The US Military's Semiconductor Buying Problem

let us talk briefly about making chips in america people keep talking about securing america's chips and national security implications i have been curious about what that actually meant and why the economics and business dynamics of the industry have made sourcing chips for america's military so difficult in this video i want to go over how the american military has kept their chips clean how that program has evolved over time and the industry dynamics that make such a thing so challenging to be clear this is not an exhaustive review but a brief explainer well if you can call 10 plus minutes brief but first i want to talk to you a little bit about the patreon if you are interested in what this channel does you can support the work there and access the early access tier early access members get to see videos before they are released to the public so head on over to the patreon page and take a look i deeply appreciate anything you'd be able to sign up for thank you and on with the show america has derived much of his technological and military advantages from having certain semiconductors from the apollo program of the 1960s to today's sharpest military machines f-22s drones and submarines alike all use semiconductors in prolific amounts it has been an enduring american advantage and why the government has been so protective of its semiconductor industry from almost the very beginning the protectionism might ebb and flow in waves but it has never really went away but over time american semiconductor fab started to lose pace with the rest of the global market asian fabs began to gain share starting in the 1980s and there are a number of reasons for this one has to do with the lower cost of labor and such american wages are higher than those in places like south korea 2 explicit national economic policy and state level support in the form of subsidies and guarantees south korea japan singapore and taiwan all made it a policy goal to catch up to american leadership in semiconductors third the consumer market is vastly larger than the government buying market uncle sam buys a lot of chips but nowhere near what the world buys in fact their share is less than one percent the market is dictated by consumers now not the government fourth the rise of the fabulous semiconductor model has made it much easier and profitable for companies to outsource their manufacturing companies like qualcomm broadcom amd and nvidia are shining examples of the fabulous business model allowing for more focus and profit than the traditional integrated model for a chip entrepreneur the choice is obvious and lastly it's just getting harder this is not an american manufacturing issue alone in previous videos i have profiled semiconductor industries in singapore china japan and malaysia extremely well-funded very competent and highly motivated virtually all of them have found themselves struggling to get to the next level year after year as a famous american once said don't hate the player hate the game the game is insanely hard so i hope that i have established the issue of american semiconductor offshoring let us now talk about the value of chips and the value of trust chips have gotten fantastically complicated over time a constant theme in my videos is that it takes a village to build a leading edge chip the m1 chip in my macbook might have been designed in the united states but the wafer it came from was fab by tsmc in taiwan and the tools tsmc used to fab and test that wafer as well as assemble the subsequent chip were made in taiwan the netherlands germany china and japan and more this virtual united nations is great for international togetherness and kumbaya but it falls short of the military's definition of trust and supply so let us focus on that word what does trust mean it essentially means that ensuring that the chip does what it is supposed to do and only that michael wynn the 21st secretary of the air force defined trust in 2004 as the confidence in one's ability to secure national security systems by assessing the integrity of the people and processes used to design generate manufacture and distribute national security critical components the mechanism centers around the chain of custody to make sure that the military knows where everything is at all times you're trying to avoid intentional or unintentional modifications of integrated circuits outside knowledge coming in while at the same time protecting them from being reverse engineered and having their functionality exposed inside knowledge getting out side note ironically enough wynn himself resigned from the air force after a number of bungled incidents including one where taiwan ordered helicopter batteries but instead got nuclear weapons fuses happens to me all the time with my amazon packages the problem is that if the military wants to use the latest and greatest chips then they need to be able to track that chip through the latest and greatest supply chains which is almost always ending up to be the latest and greatest mess here's one example a study of a single component for the joint strike fighter found that the unnamed component changed hands 15 times before the final install it went to mexico costa rica singapore taiwan the philippines japan korea taiwan again israel europe and finally china and that is just one component this is compounded by the fact that there are many potential threats all along the semiconductor manufacturing process if we were to lay out the entire manufacturing value chain we could identify a threat to each one of the steps within that chain so let us see you are the government and you want to buy good chips you want to go to a vendor and ask them to make the chips for you for most situations the government's sheer size can attract companies and influence their production decisions that is the point of the us general services administration a government entity that funnels together the national government's collective buying power to achieve scale and lower costs the scale incentivizes companies to jump through the hoops they got to jump through but as i demonstrated earlier the consumer market is far larger than even the american government's buying power companies would rather go for that sweet gpu or crypto mining money the department of defense buys 1.9 billion chips a year per 2016 dod report that sounds like a lot but in 2020 apple sold 200 million iphones each iphone has an m1 chip memory chip numerous radio chips charging chip and more apple easily sold over 1.9 billion chips in 2020 with just their iphones