The Peter Zeihan Podcast Series - The Worry List: Collapse of the Semiconductor Industry || Peter Zeihan

Episode Date: March 8, 2024

One of the most asked questions I receive is "what keeps you up at night?" So, I figured I would turn that question into a series called "Things I (Don’t) Worry About" where I'll discuss all the things that have me tossing and turning and what helps me sleep like a rock. First on the docket is the semiconductor industry. Full Newsletter: https://mailchi.mp/zeihan/things-i-dont-worry-about-collapse-of-the-semiconductor-industry

Hey everybody, Peter Zine here coming to you from Colorado, and we're going to start an open-ended series today called The Worry List. People have been writing in with like, are you worried about this, or you worried about that? And we're going to start going to go through and through some of them. First one is on Taiwan. Are you worried about global semiconductors in a scenario where the Chinese invade the island? And a little bit, but not a whole lot. Here's the thing. All semiconductors are a group effort.

And anything that is better than about, oh, it's kind of an arbitrary number. Let's call it 25 nanometers, which is something that's going to be in your cell phones and your computers. And then once you get sub 10, then you start talking about artificial intelligence and electric vehicles and that sort of thing. Anything that's above 25 or below 25, better than 25 is something that is really a team effort. The company that does the lithography is not the person, just the chemicals processing is not the one that does the doping. you might have these big facilities where everything comes together but it takes dozens, hundreds,

thousands, tens of thousands of companies to make it work and the further down the scale you go, the smaller chip, the more players there are, the more specialization there is, and the more of those players that there isn't competition.

So, for example, if you're talking about TSMC, which is what everybody's worried about, 90% of the high-end chips in the world all come from one town. So, you know, if the Chinese were doing, invade Taiwan, that could be an issue. But it's not like the Chinese could operate them because

the tens of thousands of companies that are involved, you know, there's something like 5,000 of them that only produce one product for one end user and they're not in one place. So for the Chinese to take that stuff over and operate it. Number one, they don't know the labor, not at home, not in Taiwan. Number two, they would have to convince the entire global ecosystem that it's okay for China to just take this stuff. And if only a handful of them say no, like I don't know, the US government, then it's just a big paperweight. In China itself, they have a hard time doing anything that is smaller than 90 nanometers without extensive outside help because they don't have the staff necessary to do the quality checks on the chips themselves after each round of baking

and doping, which for low-end chips can be several hundred runs. For high-end chips, it's several dozen. Depends on which technology you're using, there's a lot of variation. Anyway, so the reason I would be concerned is because the same thing applies to the Chinese, to a lesser degree, to everybody else. So let's assume for the moment that Intel, which is generally considered to be the number two company in the world, had an army and they conquered Taiwan. If they were under any degree of sanctions, they would have the same problem that the Chinese would. They can't do it themselves. Now, I would say that overall, Intel is a more rounded company than TSMC because Intel actually designs chips in-house, whereas TMC is only a fabricator. And that means there's more steps of the

supply chain that Intel has within its own staffing and facilities. And that's one of the reasons we should be looking very seriously at Intel in their attempt this year and next year to overtake TSM and to become the world's leader again. But again, they are not doing this by themselves. And so of all the economic sectors out there that I am concerned about in terms of manufacturing, semiconductors is the one as the world de-globalizes that I'm very, very concerned about. because once you get below that 25 nanometer level, things start to require a lot of players, and if a handful of them fall out, things get problematic.

And if you're talking sub-10 nanometers, we're just not going to be able to do it at all, regardless of what happens to Taiwan.