it’s worth diving into the implications of Intel’s integrated approach relative to TSMC’s modular approach, because it offers lessons for the long road facing China when it comes to building its own semiconductor industry, highlights why the U.S. is itself vulnerable in semiconductors, and explains why the risk for Taiwan has increased significantly.

Fabs are incredibly expensive to build, while chips are extremely cheap; to put it in economic terms, fabs entail massive fixed costs, while chips have minimal marginal costs. This dynamic is very similar to software, which is why venture capital rose up to support chip companies like Intel, and then seamlessly transitioned to supporting software (Silicon Valley, which is today known for software, is literally named for the material used for chips).

This is where the integration point was critical: because Intel both designed and manufactured its chips, the latter could call the shots for the former; chips had to be designed to work with Intel manufacturing, not the other way around, and this extended to not just the designs themselves but all of the tooling that went into it.

What makes disruption so devastating is the fact that, absent a crisis, it is almost impossible to avoid. Managers are paid to leverage their advantages, not destroy them; to increase margins, not obliterate them

it’s not just that China needs to re-create TSMC, but also ASML, Lam Research, Applied Materials, Tokyo Electronic, and all of the other pieces of the foundry supply chain. And, to go one layer deeper, not only does China need to re-create ASML, but also Zeiss, and TRUMPF, and Access Laser, and all of the other pieces of the global supply chain, much of which is not located in China.

Money is not a panacea: you can’t simply spend your way to faster chips, but instead must move down the learning curve on both the foundry and equipment level. Money does, though, pay for processes that don’t have great yields