ASML has a monopoly on the
fabrication of EUV lithography machines, the
most advanced type of lithography equipment
that's needed to make every single advanced processor
chip that we use today. And this company is one of
the most extraordinary organizations in the world. We are the only provider on
the planet of this critical technology. The most advanced technology
manufactured in the United States. This vision that started 50
years ago with bringing the digital world onto a chip. And that pace of technology
innovation is unstoppable. At the center of this big
factory in the Netherlands, in the midst of a months
long assembly process, there's a revolutionary
machine that the whole world has come to rely on. You could see an EUV machine
right behind me. The size of a city bus but
working with atomic level precision, these EUV
lithography machines are the most expensive step in
making every advanced microchip that powers the
modern digital age. Data centers, cars, and
every single iPhone. We are the only provider on
the planet of this critical technology. These machines are the only
way to print minuscule designs on these chips. They cost up to $200
million, and they're only made by a single company,
Advanced Semiconductor Materials Lithography, or
ASML. Today, ASML has a monopoly
on the fabrication of EUV lithography machines, the
most advanced type of lithography equipment
that's needed to make every single advanced processor
chip that we use today. And this company is one of
the most extraordinary organizations in the world. The machines that they
produce, each one of them is among the most complicated
devices ever made. In the midst of a chip
shortage that's caused back orders of everything from
PS5s to Teslas, the need for a ASML has never been
higher. Its stock has skyrocketed
since 2018, while its three main customers, chipmakers
TSMC, Intel and Samsung vie to be front of line for
ASML's next breakthrough technology. The price tag
for this next machine, which promises to push the
boundaries of known physics, is more than $300 million. It's so expensive that most
companies cannot afford it. While the chip wars rage on,
we wanted to find out what's really going on inside the
quiet company making the machines that print them
all. This is the optical part of
the machine that makes EUV possible. We got a rare tour inside
ASML's clean rooms in California and the
Netherlands to see how these machines use precision
lasers, exploding molten tin and the smoothest surface
in the world to bring our digital age to life. ASML's crucial role on the
chipmaking stage has brought it wild success over the
past few years, making it even more valuable today
than Intel, one of the biggest chip makers it
supplies. It's double digit growth
every year. And we're not a startup. You know, we have now
32,000 people. Peter Wennink has been CEO
since 2013, but he joined ASML back in 1999, just 15
years after its humble beginnings. It started as a
subsidiary of Dutch electronics giant Philips
in 1984, conducting research out of a leaky shed next to
a Philips office building in Eindhoven in the
Netherlands. They were in financial dire
straits, so we had no money. We were poor. And because
the problems Philips had were so big, nobody looked
at this little outfit out there that was trying to do
something crazy, so they neglected us. Still, in its first year,
the company successfully launched a
first-of-its-kind machine that used precise rays of
light to print tiny designs on silicon to make
microchips, a technology known as lithography. The first lithography tool
really looked like a projector. There is
basically a reticle which all the image that you want
to project. Then there is an optical
system which is going to take this image and project
it on the wafer. Semiconductor lithography
was invented in a U.S. military lab and for a long
time up through the 1980s, the key lithography firms
were American, based in New England. Chris Miller of Tufts
University is writing a book called The Chip War: The
Fight for the World's Most Critical Technology. When the industry was
getting ready to jump into the early stages of EUV
research, none of the U.S. firms were ready to take the
plunge on what would be an expensive and risky
proposition, whereas ASML was. By 1988, ASML had five U.S. offices with 84 employees
and a new Dutch office that eventually became its
headquarters in Veldhoven, where CNBC took a tour
earlier this month. We're walking through the
EUV factory, which is about 50,000 square meters of
space with 1500 employees who are working in shifts
seven by 24 to produce 100% of the EUV machines shipped
worldwide from this facility. With a breakthrough machine,
ASML started turning a profit and went public on
the Amsterdam and New York Stock Exchange in 1995. By the 2000s, ASML was
acquiring California tech companies like Silicon
Valley Group and various key suppliers like Cymer in San
Diego, where we also got an inside look at the
cleanroom where ASML's light source is produced. So this is actually a nozzle
manufacturing area where we actually build the nozzles. This is actually the piece
where the tin shoots out of, that's what's going to
create your EUV. EUV refers to extreme
ultraviolet, an incredibly short wavelength of light
that ASML uses to print smaller, more complex
chips. But developing this
revolutionary technology was incredibly expensive. We didn't have the money, so
we went out and we found partners, which actually
was the basis of the way we built the company. So we
were forced to be a system architect and a system
integrator. In 2012, ASML offered about
a quarter of its shares to its biggest three
customers: Intel, Samsung and Taiwan Semiconductor
Manufacturing Co., or TSMC. They had to accelerate the
R&D for EUV, and the only way they could do this is
to get their largest customers involved. And one way you can make
your commitment real is to make them a shareholder. ASML is a Dutch company, but
it's also a Dutch company that relies very heavily on
U.S. components, in particular
for its machines, and at this point relies also very
heavily on one Taiwanese customer for its sales. TSMC made up nearly 40% of
ASML's sales last year. In 2019, the Taiwanese
chipmaker was the first to deliver high volume chips
made with EUV, a milestone that's kept it at the head
of the pack ever since, its chip technology at least
one node ahead of Samsung and Intel. And it has been TSMC's
customers that have gained a lot of benefit like AMD,
Nvidia and others. And yeah, you can argue
that this has come at the expense of Intel not
executing. Intel is just now producing
its first chips with EUV this year, three years
behind TSMC, but it's made a bold move in hopes of
catching up: an early investment to secure the
first prototype of ASML's next machine: High
Numerical Aperture. To understand why the
success of a giant like Intel hinges on ASML, let's
take a look at how EUV lithography revolutionized
chipmaking. When you start breaking
down, what does it take to make an EUV lithography
machine? It's sort of Nobel Prize
winning in terms of the engineering involved. Chips are made from
silicon, an abundant element found in rocks and sand
that's purified, melted down, then sliced into
circular wafers, the surface on which chips are built in
a grid formation. Each wafer can have dozens
of thin layers, making up billions of transistors
that determine what the chips can do. These layers
are printed using lithography. Extremely
precise rays of light are projected through a mask of