the consumer market is so much bigger than anything the gsa can bundle together the united states itself is less than 15 percent of the entire market in a globalizing world the usa's buying power is not as big a deal anymore furthermore chips are specialized things a chip used by the missile defense agency has little to do with chips used by the national nuclear security administration things can be done to ameliorate that i noticed that the government asks for a lot of field programmable gate arrays or fpgas which allows for configuration after manufacture but only so much can be done especially as they age and become obsolete with all the headache and issues relating to sourcing good semiconductors for the us military the government decided way long ago around the turn of the century that it needed a network of trusted suppliers and foundries to make its chips thus was born the trusted foundry program the trusted foundry program was established in 2004 to provide a defense industrial base of leading-edge trusted commercial suppliers for critical integrated circuits used in sensitive defense weapons and intelligence machinery they first signed a 10-year contract with ibm to be the sole provider two fabs in east fishkill new york and burlington vermont would handle these manufacturing jobs the government got access to all of ibm's commercial libraries and ip at commercial pricing then in 2014 global foundries announced that it would acquire the two ibm foundries under the trusted foundry contract global foundries is majority owned by the abu dhabi government last time i checked abu dhabi is not america the infamous committee on foreign investment in the united states cephas reviewed the transaction and approved it in july 2015. i have mentioned cephus in videos about broadcom and qinghua unigroup you should check them out cephas gave its approval but obviously this was not the ideal solution so in 2019 the foundries were again sold to arizona based publicly traded on semiconductor by then though global foundries had already left the leading edge staying put at 12 nanometers and not moving on to seven nanometers aren't everything specialty processes have real value and global foundry's 12 nanometer is quite good for most military use cases even relatively advanced ones as of right now and i agree but the experience tells us that soul source trusted foundry approaches are not sustainable nor is it fiscally practical especially at the leading edge a 2017 estimate by the national security division in the office of management and budget found that it would cost the american government 100 to 140 billion dollars to bring all of the fabrication facilities it needs in-house that is 20 of the annual defense budget and it would be just an initial investment the government and military wants to have access to better nodes and avoid situations like what happened with the ibm fabs the next iteration of the trusted foundry program has to accommodate that once it became clear that relying on a single trusted fab would not fix the problem the department of defense do the defense micro electronics activity dmea began certifying commercial suppliers if they met trusted standards today there are 78 suppliers with some form of certification across the semiconductor value chain from design to fabrication to packaging i discussed one such foundry in my video profile of skywater technologies skywater's minnesota fab is 1a accredited and is the only one such controlled by american investors the program has been around for a while but most of the larger micro electronics firms have passed on accreditation extra security paperwork custody tracking and other specific requirements raised the cost of servicing the american government furthermore the government's obsolescence requirements mean that their foundries have to keep making the same chip for far longer than they usually would this is while the rest of the market is moving on to the next big thing skywater for instance is still running with the 65 nanometer process first introduced by tsmc in 2005. back when global foundries owned the two fabs in the trusted foundry program dod revenue made up just two percent of their overall revenue it just does not make sense for global foundries to deal with all of that for two percent now there is a great build out of chip making facilities across the united states tsmc in arizona is the most prominent but intel global foundries samsung and more are getting into the fun considering the new nationalist tone of the industry it seems likely that these foundries especially intel will at least play around with the process but whether the same industry dynamics will start playing out later down the line that is something to consider of course this manufacturing stuff matters and it is right for the government to do something about it hardware vulnerabilities like spectre and meltdown have gotten a lot of press and rightfully so making sure that the government's custom-made chips are secure is incredibly important but there are many many ways to compromise a chip to close i can give you a non-exhaustive list to keep you up at night one the government still sources a lot of chips from traditional commercial sources latent vulnerabilities can be planted there anyone remember that bloomberg super micro story that got everyone so mad whether or not it actually happened the risk exists two there has been little mainstream attention paid to potential compromises at the chip design stage today's chips have billions of transistors today's designers lean heavily on software to do their designs said software is subject to compromise and three onshore manufacturing is not the end-all be-all geography presents less of a barrier than you think vulnerabilities can be inserted from abroad and insiders can be turned to carry out specific activities trusted foundry is an interesting program that attempts to tackle a difficult problem and i really admire the detail and effort that people have put into it but as times change it too will have to keep changing and expanding to keep up alright everyone thanks for watching that's it for tonight if you want more content you can like and subscribe to the channel i'd like it if you did and remember to hit up the email newsletter and sign up want to send me an email drop me a line at john agenometry.com i love getting letters from viewers until next time i'll see you guys later

Channel: Asianometry

Views: 91,022

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Id: oSNhk4TflKA

Length: 13min 46sec (826 seconds)

Published: Sun Jul 04 2021