The Six Five team discusses the slimmer Chips Act that passed the Senate.
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Patrick Moorhead: The Senate actually passed something, a slimmer package, but they passed something.
Daniel Newman: Let’s be clear. They didn’t really pass a slimmer package. They passed the CHIPS Act. So when you throw all the numbers around Pat, we always heard, $52 billion was the number we kept hearing $52 billion. That’s what they’re passing is the $52 billion. So in the style that only our government knows best through the additions of pork coming from both sides, I mean, trust me, Pat, in the moment when our policy makers see bipartisan support, that is like a spending spree in their brain. They go, “Oh my God, everybody wants this. This is going to pass. Let’s just load it up with crap.” And so I believe the expanded bill went from $50 billion to almost $250 billion. Pat, these numbers don’t even feel real to me, the way we just throw numbers around like $250 billion. So they packed about $200 billion in stuff that wasn’t really part of the CHIPS Act.
So I think what effectively happened is with a lot of pressure from the SIA and from the other semiconductor industry organizations with a lot of influence from the top CEOs of most of the big tech world with quite a bit of posturing about national security, technology leadership, of course, supply chain resiliency, it sort of came back to, well, we got to do something. I mean, Europe passed a bill. We saw our friends at Global Foundries partnering with SD Microelectronics to do some expansion. Pat, the numbers are something like 40 shovel-ready projects for semiconductors or planned projects for semiconductors in China, 20 in Taiwan and only five in the USA. Now I don’t think that counts the Samsung’s potential bringing 2 nanometer here to the US. You and I shared that yesterday. And by the way, where are they going to do that, Pat?
Patrick Moorhead: Austin, Texas, baby.
Daniel Newman: I mean, where else would you do that? But overall, that’s still a Korean company in the US expanding manufacturing which of course we have great relationships and partnerships, but we have to have some level of control of our own destiny. 0% of leading edge done here in the US 0%. Now, Pat having said that $52 billion bill, I don’t think it’s big enough. Even if it’s going to take multiple years, it’s primarily focused on only manufacturing, which isn’t going to necessarily offset some of the technology leadership, the R&D. We’re up against China, Pat. I feel like I talked like Trump when I said that, and that’s not my intent, but we’re up against China, which will spend any amount of money to lead in a market. They will build cities where no one lives and they will spend money to try to take the leadership.
I saw something this morning, by the way, about the TikTok thing, it’s a little bit of a sidebar, but about basically that they purportedly lied in front of Congress about the data going back to China. And all I’m saying is it’s a relentless cycle of their ambition. It’s a relentless cycle of their ambition. And yet in the meantime, we were showing no ambition on our end so long and short: Ohio’s going to go forward, Intel is going to be the largest beneficiary of all the chip companies of this act, the fab companies are going to be looking for more dollars to be put behind them to drive more R&D and innovation and technology leadership. And the consumer will benefit when we create a level of resiliency where if there’s a COVID shutdown in China, if there’s a China Taiwan issue where there is at least some capacity to manufacture some, I think we’re trying to get to parody. I think parody the goal. And I think even getting to 20 or 25%, at least that doesn’t leave us in a situation where we could be completely blacked out.
Patrick Moorhead: Yeah. So over the last five years, actually the last eight years, China has injected a couple hundred billion dollars into its own manufacturing and design capabilities and that started in 2014. So they just complete to pile on. And if you take a step back, not only are most electronic products is final assembly done in China. But when you look at the semiconductors, like you said, is it’s dominated by Taiwan and it’s dominated by South Korea. So Tai Pei or Taiwan, actually Taiwan is 100 miles from the mainland of China and planes are buzzing. Warships are moving in there. And you can imagine probably the first thing that China would do is take out TSMC. Now I don’t mean destroy it, I just mean take it over. And that seems very plausible given today’s discussion.
And then let’s talk about Seoul is 35 miles from North Korea where I think North Korea has popped off missiles into the ocean at least one every month and could pretty much destroy all of Samsung’s facilities with its rockets pretty easily. If we get into issues like this, does this mean just making chips in the US solves that? No, because all the final production is done in China of these units. But what it does do is the longest pull in the supply chain are semiconductors. So at least we would be able to have the semiconductors built here for critical infrastructure. And if we had to, I think if we were forced to do some final assembly here – actually let me step back- final assembly for military is already done on us soil. I actually did a site visit of Jabil’s factory in China and Raytheon cruise missile guidance systems, but for critical infrastructure, let’s even say for servers that go into a bank right here in the United States, most of those PCBs are done in Taiwan or China. So this is why it’s important. I don’t believe this is saber rattling for the sake of saber rattling.
Daniel Newman: Never heard that term.
Patrick Moorhead: Yeah. I listen to what China is saying. And I look at what China is doing. And then I look at what North Korea is doing. And I think it’s very plausible that we could be in a serious military conflict with both of these countries. So hats off for us. I don’t know, God. Hats off for doing the right thing, but late. Golf clap. I mean, I can’t believe we pay these clowns taxes, but we do, and this is our money. So Daniel, what, what needs to come next, now?
Daniel Newman: I think we’re going to talk about Intel. Speaking of Intel, let’s talk-
Patrick Moorhead: Sorry, sorry, go back. I mean, on the CHIPS Act, what needs to happen now?
Daniel Newman: Well, I mean, I think it’s all about moving forward, bringing back capacity and taking steps, but being diligent that we didn’t just solve the problem. We spent a trillion dollars sending money to businesses that didn’t need money randomly during the pandemic, because we didn’t really know how or want to go through the effort to manage that process. And now we’re looking at this saying, oh, we fling $52 billion at semis to add some plants that are going to take what 2, 3, 4 years to build. By the way to build a fab, you need to have the supplies to build. And I don’t know if anybody’s been paying attention, but we’re struggling to do that too right now because of the supply chain. And then on top of that, we’ve got a lot of issues with our immigration policy and most of the people that are actually going to have the level of qualification to work in these fabs, aren’t all here.
And so we need to have a plan to train and educate people to be the, these are PhD level. It’s not a huge number of employees, but they’re very specifically qualified to do this kind of work. And we’ve had a problem where we’re not managing, we have a lot of immigration, but we’re not managing where that immigration’s coming from particularly well. So there it’s a snowball Pat. It’s not really straightforward. It’s not like, “Oh we’re going to pass the bill. We’re going to build some fabs. We’re going to get to parody. We’re going to have plenty of chip supply here.” And by the way, I think the one thing a lot of the economists are potentially getting wrong is the amount of demand for semiconductors. People that think that this fed the rate hikes are going to crush demand. I see it on some of the discretionary stuff, but I don’t see it across the enterprise.
Enterprises are not going to stop investing in tech right now to shore up their businesses. They will probably slow hiring. They will even possibly stop hiring and maybe even shrink their workforce. And then they will look for tech to actually enable the next wave of growth more efficiently. So it goes back to a book I wrote called Human Machine, but we will need fewer humans when we have more machines the unfortunate will be those humans, but the semiconductor industry will be at the foundation of running all that software.
Patrick Moorhead: Yeah. And the ROI of automation goes up when you’re increasing wages. So I expect a lot more of that.
Daniel Newman is the Principal Analyst of Futurum Research and the CEO of Broadsuite Media Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise. Read Full Bio