the chip design. When the light hits the
surface of the wafers, which have been coated with
photoresist chemicals, it prints the minuscule
designs on each layer at extremely high volumes. If you think of a typical
processor chip, in an iPhone, for example, will
have over 10 billion transistors on a chip, and
Apple will sell 100 million or more iPhones for each
model that's rolled out. So you're already talking
in numbers that are far bigger than you or I
remember how to pronounce. As the wavelength of the
light source in making chips gets narrower and narrower,
it gives us the ability to make chips with smaller
features, which means the chip is faster, the chip
can be smaller, the power consumption of the chip can
be lower. The smallest transistors are
more than 10,000 times thinner than a human hair. The designs have gotten so
small, ASML had to develop new methods of printing at
the very edge of known physics. With the help of
customer investments and a consortium of scientists,
ASML figured out a way to create large amounts of
extreme ultraviolet light with a wavelength so short
it's not only invisible to the human eye, it's
absorbed by all natural substances, even air. So the entire process has
to happen in a vacuum, a first for lithography. At 13.5 nanometers, ASML's
EUV wavelength is the size of just five DNA strands
laid side by side. The previous generation
machines used deep ultraviolet light or DUV,
with a wavelength of 193 nanometers. The vast
majority of ASML's business, 268 of the 309 machines
sold in 2021, still use DUV technology, which is used
to print the less advanced chips which are in shortest
supply. DUV is for anything that is
low technology, like a toaster or refrigerator or
even some of the electronics in your car. Today's iPhone
13 is EUV. Both DUV and EUV lithography
is so advanced it requires precision down to the atom. This is an EUV cabin of our
clean room, which is 10,000 times cleaner than the
outside air. We're wearing these
clothing not to protect ourselves from the
environment, but we're protecting the machine from
the contamination that's created by us. This tiny thread may look
like the strand of a spiderweb, but it's
actually molten tin being shot out at a pressure of
4000 PSI. And it's how the EUV light
is created. This is continuous tin. It never, ever, ever stops. The tin is streaming through
a perfectly calibrated nozzle which we saw being
built in San Diego at a rate of 50,000 droplets per
second. A 30 kilowatt carbon
dioxide laser hits each droplet twice per second,
vaporizing them into plasma. These tiny explosions are
what emit photons of EUV light. A huge number of
explosions need to happen because only about 5% of
the photons reach the actual wafer. The light particles
are so short they get absorbed by mirrors, the
typical method used to precisely aim light through
a lens. So ASML partnered with
German optics company Zeiss, which makes the flattest
surface in the world. The flatness is really just
incredible. If you took a mirror
element that is maybe this big and you blew it up to
the size of the country that we're in. The biggest bump
would only be about one millimeter across the
entire surface of a mirror the size of this country. EUV light bounces off these
groundbreaking Zeiss mirrors until it hits photoresist
chemicals on the surface of the silicon wafer to print
minuscule designs that make up the chips. The aim needs
to be so precise TSMC says it's equivalent to shining
a laser from the moon to hit a coin on the earth. So your tin is inside of
reservoir here and then you're firing out this way. Pete Mayol has been running
this clean room for six years. If any kind of defect
particle whatsoever is even on the tip of that
capillary, it's a fail. We'll move and start all
over again. And the speed and scale at
which this has to happen is staggering. ASML says an
EUV machine churns out about 3000 wafers a day. There can be hundreds of
chips on a 300 millimeter wafer and up to 10 billion
transistors per chip. They take extraordinary
achievements of engineering and physics, and they're
able to replicate these on a mass production scale and
at a low enough cost where these machines can be used
in chip fabs to churn out thousands and millions of
chips for the companies that buy them. A completed EUV machine is
actually made up of seven different modules, each
built at one of ASML's six manufacturing sites among
its 60 total locations around the world, then
shipped to and reassembled in Veldhoven for testing. Then it's disassembled
again for shipment, which takes 20 trucks and three
fully loaded 747s. In 2021, ASML sold 42 EUV
machines, bringing the grand total it's ever shipped to
just about 140. With each machine costing
up to $200 million, only five customers can afford
to buy EUV systems: Micron, SK Hynix, Samsung, Intel
and TSMC, the last three making up nearly 84% of
ASML's business. It certainly has eliminated
a lot of players out of that market. So we saw
GlobalFoundries back five years ago or more say that
they weren't going to pursue a seven nanometer chip. The handful of huge
customers it does have are furiously adding capacity
to try to ease the global chip shortage, which is
impacting ASML too. We got a lot of messages
from our suppliers that said, Hey, we might be late
in delivering our modules to you guys because we cannot
get the chips. And we said, if we cannot
get the chips, we cannot make the machines to make
more chips. So there's a catch-22. We're still managing, keep
our fingers crossed, but it's a daily struggle. The question is, can ASML
keep up with demand? I think the answer is
probably yes. Maybe the growth will
exceed even their targets, that's possible, but
they're certainly preparing to ramp up their
production, which is, I think, good news if you're
worried about a chip shortage. The world needs more chips,
so we need to make more machines, which, by the
way, will keep growing an average selling price as
long as we can drive the cost per transistor down,
which is exactly what we've been doing for the last 38
years, and we will keep doing for the next couple
of decades. Before, EUV chip makers had
three companies they could choose from for their
photolithography tools: ASML, Nikon and Canon. Nikon in Japan is still a
competitor for DUV, but ASML is the only option for EUV. Experts say it could take
decades for any other company to catch up, not
only because of ASML's proprietary tech, but
because it's built complex, often exclusive deals with
nearly 800 suppliers. And we're unique to our
customers, like some of our suppliers are unique to us,
and those almost symbiotic relationships some people
say are worse than being married because you cannot
divorce. It takes ten years to not
only get the technology, but then be accepted. So the buyers for
semiconductor manufacturing fabs are very risk averse. One of the ways ASML has
insulated itself against supply chain risks is by
purchasing some of its suppliers, like Berliner
Glas in 2020. A fire broke out there in
January, but Wennink says it won't significantly impact
system output in 2022. Instead, ASML projects a
20% sales growth this year and an annual revenue
growth rate of 11% until the end of the decade. It's actually driven by you. You're asking for more
solutions that will help you to have a better life, to
make your life easier or your life more productive. We're changing into a
sensing world. There are sensors
everywhere: they're in your car, they're in your
fridge, they're in your PC, they're everywhere.
