Chips and China: Lessons in Building a Semiconductor Industry

Aviral Vaid

Hatched by Aviral Vaid

Sep 26, 2023

5 min read

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Chips and China: Lessons in Building a Semiconductor Industry

In today's rapidly advancing technological landscape, the importance of the semiconductor industry cannot be overstated. Semiconductors are the building blocks of modern electronics, powering everything from smartphones to self-driving cars. As countries around the world vie for dominance in this critical sector, China finds itself faced with the daunting task of creating its own semiconductor industry from scratch.

However, the challenge goes beyond simply replicating the manufacturing capabilities of established players like TSMC, ASML, and Lam Research. China must also recreate the entire supply chain, including companies like Applied Materials, Tokyo Electronic, Zeiss, TRUMPF, and Access Laser, many of which are located outside of China. This integration point is crucial, as it not only involves chip designs but also the tooling required for manufacturing.

To understand the magnitude of this undertaking, it is worth examining the approach taken by Intel, one of the industry leaders. Intel's integrated approach meant that they both designed and manufactured their chips, giving them complete control over the process. This allowed them to optimize chip designs to work seamlessly with their manufacturing capabilities. In contrast, TSMC follows a modular approach, where chip designs are separate from the manufacturing process.

The implications of Intel's integrated approach are twofold. Firstly, it offers valuable lessons for China as it embarks on its semiconductor journey. It highlights the importance of aligning chip designs with manufacturing capabilities, emphasizing the need for a holistic approach that encompasses the entire supply chain. Secondly, it underscores the vulnerability of the United States in the semiconductor industry. By relying on a few key players for chip manufacturing, the U.S. becomes susceptible to disruptions in the global supply chain.

This vulnerability also extends to Taiwan, where TSMC is headquartered. As China seeks to reduce its dependence on foreign suppliers, the risk for Taiwan has increased significantly. TSMC's fabs, which are the cornerstone of its manufacturing capabilities, are incredibly expensive to build. On the other hand, chips themselves are relatively cheap to produce. This economic dynamic, similar to that of software, means that the fixed costs associated with fabs pose a significant barrier to entry for new players.

Disruption, however, is an inherent part of the semiconductor industry. Without a crisis pushing for change, it is almost impossible to avoid. Managers are incentivized to leverage their advantages rather than destroy them. This is where the role of venture capital becomes crucial. Just as venture capital supported chip companies like Intel in the early days, it must now support the development of China's semiconductor industry. Investment is not a panacea, but it can fund the necessary processes to move down the learning curve on both the foundry and equipment level.

In addition to understanding the complex dynamics of the semiconductor industry, it is also essential to have effective processes in place for product development. The Department of Product outlines modern ways to create Product Requirements Documents (PRDs), which play a vital role in guiding the development of new features.

A pragmatic user story, according to their suggestion, should include a core user story that identifies the actor and their desired outcome. This sets the foundation for the feature. Essential functional details should be summarized concisely using bullet points to maintain clarity. Scenarios, while not exhaustive, provide guidance on how to handle different situations and can be further discussed during scoping sessions.

Linking designs to the user story is crucial, as it provides a visual representation of what the feature should look like. It is important to note that designs may need iterations and tweaks as the development progresses. Providing wider context by linking the user story to an epic or labels helps the team understand how the feature fits into the bigger picture.

Lastly, having a space for comments or questions is invaluable. It allows important decisions to be documented and clarifies any uncertainties. This becomes especially useful when there is a time lag between defining the scope of a requirement and its implementation. Clear and easily referenced comments ensure that future team members can understand the reasoning behind certain decisions.

In conclusion, building a semiconductor industry from scratch is no small feat. China's journey to establish its own semiconductor industry requires not only the replication of manufacturing capabilities but also the integration of the entire supply chain. Lessons from Intel's integrated approach, the vulnerability of the U.S. and Taiwan, and the importance of venture capital all shed light on the challenges and opportunities that lie ahead. By understanding these complexities and implementing effective product development processes, China can strive towards self-sufficiency in the semiconductor industry.

Actionable Advice:

  • 1. Foster collaboration and integration: China should focus on building partnerships with both domestic and international companies to recreate the entire semiconductor supply chain. Collaboration is key to aligning chip designs with manufacturing capabilities and ensuring seamless integration.
  • 2. Prioritize investment in research and development: Money alone cannot guarantee faster chips. China must invest in research and development to move down the learning curve and improve both foundry and equipment capabilities.
  • 3. Implement agile product development processes: Adopting modern approaches like the PRD framework outlined by the Department of Product can streamline the development of new features and improve communication within development teams. This will help China stay competitive in the fast-paced semiconductor industry.

Sources:

  • "Chips and China" - Author Unknown
  • "Modern ways to create Product Requirements Documents (PRDs) - Department of Product" - Author Unknown

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