also a lesson to be learned in the U.S. as well. In the U.S.

West we talk about on-sharing, manufacturing. To me, it sounded like giving a fish to somebody. You haven't taught them how to fish. I agree. And that's important to understand. And the other thing is manufacturing and innovation or R&D, research and development go hand in hand. manufacturing is not just doing repeatedly the same thing to a recipe.

There's a lot of innovation on the manufacturing floor, how to improve on the manufacturing process, how do you get better yield, how do you turn the current generation of technology a little bit better so that you can offer a newer version of this technology based on this current one, just slight change, not big change, but slight change that provide value with your customer. How do you do that? And TSMC does that a lot.

Every generation, they will come up with innovation on the manufacturing floor that turn it into a product that's slightly better than previous one that brings the customer in. You can tell the customer, hey, for a small price increase, you could get much better. performance or energy efficiency or better cost that doesn't require you to go to the next jump. That's value to the customer. So the manufacturing and research and development and innovation really go hand in hand. That's one piece, one side of the coin. The other side of the coin is that research and development has to be really close to manufacturing. otherwise you're dreaming up with solutions that not manufacturable and how do you know what is

manufacturable or not by being very close to the manufacturing floor so in other words it is very difficult to have the research developments divorced from the manufacturing and so if we just say hey company eggs just come to ohio Arizona Texas whatever and build your fab, that's, I think, just basically isolate that so for manufacturing from the rest of it. It's not going to be successful. You've got to be cognizant of the inseparability of the two components. Those are two sides of the same coin. Those are two sides of the same coin. You cannot just say, I only bring manufacturing on shore and I don't do them at R&D, and that's very important. So in other words, all these chips, subsidies,

52 billion dollars of chips X, right? 39 billion goes to the manufacturing subsidies and 11 billion go to R&D. Should be flipped. Well, it may not be flipped because you take more money to do the manufacturing, but the importance of which is flipped. The R&D. The most important one is the $11 billion. If you do that part right, I'm saying that not because I'm academic, I do research.

But if you don't... I would even put a grade or not. for R&D. Exactly. And 11. Right. That has to be done right. Otherwise, you'll get a fish and you ate that fish and then that's it.

You got to teach the fishermen how to fish. Absolutely. And I think that is the most important thing. And for the fishermen to be successful, you need to be able to talk to other fishermen. Yeah. So do you know where the fish is. Yeah. And you got to have a boat.

Yes. You got to have a boat. You know, there has been a lot of rhetoric. about Frenchuring, reshoring, offshoring, right? In the last few years. But if you take a look at the empirical evidence, call it Southeast Asia.

Capital formation hasn't really moved up in a meaningful manner. And I would speculate or even hypothesize that a lot of that is because of the lack of investment on a human capital. Right? And the onus, is really upon us to get our act together.

You know, there is a desire to reshore. There is a desire to reallocate. But if we're not ready, you know, it's not going to come. Yeah. And it hasn't come as much as we would have hoped for. Yeah, to capture the opportunity, you need to be prepared. And this talent cultivation is really to be prepared. You look at China as an example.

They graduate more engineers than anybody in the world. And that's how they got becomes a manufacturing hub of the world. And to go to Sun Jen, it's unbelievable. If you want to build something, some hardware, you've got to be there. They have not only the people, but also the infrastructure. And the people is really amazing. They know how to do things. And so you need that investment.

Philip, thank you so much for your time. Pleasure. Thank you. That was Professor Philip Wong at Stanford University. Thank you. This is Endgame.