Sensors, they need semiconductors. All of the world's most
advanced semiconductors are made in Asia by two of
ASML's biggest customers: TSMC and Samsung. But the chip shortage has
raised concerns about overseas dependency. This is why you see all
these initiatives around the globe: the U.S. Chips Act,
the EU Chips Act, the Korean Chips Act, the Japanese
Chips Act, the Chinese Chips Act. It's now a very
strategic commodity. Intel just announced a $20
Billion chip fab in Ohio, and it's also building one
in Arizona just down the road from a massive new fab
where TSMC will make advanced chips in the U.S. for the first time. And
Samsung is building a $17 billion fab in Texas. All this came after
President Joe Biden proposed the Chips Act with $52
billion in subsidies for chip companies to
manufacture on U.S. soil. It means that we need to
ship our machines sooner, earlier and at higher
volume. So it means we need to hire
more people in the U.S. It's talent. It's people. I think that's where the
biggest challenge will be. But this movement toward
domestic production has another side that poses a
challenge for ASML. A desire to stop sharing
chipmaking technology with China. China has wanted to get into
that race, but there's been politically generated
reasons why China has not had access to the same type
of technology as other companies. As far back as 2018, the
Trump administration reportedly pressed ASML not
to sell EUV systems to China. ASML still hasn't
sold a single EUV machine to China. 43, 42 countries around the
globe have agreed to put export control measures on
it because it's so critical. So it's not our choice,
it's the choice of governments. ASML also refurbishes older
lithography systems and sends many of those to
China. More recent DUV machines all
the way back to its early systems from the nineties. 96% of all the machines we
ever sold, we ever shipped, are still working. There's a lot of debate
about whether selling additional DUV equipment to
China is also a national security risk by letting
China increase its ability to manufacture close to
cutting edge semiconductors. So I think there's some
chance that in the coming years there are new
restrictions that are imposed on ASML's ability
to sell DUV equipment to China as well. If export controls were
expanded to include DUV machines, it could greatly
impact ASML's bottom line. This is where the biggest
demand is. This is where the
exponential curve is. So trust me, we need every
manufacturing capability on the planet, whether it's in
Korea or in China, to just keep adding capacity. Let's go look at the big
boy. And then there's the
question of whether demand for the most advanced chips
will remain high enough to support continued
development of ASML's next generation EUV machine,
High-NA. This is the machine Intel
announced it'll have first by 2025 and ASML has
already sold four other units. This is the EXE:5000. So this is what we'll be
testing for High-NA. This will be what makes our
next generations even better. But even now, before the
bigger, better machines, the whole world's reliance on a
ASML is only growing, no matter what gets in the
way. What can really get in the
way is the geopolitics, like the Russia and the Ukraine
war right now, those are big geopolitical friction
points that can, of course, not only hurt us but hurt
the world economy. But apart from that, let's
hope and let's pray that can be controlled, then it's
all about execution. And we will keep shrinking
the cost per transistor and we will provide the world
with ever more powerful semiconductors. That's not
going to stop. Chips are in everything and
they've been in short supply since just a few months
into the pandemic last year. That's why it's been hard
to buy everything from cars to PS5s. Turns out one
company makes 24% of all the world's chips and more than
90% of the most advanced ones. The smallest, fastest
chips used in today's iPhones, supercomputers and
automotive. We even have product that's
landed on the last Mars launch that are taking
pictures of Mars. Taiwan Semiconductor
Manufacturing Company, or TSMC, is not a household
name, but it's quietly making chips for every new
iPhone, U.S. fighter jets, the highest
end processors, you name it. And now it's investing $100
billion over three years to ramp up production amid the
shortage. The combined output of what
we're doing is in excess of 12 million wafers a year. But the world's massive
reliance on TSMC may also leave the global chip
supply vulnerable to earthquakes, drought and
geopolitical tensions with China. It's become almost a
monopoly at the leading edge, and all of those
manufacturing operations, for the most part, are out
of Taiwan. That becomes a matter of
national importance for the United States, but not only
the United States, but the Western world. TSMC almost always keeps its
production sites closed to U.S. video crews. Until now. The total for space for this
fab is around a 2.3 million square foot. The U.S. was the birthplace
of advanced silicon, but for decades now it's been
losing market share to Asia, where 75% of chip
production happens now. TSMC is now bringing the
world's most advanced chip making back to the U.S. with a $12 billion
fabrication plant, or fab, in the middle of the
Arizona desert. It's going to be, when it
gets introduced to production in 2024, the
most advanced technology manufactured in the United
States. We got an exclusive tour of
the fab site in northern Phoenix to get the truth
about the secretive Taiwanese company and why
the world's largest contract chip maker is bringing
bleeding edge chip manufacturing back to U.S. soil. When Morris Chang first
proposed the idea for TSMC in the mid eighties,
investors were skeptical. Born in China and educated
at Harvard, MIT and Stanford, Chang moved to
Taiwan after 25 years at Texas Instruments. There, the government asked
him to create a Taiwanese semiconductor company that
would become a world leader. His idea focus only on
manufacturing, what's known now as a pure play foundry. When you're just focused on
one thing, you do one thing really well. Rick Cassidy is TSMC's top
executive in the U.S. He's been with the company
for 23 years. The slice we spun out was
foundry, and that's what we do. And we put all of our
resources into doing that one thing. Chang bet big on a need that
didn't exist in the eighties . When he founded TSMC in
1987, giants like Intel and Texas Instruments took
