Why making chips is so hard

this video was sponsored by audible in 1965 a young engineer working at fairchild semiconductor then one of the world's premier chip companies looked at the processors his small team was churning out over the last couple of years and noticed something exciting the company brought its first silicon transistor to market in 1958 a single component that would put the silicon into silicon valley decades later down the line just two years later fairchild managed to integrate four transistors into a single chip and by 1965 that number had climbed up to 60. when asked by electronics magazine where he thought the industry was headed that engineer called gordon moore did some quick math extrapolating their existing pace of improvement and found that they'd go from 60 to 60 000 transistors per processor in the next 10 years initially just an observation that moore himself wasn't sure would last very long his colleagues over the years turned to calling it moore's law because of how accurately it ended up capturing the exponential growth trajectory the industry was on while it was revised and adjusted multiple times later down the line moore's law not only predicted the incredible increase in computing power it sort of acted as a self-fulfilling prophecy if it was true that semiconductors would get almost exponentially better with time then investing almost exponentially higher amounts of money and human capital to fuel that growth would be worth it too and that belief created arguably one of if not the most complex industries in the world with thousands of ultra-specialized companies that regularly make science fiction look mundane in comparison today hundred ton machines are shooting lasers into tiny drops of liquid tin mid air to turn it into plasma just to make your phone run a little faster and a few chip companies have become so large that losing access to them can bring entire economies on their knees the semiconductor industry is absolutely fascinating and in the 74th episode of my story behind series let's explore both the technologies and economics that drive it and talk about how they impact everything from your frame rates to geopolitics [Music] when fairchild made its first silicon transistor it had about a dozen employees who oversold much of the process from the beginning to the end a few years later they had about 12 000 employees and made 130 million dollars in revenue the industry has professionalized at an incredible pace and today companies in the field typically specialize in five distinct domains the first step in making a logic chip which is the type that i'll be focusing primarily in this video is creating its instruction set architecture or isa which defines how the processor will perform its most basic instructions like accessing memory performing basic calculations and so on anybody can theoretically make one but isas become really powerful when they turn into industry standards when that happens processors and operating systems from multiple companies that follow that standard basically become interoperable you can see this where windows linux and mac os are able to run on a huge variety of intel and amd chips through the power of x86 or say with android filemakers through the power of arm having the freedom to use any qualcomm or mediatek chip that they want or even designing their own like huawei and samsung have the aforementioned isas so arm and x86 are by the way by far the most popular ones in the industry and while they've worked incredibly well as standard so far there's a little bit of a problem with them specifically they are one of three bottlenecks that the chip industry is experiencing intel and amd who own most of the x86 related ip are only licensing their isa to a single active competitor and only because intel was literally sued by the us government to stop being a complete monopolist that competitor by the way called via technologies is years behind the other two in tech and has quietly used their license to set up a joint venture with a chinese local government to create homegrown x86 chips in china for government use called chaoshin so i don't think they'll be holding on to their license for very long and arm 2 is a private company and while they have historically been pretty liberal with their licenses their ongoing acquisition by nvidia has created a lot of worries about their new american overlords potentially limiting licenses either for anti-competitive reasons or due to political pressure as well other isas exist for example mips which is used among other things in embedded devices like routers for example or risc-5 which is sort of the exciting open source alternative the industry is buzzing about these days with the first development boards just having launched but these are still pretty far from taking on the big 2 and as the windows on arm saga painfully demonstrates moving something like a complex operating system to a new isa can take decades step two in this process is chip design and in comparison to isas this is a much more diverse field where most chip companies the average person is familiar with are actually active at this stage companies create the actual circuit diagrams decide on how many cores a chip should have how those and other components such as memory are arranged on the silicon etc they essentially create the blueprint and while some chip designers like intel and samsung then also go ahead and manufacture what they have designed the revolution of the last decade or two is that the vast majority of players are fabulous as they outsource the manufacturing to contract manufacturers called fabs the