Zeihan: Will Intel successfully reclaim the throne in semiconductor production?

Once the dominant force in the semiconductor industry, in recent years Intel was surpassed by TSMC. Can Intel regain its leading position? — Image credit: Reuters

Formerly the undisputed leader in the semiconductor industry, Intel has faced challenges in recent years due to a lack of innovation and issues with execution. Competitors like Taiwan Semiconductor Manufacturing Company (TSMC) and Samsung have gradually eroded its market share. However, a new manufacturing technology has emerged, providing Intel with an opportunity to reclaim its position at the forefront of the industry.

Straight Arrow News contributor Peter Zeihan examines the current state of the semiconductor sector, delving into the reasons behind Intel’s decline and the specific strategies that Intel is now implementing to reclaim its prominent position.

Excerpted from Peter’s Feb. 12 “Zeihan on Geopolitics” newsletter:

The semiconductor industry is one of ever-growing importance, and its leaders— Intel and TSMC —are now fighting to be the first to bring the next generation of advanced chips to market.

Since its founding in the late 60s, Intel has been on the leading-edge of semiconductor manufacturing. For decades it pushed new technologies forward, vastly influencing technology developments across myriad sectors. Intel’s reign of supremacy ended, however, when in 2016 it misjudged the readiness of a novel lithography technology — extreme ultra-violet (EUV).

When Intel hesitated, Taiwan Semiconductor Manufacturing Company (TSMC) took the EUV plunge, and it paid off. TSMC is now the leading producer of sub-7nm chips, having utilized EUV lithography technology on a mass scale since 2019. Intel, on the other hand, just reached that point last year. Intel is hungry though, and has ambitious plans for the near-future, including securing the next generation of lithography machines (high-NA EUV) before any of its competitors.

The importance of the semiconductor industry will continue to grow as technology evolves and the green transition is carried out. Adding additional layers of security, stability, and cushion to the manufacturing process will be essential as geopolitical tensions rise and the world deglobalizes.

Good morning from a frigid Colorado. It’s a balmy zero degrees this morning. And today I’m going to tell you a tale of three companies and the state of the semiconductor industry from a technological and production point of view. Now, if you go back to the world before 2017, the technology of the day was something called Deep ultraviolet, which was basically a way of producing microchips. And Intel, the American technological giant, was the world leader by pretty much any measure, and they had gotten a little cocky, and they had gotten a little bit lazy. So they would design chips 234 models out, but would only produce the next one up, because they were so far ahead of everybody else, they didn’t feel the need to jump steps. So they would use d u v. And they would make a chip that was marginally better than the one before. And then at the end of the year, no one was had caught up. So they do it again, and again, and again. And they did this for like 15 years. I mean, they’re very good at what they do. But they could have pushed the technological envelope a lot more if had they chosen to, in part that was because of the nature of D UV technology. The problem with it is you have to kind of make micro adjustments, and physically adjust the equipment for each type of chip. And you have to do that manually and physically. And so with every design, you had to do it all over. And with every machine in a fabrication facility, you would have to do it independently. So no new chips from different machines are going to be quite exactly alike. And it generated a relatively higher loss rate from the final semiconductors than what we have today. And so generated a little bit more waste. But again, they were the industry leader, no one was close. Well, they were always had their eye on the future, however, and so they invested in new technologies that would take them beyond d u v, one of which is e u v, extreme ultraviolet. And the company that developed that technology is ASML, out of the Netherlands, and back in 2016, ASML, thought this stuff was ready to go. So they’re providing demonstrations for Intel, showing them how this technology is better, you can not only get more nodes on a chip and get to smaller and smaller nanometers, but it’s all digital. So you kind of type in what you want to the machine over the course of a few days to a few weeks. And then the machine doesn’t actually have to be physically manipulated in the way that d u v did. Now, what that would mean is you’d have a higher success rate and more efficiency. But back in 2016, Intel was like, I don’t think this technology is quite right. And we’re the industry leader, we’re gonna give it a few more years. Well, ASML not very happy with that and marketed the technology to everybody else, and a company decided to take the plunge, that company is TSMC out of Taiwan. And when we get to 2017 TSMC suddenly hits the ball out of the park, and proves that UV is ready for mass application. And over the next couple of years very rapidly overtakes Intel, because they have a shorter turnaround time for their chips, and they can make chips with smaller nanometre sections. It isn’t until 2022 or 2023, that Intel finally makes its first extreme ultraviolet chips. So TSMC in Taiwan has been the industry leader now for several years. Now, we’ve had a kind of a reverse in the roles now. ASML, the Dutch have another another new technology called high numerical aperture whose physics I’m not going to pretend to understand. And they have marketed again, and this time, Intel is the one that’s behind, and they’re kind of desperate and kind of hungry, and TSMC is the one that’s resting on their laurels. So the first delivery of those new machines, the high end AI chips went to Intel in the second week of January of this year. And Intel expects two things. Number one, they plan to overtake TSMC using the EU V technology in 2024, hoping to get down to two nanometers right now the industry lead is at about three nanometers and that’s a TSMC product. And then next year, they hope to leapfrog even further, provided that these new high na machines work which we’ll get to we’ll find out pretty soon. Anyway, that’s where we are right now in terms of the overall geopolitics. It’s pretty straightforward right now 90% of all I hand chips are made by one company TSMC in one city in Taiwan, it’s a high concentration. But if Intel working with ASML can pull this off. All of a sudden we will have facilities in the United States that are working on the higher end stuff with some of the first facilities that are gonna be going online outside of Phoenix and Columbus, Ohio. So stay tuned because the geography of these chips is about to evolve pretty significantly. If high na works, and if not, we’re still stuck with Taiwan it could be worse.