pride in designing and making their own chips. A legendary saying in the
industry back then was, Real men have fabs. When Morris went out to get
funding, he went to many named companies and they
told him, Morris, your idea won't get off the ground. If you get it off the
ground, it can't scale. But as chips got more
complex, making them became an enormous undertaking. Building a fab today takes
at least two years and $10 billion. It's become nearly
impossible for even the biggest chip companies,
Intel, Nvidia, Broadcom, Qualcomm, AMD, to do it all
and keep up with the most advanced tech. Intel, for
example, still designs and makes its own chips, but
it's fallen behind Samsung and TSMC in recent years,
even relying on TSMC to make some of its chips. So if you were a smart
designer, you didn't have to have billions of dollars in
a fab behind you, for the first time, with the
emergence of TSM. Now, each major step of chip
making is often handled by a separate company. Some, like Arm and MIPS,
focus on IP and architecture, providing the
core building blocks to design chips. Then there's
electronic design automation, EDA companies,
like Cadence and Synopsys, that write the software
used to design chips. Only one company, ASML,
makes the $180 million extreme ultraviolet light
machines required to etch designs into the most
advanced chips. And then, of course, there
are the wildly successful fab-less companies
designing the chips. Think Apple, Qualcomm,
Nvidia, and many more. As these fab-less companies
took off, TSMC found itself on a flywheel, making more
and more of the world's chips. And this has allowed TSMC
not only catch up but, in my opinion, surpass Intel to
become the world's greatest manufacturing technology on
the planet and responsible for becoming one of the top
ten most valuable companies in terms of market cap in
the globe. TSMC was first listed on the
Taiwan Stock Exchange in 1994. In 1997, it became
the first Taiwan company listed on the New York
Stock Exchange. By the 2000's, it had
caught up with the 20 or so other companies making the
most advanced chips at the time. As the tech kept
advancing, more and more fell behind until today,
only two manufacturers remain that can make the
most advanced five nanometer chips: TSMC and Samsung. In 2013, Apple started
relying on TSMC to make its A-series chips for the
iPhone as it moved away from reliance on Samsung, a
direct competitor in mobile phones. Today, there's a
TSMC chip inside every iPhone on the market, and
Apple has moved away from Intel too, now relying on
TSMC to make the chips inside most Macs. But they remain sort of in
the background. So Apple gets all the
accolades when a new phone comes out. We let our products speak
for themselves. Their success brings all
the business that we could ever hope for. As to why TSMC hasn't
allowed U.S. media into its sites before
now, does part of the secrecy have to do with IP? Sure, because this IP
protection is very important for in this industry, not
only the TSMC but also for the other company in the
industry. In 2018, at age 86, Chang
retired as chairman of TSMC. His radical, pure play
foundry idea continues to pay off. With the opening
of a new fab in Taiwan next year, TSMC is in a race
with Samsung to make the world's first three
nanometer chips, with Intel planning to get there by
2025. Along with cutting edge three and five
nanometer, TSMC also makes far larger chips for
everything from cars to coffee makers. To understand the different
kinds of chips and why nanometers matter, let's
look at how they're made. Silicon, an abundant
element found in rocks and sand, is purified and
melted down, then sliced into circular wafers. These wafers are the
surface on which chips are built in a grid formation. Each chip on the wafer can
have hundreds of tiny layers, each made up of
transistors and electrical circuits which determine
what the chip can do. The minuscule circuitry is
printed on each layer using lithography, extremely
precise rays of light. The smaller the width of
the transistor gate, five nanometers, three
nanometer, the more processing power can fit in
a given space with less power needed. The smallest
transistors are more than 10,000 times thinner than a
human hair. Most of the chips are
probably about the size, a large one, of my thumbnail
. On there you might have
something like 50 billion plus transistors and they
all have to work. These are parts that are
going to be used in lots of different places: CPUs,
GPUs, IPUs, etc. They'll be used in
smartphones. Bigger chips are used in
most household devices, things like a TV remote or
electric toothbrush. Cars often use less
advanced 28 to 40 nanometer chips, and all types of
chips have been impacted by the shortage. Carmakers
like GM and Toyota have paused production at some
plants, and Apple is cutting its 2021 production targets
for the iPhone 13, with orders for the 13 Pro Max
delayed by more than a month. Right now, no fab in
the U.S. can make five nanometer
chips, but TSMC is changing that. The F-35 Strike Fighter to
these consumer products, their customer base is
wide. 500 plus companies are
their customers in the United States. And so as a
byproduct of that, we knew they were going to need to
be in the United States at some point. Chris Camacho of the Greater
Phoenix Economic Council got to visit TSMC's fabs in
Taiwan during the five years he was helping negotiate
the deal that brought the project to Arizona. The robotics, the
automation, the mechanization occurring
before your eyes. And so you can see how
these things not only are so capital intensive, but also
their output is so significant. TSMC is six months into
building this massive five nanometer fab outside
Phoenix that will pump out 20,000 wafers per month
starting in 2024. The chips from the wafers
will end up in iPhones, high end processors and much
more. Arizona project leader Tony
Chen has led 17 other fab construction projects in
his 23 years with TSMC. This approach is designed
for five nanometers fab. That's a copy from the fab
we have in Taiwan. Just down the road, Intel is
in the midst of building two new fabs, spending $20
billion. These massive buildings,
used to make minuscule chips, have brought some of
the world's largest equipment to Arizona. This is the biggest crane
that Manitowoc makes. There's only two of them in
existence, and it's a 2300 ton crane. Since we've