ability to outsource manufacturing on the one hand and rely on isas for compatibility on the other hand has created an incredibly diverse field as the companies in the middle can pretty much just focus on design and have everything else taken care of externally and because of that unsurprisingly over the last decade or so almost every company that uses lots of specialized chips has started designing their own lately including apple samsung and huawei for their phones microsoft and amazon for their data centers google for its ai cloud service called tensorflow but also the so-called pixel visual core for improving photography on pixel phones and as these primarily internet and software companies have increasingly specialized workloads from self-driving cars to ai in the cloud or whatever i expect more and more of them to design their own chips rather than just rely on whatever intel or qualcomm is giving them stage three in chip making is getting those designs onto actual silicon wafers this process is called fabrication it is extremely complex and capital intensive and as i mentioned before it is most commonly done by specialized contract manufacturers called fabs these days like taiwanese semiconductor manufacturing company for example this outsourced approach pioneered by tsmc in the late 80s has taken over most of the industry because it lets fabs pull together orders from many chip companies and share bleeding edge machines and expertise between all of them all while achieving huge economies of scale for example they can develop bleeding edge processes and buy bleeding edge machines for flagship smartphone chips and then have those trickle down over the years for cheaper goods like processors found in less cutting-edge smart home devices or something and over the years most chip companies have adopted this model with taiwanese umc first spinning off its design arm mediatek as a separate company samsung opening up its foundry to contract manufacturing amd spinning off its fab as global foundry so they could focus exclusively on design and even intel lately admitting that they might start outsourcing some of their manufacturing to external foundries too fabricating a chip consists of thousands of highly specialized processes and it is one of the most expensive things in the world with tsmc planning to spend over half of its revenues for 25 to 28 billion dollars on capital expenditures like buying new machines or building up factories just next year just for comparison chip design companies spend somewhere between three to five percent of their revenues on capex and this incredible expense is one of the reasons why most chip companies don't run their own fabs and why tsmc doesn't have much competition left most competitors like global foundries for example just gave up on trying to compete with the taiwanese giant at the bleeding edge because it didn't make any economic sense chinese smic which was originally built almost entirely on stealing tsmc's trade secrets couldn't keep up with the taiwanese giant after they were ordered to stop the theft and while samsung has slowly been catching up with them lately tsmc remains the clear leader having owned over half of the market ever since it was founded just to give you an idea of scale at the writing of the script tsmc is worth more than all of samsung electronics combined not just their chip foundry but the whole conglomerate that includes the world's largest phone company the world's largest tv company the world's largest memory company etc it's insanity so yeah the fab business is both incredibly expensive and incredibly complex and actually forms number two of our three bottlenecks in the chip industry this is a winner takes all market with the little guys simply cannot afford to keep up on the bleeding edge at least with the big players alright the next domain is equipment and software and there are thousands of steps in making a chip each of which requires custom equipment and software but let me pick probably the most essential one to illustrate lithography in this step the manufacturer takes what is called a mask essentially a blueprint of the final chip and uses light to imprint miniature copies of that onto the silicon wafer this is the step that actually transfers design onto silicon and the machines used to create it are some of humanity's most incredible feats of engineering at the cutting edge euv or extreme ultraviolet lithography machines are used and unlike in consumer marketing extreme ultra actually feels like an understatement for what they do the light used in these machines has wavelength so short that even the air absorbs it so they have to work in a vacuum and to generate that light they use an ultra high powered laser to blast tiny drops of liquid tin mid air somewhere around 50 000 times a second to create plasma which then creates the light that they bounce through an insane web of lenses and mirrors and onto the wafer engadget has a fantastic video explaining euv in detail that i've linked to down in the description but because of how complex euv is especially at the bleeding edge there is essentially only one company that has cracked the code on it dutch firm asml is the sole producer of high-end euv machines and a single one of their machines weighs around 100 tons and costs around 130 million dollars the company only makes about 25 of them a year of which tsmc has bought more than half this year and they are such a sign of legitimacy that a chinese company called hong shin scammed their local government into giving them state subsidies because they owned a single older generation asml machine like that almost on