"The Path to Self-Sufficiency: Lessons for China's Semiconductor Industry"

"The Path to Self-Sufficiency: Lessons for China's Semiconductor Industry"

In the pursuit of achieving self-sufficiency in the semiconductor industry, China faces the daunting task of recreating various components of the foundry supply chain. It is not just about replicating the capabilities of companies like TSMC, but also the intricate network of suppliers such as ASML, Lam Research, Applied Materials, Tokyo Electronic, Zeiss, TRUMPF, Access Laser, and many others, most of which are not located within China.

To understand the challenges ahead, we can draw insights from Intel's integrated approach in chip design and manufacturing. Unlike TSMC's modular approach, Intel's integrated approach allowed the company to have complete control over the design and manufacturing process. This meant that chips had to be designed to work with Intel's manufacturing capabilities, rather than the other way around. The level of integration also extended to the tooling used in the process.

The implications of Intel's approach highlight the difficulties China may encounter on its journey towards self-sufficiency. Building fabs, the facilities for chip manufacturing, requires massive fixed costs, while chips themselves are relatively cheap. This economic dynamic is similar to the software industry, where venture capital played a crucial role in supporting chip companies like Intel and later transitioned to supporting software development.

Disruption is a significant challenge in the semiconductor industry. It is difficult to avoid, especially without a crisis prompting the need for change. Managers are often incentivized to leverage existing advantages rather than destroy them. However, the path to progress lies in moving down the learning curve at both the foundry and equipment levels. Merely pouring money into the industry is not a panacea; it must be utilized to improve processes and yield rates.

In the pursuit of self-sufficiency, China must also set good goals that align with its vision. A good goal is not just a constraint; it also encourages positive outcomes. It provides necessary context, empowering stakeholders to adapt the goal based on new information. The assumptions underlying the goal should be clear to all involved.

Flexibility is crucial in goal-setting, as circumstances change and new information emerges. A good goal should be adaptable without compromising its core purpose. It should prioritize meaningfulness over mere measurability. A powerful idea, even imperfectly measured, holds more value than a perfectly measured but less powerful idea.

Before we conclude, here are three actionable pieces of advice for China as it embarks on its semiconductor industry journey:

• 1. Foster collaboration: Building a self-sufficient semiconductor industry requires collaboration at both domestic and international levels. China should establish strategic partnerships with global players, leveraging their expertise and knowledge to accelerate progress.

• 2. Prioritize research and development: Investing in research and development is crucial for China's semiconductor industry to catch up with established players. By focusing on innovation and technological advancements, China can bridge the gap and establish a competitive edge.

• 3. Develop a skilled workforce: Building a strong talent pool is essential for the success of the semiconductor industry. China should prioritize education and training programs to develop a skilled workforce capable of driving innovation and operating advanced semiconductor technologies.

In conclusion, China's pursuit of self-sufficiency in the semiconductor industry requires significant efforts to recreate various components of the foundry supply chain. Lessons from Intel's integrated approach and the importance of setting good goals can guide China in its journey. By fostering collaboration, investing in research and development, and developing a skilled workforce, China can navigate the challenges and establish itself as a major player in the semiconductor industry.