started, our dirt contractor has moved over 3,731,000
cubic yards of dirt. We've also used over 260
million gallons of water. Indeed, building a fab and
making chips takes an incredible amount of water,
something that's not easy to find in the middle of the
desert. Arizona's biggest water source is
groundwater, but deep wells at big farms are using up
groundwater faster than it's naturally replenished. We do need around 4.7
million gallons per day in water to support the
production. TSMC is no stranger to water
shortages. Taiwan is facing its worst
drought in 56 years, something that TSMC says
has not impacted production . In Arizona, TSMC says an
onsite water treatment center will recycle up to
90% of water used at the fab. And then ultimately that
water will be re-injected into the aquifer in
partnership with City of Phoenix after reverse
osmosis and other technology solutions are provided. Another challenge of
producing the most advanced chips stateside? The current specialists are
all in Asia. TSMC's best engineers right
now are in Taiwan. They're likely going to
stay in Taiwan. The most cutting edge R&D
is going to be done in Taiwan. To solve this, recruiter
Roxanna Vega says TSMC is bringing over some of its
top experts from Taiwan. They're seen as subject
matter experts in what they do in our fabs over there. And so it'll be a temporary
assignment depending. Two maybe three years. TSMC has already sent some
300 new U.S. hires to Taiwan for 12 to 18
months to get up to speed. And the opportunity to train
in our five nanometer giga fab in Taiwan is going to
give them that insight of how immense and how state
of the art our tools, machinery and everything is
going to be here in Arizona. Taiwan is not very good when
it comes to analog semiconductor design and by
moving to the United States, we'll be able to
tap into a much larger number of analog designers. This diversification is a
key reason for TSMC to bring advanced manufacturing to
the U.S. And then there's proximity
to its huge, fab-less customers based in the U.S
. like Apple, Nvidia and
Qualcomm. If you want more capacity,
you have to build more fabs. And that's one of the
reasons that we're moving to the U.S. Our customers want
us in the U.S. The U.S. government wants
us here. Over 60% of their customer
base is still U.S. companies. So some of these
companies, like Apple, had hinted that they want their
supplier to be closer to home just in case. TSMC has 12 fabs, almost all
of them in Taiwan and China. They account for nearly 54%
of all global foundry revenue. And this heavy
reliance on TSMC in Taiwan leaves the world vulnerable
to potential slowdowns, from earthquakes, the current
drought there, or the geopolitical tensions
swirling around the U.S., China and Taiwan. But some refer to TSMC as
Taiwan's silicon shield. The silicon shield, TSMC, is
extremely, extremely important. And I think
people depend on us. The media paints a very
bleak picture of this situation, but I'm actually
much more optimistic in part because of this idea, the
semiconductor shield. China, as of right now,
needs them for their leading edge manufacturing. The U.S. also depends
heavily on the chips coming out of Taiwan. A key reason
the government worked hard to convince TSMC to bring
its tech here. We're not going to have to
worry about geopolitical conflict. We're not going
to have to worry about another major pandemic. We will have these kind of
manufacturing capacities on U.S. soil. Today, only 12% of the
world's semiconductors are made in the U.S. That's
down from 37% in 1990. Back in the days of Bell
Labs, in the early days of Silicon Valley, we were
probably 100%. Both state and federal
officials are eager to entice TSMC to bring
advanced silicon back to the country where it first took
off. The state of Arizona has a
number of programs, including the qualified
facilities tax credit and the quality jobs tax
credit, that's really an incentive to help lower the
cost of operations. In addition to that, the
city of Phoenix put together a $200 million
infrastructure package that helps TSMC access water and
additional infrastructure needed. The Biden administration has
proposed $52 billion in subsidies for chip
companies like TSMC to manufacture on U.S. soil. It's been nicknamed
the Chips Act. This is infrastructure. So look, we need to build
the infrastructure of today, not repair the one of
yesterday. And things like the Chips
Act are absolutely critical for the success of our
country, not only to compete but to recruit these kind
of firms to operate in the U.S. Otherwise we're going
to be importing chips for the rest of our lifetime. Over the last 20, 30, 40
years, we've slowly slipped in that manufacturing
element, especially as we have seen the decreasing
cost in other countries. It's somewhere between 20%
to 25% cheaper for American firms to produce their
semiconductors outside of the United States. TSMC's Rick Cassidy took
part in discussions that led to the Chips Act. We don't want anything more
than to create a level playing field so that it
doesn't cost more to make chips in the U.S. than it
does in other locations. Industry reports estimate a
$50 billion investment from the U.S. government would
enable the construction of 19 new fabs in the U.S. over the next ten years,
more than doubling domestic chip manufacturing
capability. As the shortage continues,
similar investments are happening around the world. Industry association SEMI
projects 72 new fabs or major expansions will come
online by 2024, ten of them located in North and South
America. I heard more announcements
of investments in last two or three years than my
entire life. Korea will invest $450
billion in the next ten years. EU has announced
roughly $150 billion in investments, and based on
that, we feel that by the end of next year, we should
start seeing some relief on the chip shortage. But until then, as demand
continues to soar, TSMC is raising chip prices as much
as 20%, a cost that could trickle down to the price
of consumer electronics. TSMC has always been able to
charge a premium if it was necessary, and most of
their customers recognize that if there's a good
reason, they're willing to pay for it. Meanwhile, TSMC will
certainly continue investing in ramping up production
capacity, including in the U.S., where the 1100 acre
Arizona site certainly has room for a second phase and
more. So we've got a lot of land