its own was enough to convince the government right before the company mortgaged the machine off without ever having used it so yeah much like with fabs making high-end equipment for the industry is so complex and so expensive that there are just not a lot of players left on the high end and in some areas like for example lithography there is essentially a monopoly and this as you might have guessed is bottleneck number three in the industry and as euv relies on a lot of us tech this is the bottleneck that the trump administration actually used to force non-us companies like tsmc to stop making chips for huawei if they didn't drop their huawei business the us could cut them off of things like euv and that would be game over for a high-end fab and the last domain in semiconductors is often called packaging and testing and this is where the silicon wafer gets cut up into individual chips wires and connectors get attached the chips are put into protective housing and then finally tested for quality before being sold and to put it bluntly this domain is much less high-tech and much less consequential than the others it is typically outsourced to hundreds of different companies so just know that it exists and i will spare you a deep dive on it so that's your overview of how the chip industry works and over the last couple of years of obsessing over this topic there's a couple of main realizations that i've had first almost all of the incredible diversity and competition in the industry comes from the design phase while the rest of the industry is going through massive consolidation which leads to the entire industry increasingly depending on just a handful of essentially irreplaceable companies as semiconductors get more and more complex with each round of miniaturization that also makes it more and more expensive to compete in this space which creates further concentration of power and that in turn creates lots of economic and political tensions the u.s who makes by far the most money from chips by being home to most chip design companies is increasingly nervous about having to rely on foreign companies for manufacturing europe said this month that its digital sovereignty was under threat so it would spend billions to double its chip manufacturing market share from 10 to 20 and china has been throwing money at semiconductors desperately trying to establish itself as a major player for years quadrupling their spending again just last year now of these three i believe china is the most desperate as they have both the highest demand for chips as the electronics capital of the world and also the weakest domestic chip industry making only six percent of the chips that the country itself consumes i think the next five to ten years will be all about china trying to move up the value chain especially in semiconductors and the best explainer that i found on this topic is a book called ai superpowers china silicon valley and the new world order it is written by kaifu lee the former head of google china and while it technically focuses on ai i have found it to be the best description of china's tech industry trying to upgrade itself in general it captures the trends the economics the politics the culture all of it and it points out where the country is doing great and where it is doing poorly with brutal accuracy i listened to this book on audible and someone who has lived in china and worked in chinese tech companies i found myself nodding along multiple times feeling like finally somebody has captured the real essence of this industry and described it as it is if you are into tech at all i think this is a must listen and you can get it for free with a 30-day audible trial i use audible before falling asleep while in the shower while cooking it's a great way to learn something new or relax on the go and a subscription not only gets you one credit for any audiobook that you want from their huge library but also free access to audible original podcasts guided fitness and meditation classes and more check them out at audible.comtechaltar that link is also down in the description and if you use it it really helps my channel or just text tech altar to 500 500 and if you read the book or if you listen to the book rather ai superpowers do let me know what you think about it alright i'll see you in the next video

Channel: TechAltar

Views: 342,163

Rating: 4.9534006 out of 5

Keywords: the story behind, processors, chips, microchips, integrated circuits, SoC, economics, fabrication, business, TSMC, Intel, fab, Samsung, foundry, ISA, ARM, x86, AMD, Qualcomm, chip design, fabless, fabricating

Id: CkNn98WE5_k

Length: 16min 2sec (962 seconds)

Published: Thu Mar 25 2021

Reddit Comments

[u/Coyote_lover_420]

I think this chip shortage is here to stay, at least for the next few years. Cost is obviously not the limiting factor with consumers or industry, it is the physical lack of machines and resources to produce chips. Those ASML machines already go for $150M+ and fabs can't get enough of them. Consumers are also willing to pay almost double MSRP for some GPUs... The market is forever changed.

The only hope is that the cheaper/less advanced production methods begin increasing production to take the place of some of the high end chips.

[u/jacktalbot]

Fascinating, thanks for sharing

[u/Illusi]

ASML is a big player here in the Netherlands. They pay very well for good software, electronics and mechatronics engineers. However they also have a reputation that you're selling your soul to the devil if you work there, because the company is anti-competitive, very closed and is apparently not at all fun to work at.