and we have the ability to do more there. It will take time, but it's
not just the chip in the foundries. It's going to be
the entirety of the supply chain. So it's packaging
companies. It's companies that produce
the chemicals and the gases required that go into the
manufacturing process. So I see this as an
entirety of a shift in the semiconductor sector for
the United States. As you can see, we can get
into a lot of trouble when everything is in one area
alone. So I think it would be a
great victory, in fact, to see the United States
reverse the declines that we've had over the last few
decades. Intel was once synonymous
with the world's most advanced chips. It's
responsible for inventing the very building blocks of
modern computing from memory chips to microprocessors. Business models that have
come about, Internet being one of them, is all as a
result of this vision that started 50 years ago with
bringing the digital world onto a chip and that pace
of technology innovation is unstoppable. Chip technology is indeed
advancing at roughly the same relentless pace
predicted in 1965 by Intel co-founder Gordon Moore,
doubling every two years. But Intel has failed to
keep up. The chips being made inside
Intel's massive fabrication plants, or fabs, are no
longer at the cutting edge. Intel was the Moore's Law
company and the undisputed leader, and something that
was supposed to take them two years instead took them
more than five. And they still struggle to
get back on Moore's Law today. Now, only two companies in
Asia, Taiwan Semiconductor Manufacturing Company and
Samsung, make all of the smallest, most advanced
chips that power next-gen iPhones, supercomputers and
automotive AI. The new Alder Lake CPUs
just released are packed with competitive features,
but its chip technology is behind the most advanced
chips made by TSMC and Samsung. They got fat, dumb and happy
and they took their eye off the ball. Once you fall off
the treadmill, it's really, really difficult to get
back on. It's a very dynamic and
fast moving industry. But Intel's new CEO has a
bold plan to catch up and help the global chip
shortage. I think I have more concrete
trucks working for me today than any other human on the
planet. They have construction in
Oregon, New Mexico, Arizona, Ireland and Israel and we
expect to plant our next major fabs in the U.S. and Europe before the end of
this year. CNBC got an exclusive tour
of Intel's massive factory site outside Portland,
Oregon, where it's building a huge new fab set to open
early next year. And so what's inside of here
and what are we about to see? So what's inside of this
truck here and what's just been offloaded onto our
dock is one of our next generation tools. It's going to be installed
in our D1X-Mod3 factory. And it's spending another
$20 billion on two new fabs in Arizona, where it will
make not only its own chips, but those designed by
Amazon, Qualcomm and others. And it also starts building
up that base within the United States so that the
United States can become more self-sufficient. We asked Intel's top
executives and semiconductor analysts about how Intel
fell behind and whether its aggressive plans for more
U.S. manufacturing could
catapult it back to the front of the pack again by
2025. The story of Intel's
founding is also the story of how Silicon Valley got
its name. William Shockley, the
inventor of the transistor, the most basic building
block of computing, moved to Mountain View to start
Shockley Semiconductor Labs in 1956. A year later, the so-called
traitorous eight quit to start Fairchild
Semiconductor, which quickly became the world's premiere
chip company. A decade later, two of
these founding fathers of Silicon Valley, Bob Noyce
and Gordon Moore, left to start their own company. They first called it an N
.M. Electronics, then quickly
switched to the name Intel for Integrated Electronics
. At Intel's founding in
1968, short term memory or RAM didn't exist. Neither did microprocessors
or CPUs, today's brains of every computer. Those are
both Intel innovations. These transistors are doing
most advanced computational capabilities, never thought
possible, and it's also enabled the ecosystem all
around us. A short three years after
raising an initial funding round of just 2.5 million,
Intel went public with a market cap of 58 million. Making chips with memory
capabilities was great business. So much so that
well established Japanese electronics companies like
Hitachi and Fujitsu wanted in. A dozen years later,
their massive factories, which had been operating 30
plus years longer than Intel's, were making memory
chips far faster and more affordably than Intel
could. In 1974, Intel's global market share of the
memory business was nearly 83%. But by 1984, it was
down to just 1.3%. So in 1985, Moore and
then-president Andy Grove famously fired themselves,
walked out the door, then walked back in and made a
drastic pivot away from memory chips and toward
microprocessors. This was just one year
after the first Mac computer came out. They kind of made a
decision, it was a huge one, to get out of that
business and to bet the company effectively on this
new market. Remember, there was no PC
industry, there was no personal computer industry
back then. Last year, Intel announced
it's selling most of what remains of its memory
business to South Korean rival SK Hynix for $9
billion. In 1971, Intel released the
4004, the world's first central processing unit, or
CPU. For the first time,
engineers could purchase these building blocks to
use in all kinds of electronic devices. Intel processors were in
the world's first personal computer in 1974, and its
groundbreaking x86 architecture processors
were in the first IBM personal computers by 1981. It revolutionized
transistor density and speed with the first 32 bit
processor in 1985. It took competitor AMD six
years to reverse engineer a similar product. Suddenly,
personal computers had to have an intel processor to
be competitive. Andy Grove took over from
Moore as CEO in 1987, and Time magazine named him Man
of the Year in 1997. The market for personal
computers continued to grow through the first decade of
the 2000, and Intel reigned supreme in making the chips
that powered them. In 2011, global shipments
of smartphones started sneaking past PCs. And that's about the same
time Intel turned down an early offer from Apple to
make crucial chips for its first iPhones. And that was a massive
mistake because what they actually missed, and that
was the start of it, was the entire shift from PC to
Mobile. The chip world was also in
the midst of another trend. Back when Intel was first
shipping out its revolutionary processors,
chip companies took great pride in designing and
making their own chips. "Real men have fabs" was a
common saying at the time. But as Moore's Law proved
true, decade after decade, chips got so complex that
making them became an enormous undertaking. Building a fab today takes
at least two years and $10 billion. So huge companies
like Apple, Qualcomm and Nvidia decided not to build
fabs, but rather to outsource the expensive,
highly specialized manufacturing process to
companies like TSMC, which focuses only on its foundry
business making chips for others. And this is allowed TSMC to
not only catch up, but in my opinion surpass Intel to
become the world's greatest manufacturing technology on
the planet. Despite the wild success of
companies that decided to focus on designing chips,
like Apple, or only making chips, like TSMC, Intel
still does it all. That makes it an integrated
device manufacturer or IDM. Keyvan Esfarjani joined
Intel in 1996. Now he runs manufacturing
and supply chain operations. Advanced equipment
capabilities are becoming more expensive. You got to get it right,
otherwise it could be very, very costly. Since Andy Grove retired in
1998, Intel has seen a series of chief executives
who have gone back and forth about how much the company
should focus on the costly manufacturing end of the
chip business. The most recent turnover
happened in February when Bob Swan was replaced by
Pat Gelsinger, who started at Intel in the seventies
at age 18. 30 years at the company. I mean, I, you know, I joke
I went through puberty I started at Intel so young. At age 25, Gelsinger led the
architecture of the 486 processor, then rose to
chief technology officer by 2001. He left in 2009, and
after leading VMware as CEO for nearly nine years,
returned to run Intel this year. We needed a technology
leader to help reestablish the technology company,
this company that essentially put the Silicon
in Silicon Valley. Gelsinger's made some major
moves since he took the helm, most notably the
decision to double down on manufacturing. For decades,
the markets have rewarded giants like Apple and
Qualcomm for being fab-less. But the chip shortage has
made manufacturing chips a more attractive business,
allowing TSMC, for example, to raise chip prices as
much as 20%. It takes time to build this
infrastructure, but the good news is the world is
rallying behind building additional capacity. Intel is adding capacity by
building a huge new fab at its massive campus outside
Portland, Oregon. D1X-Mod3 is about 250,000
square foot per level of the building. We got an exclusive first
look inside the expansion called D1X-Mod3. And what exactly are you
manufacturing? We're manufacturing the
latest generation of microprocessors for Intel
and working to enable Intel's accelerated process
for IDM 2.0. At the company's Intel
Accelerated event in July, Gelsinger laid out an
aggressive IDM 2.0 roadmap for how it plans to ramp
capacity and catch up with big leaps in processing
technologies. By 2025, Intel says it will
surpass the chipmaking capabilities of both TSMC
and Samsung. We are on a march for yearly
innovation, setting a pace for ourselves and the
industry to not only get back but to get ahead
again. Why should anyone trust
Intel again? And so Intel will have to
make a bunch of promises, both verbally and
financially, in my opinion at least, to get anyone to
listen. Intel has 15 fabs all over
the world: China, Israel, Ireland and the U.S. in Oregon, Arizona, New
Mexico and Massachusetts. It has assembly and test
sites in Vietnam, Malaysia, Costa Rica and China and
the U.S. It says it makes 8000
products, outputting 2 billion units a year for
some 2000 customers. Now it's expanding that
production, specifically in the U.S. and Europe. It's got a major fab
expansion underway in Ireland and is reportedly
in talks for projects in Italy and Germany. Doubling down in its
capacity requirement to support the growing needs
of their customers around the world is absolutely a
significant responsibility of what Intel has got to go
drive. And in March, Intel
announced it's spending $20 billion to build two huge
new fabs in Chandler, Arizona. It broke ground in
September this year with plans to output chips for
PCs and data centers by 2024. It's a very long time to
build the concrete, the chemical delivery, the
electrical systems. All of this needs to be
perfect for a fab to run for something that's creating
lines and dimensions that are 10,000 times smaller
than your hair. When we toured the fab
project in Oregon, semi-trucks were dropping
off some of the 1200 massive tools used to make the
chips. All of our tools tend to be
in the millions of dollars, tens of millions of
dollars. They weigh anywhere from 10000 pounds to
100000 pounds. We also got a rare look
inside the fabs bustling clean rooms, donning bunny
suits that help keep dust and other particles away
from the minuscule circuitry on the chips. We're talking about clean
room that is 10,000 times cleaner than a heart
surgery room. It's about the equivalent of
about 20 American football fields is the amount of
space we have here, which is clean room space. It's filled with yellow
light to prevent exposing the chips to shorter
wavelengths of light than the lithography machines
use to print designs on the chips. We have different
chemistries and gases that we use to make our chips
here at Intel, and we segregate those exhaust
streams into these ducts you see here and are
subsequently treated so that we're environmentally
responsible in providing clean air coming out of our
factories. Making chips also takes a
massive amount of water, not a plentiful resource in the
Arizona desert. We're currently out at the
Ronler Acres water treatment facility, where today we've
reclaimed over 2 billion gallons of water and reuse
back into our manufacturing systems and process. We utilize approximately 9
million gallons a day and we can serve about 95% of
that. The chips being made here
are ten nanometer, used in PCs and data centers. Only TSMC and Samsung can
currently make five nanometer chips, the most
advanced node on the market. In fact, Intel relies on
TSMC to make a good number of its chips. We are one of their key
customers and that collaboration continues. To understand why Intel has
chips made by one of its competitors it's trying to
catch, let's talk about the different types of chips
and the supply chain. Different sized chips are
found in different types of electronics. Intel makes a
lot of ten and 14 nanometer server chips that function
as the brains of computers, CPUs and powerful chips
used in data centers, GPUs. Less advanced 28 to 40
nanometer chips are used most in the auto industry
in components like anti-lock brakes and airbags. Bigger chips are also used
in household devices like coffee makers or electric
toothbrushes. Five nanometer chips, the
most advanced chips currently made, are highly
sought after for data handling and artificial
intelligence processing, used in leading edge
technologies like the latest iPhones, NASA rovers and
F-35 fighter jets. Making five nanometer chips
requires an extreme ultraviolet lithography
machine that uses very small rays of light to etch the
tiniest designs onto the chips. Only one company,
ASML, makes these EUV machines and they cost
upwards of $180 million. Costs are going to go
through the roof. But if you can't yield the
process without it, like, you have no choice. Intel didn't buy EUV
machines until a couple of years after TSMC, which
explains why TSMC was able to reach five nanometer
firs. And now TSMC will be the
first to make five nanometer chips in the U.S., building
a $12 billion fab just down the road from Intel's new
Arizona fabs. So where does all this
leave Intel? It's currently in high
volume production of ten nanometer chips after years
of delays. Ten was supposed to be here
in 2015. We still don't even know
the reasons. Their rationale for why ten
failed was that they just tried to do too much. In July, Intel rebranded to
avoid the nanometer based nomenclature used by other
chip giants. Its seven nanometer chip,
which it now calls Intel 4 or Meteor Lake, has been
pushed back about a year. This recent delay, the
first setback under Gelsinger, has seven
nanometer in production for the second half of 2022,
around the same time both TSMC and Samsung have
committed to start production on their three
nanometer nodes. They've been having process
issues for ten years. 14 nanometers was delayed,
10 nanometers was delayed, seven nanometers is
delayed, it's not like it's new. I still don't
understand how you could let something slip as much as
they have. Like, it's shocking. We had some missteps. The strategy had become a
little bit confused on the role that we're going to
play in manufacturing for the long term. And now
we're leaning back into that with clarity, with clear
urgency. The competition between chip
giants and subsequent ramp in production is a positive
for the chip shortage, which has impacted all types of
chips. Apple is cutting its 2021
production targets for the iPhone 13. Carmakers like
GM and Toyota have paused production at some plants. When the personal computer
market skyrocketed during the pandemic, it drew down
supplies of CPUs and GPUs. Intel blamed this component
shortage for its PC chip business shrinking 2% in Q3
2021, causing shares to fall more than 10% after
earnings were announced in October. Intel stands alone
as the only U.S.-based company that designs and
manufactures advanced chips at scale. Traditionally, it
only manufactures its own designs. But now, in the
face of the shortage, it's changing that. You're going to not only
make our own wafers, you're also going to use those
fabrication facilities to be producing wafers for
customers that they want us to use their design. It's totally a right hand
turn. We have always had much
debate about it. Intel is calling the new
stand alone business Intel Foundry Services. We already have our first
revenue with the Amazon packaging deal. Our next
big customers like Qualcomm and the U.S. government. Foundry has been wildly
successful for the other two at the leading edge,
Samsung and TSMC, but analysts are not sure it'll
work for Intel. Amazon presumably is going
to be data center parts. It's going to be that many
units, right? Tiny, right? It's like five
years away. And if it turns out that
Intel is a viable founding partner, great. But if
they're not, it's no skin off their nose. The only benefit I would see
to using Intel is if you wanted something to be
created onshore in the United States. And the government is
greasing the rails with the Chips Act, a proposed $52
billion in subsidies for chip companies committed to
making them in the U.S. This is infrastructure. In 1990, 37% of the world's
semiconductors were made in the U.S., but last year
that was down to just 12%. A moonshot would be that the
U.S. is at 30% of manufacturing
in a decade or so in the future. And I think the
Chips Act as it's structured today is a great step to
start to turn that in a positive direction. As I like to joke, God
decided where the oil reserves are. We could decide where the
fabs are. But analysts say much more
is needed to help the U.S. bounce back. If the goal of that money is
to bring significantly more capacity onshore, it's not
anywhere near enough. They need ten times that
amount more. Because 92% of the world's
five nanometer chips are currently made in Taiwan,
the entire global chip supply is vulnerable to
natural disasters common there, like earthquakes and
its current drought and escalating geopolitical
tensions between China and Taiwan, and subsequently
the U.S.-China trade war. Every aspect of defense,
intelligence and government operations is becoming more
digital, and do we want to rely on foreign technology
for those critical aspects of our defense and national
security? I don't think so. It's critically important
for not just the global supply chain, but for the
national security that we must maintain this journey. However, it is going to
require Intel to put its playbook into work. The next steps in this
playbook include a chip so efficient Intel's named it
not with nanometers, but with an even smaller unit
of measurement, the angstrom. Intel says the
18A, which is in development for 2025, will accelerate
it past its competitors. We will be the world's
largest integrated design and manufacturer of silicon
for the long term. It is a tall order and it is
not my expectation that he will hit that. But if he
could hit that timetable, it would put them back, in my
opinion, on par with TSM head to head.
