"Expensive and wasteful and futile", Zhang Zhongmou shelled the US chip policy, what is the purpose?

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Zhang Zhongmou's advice

Hua said

Zhang Zhongmou recently made a statement, which is actually just a repetition of what has been said in the past, but it has caused some waves inside and outside the industry. Without him, the jianghu status of TSMC that he created was placed there, and his personal jianghu status was also placed there.

He spoke in an interview at a program organized by the Brookings Institution, an American think tank. In his speech, he reviewed the life course of engaging in the semiconductor industry and founding TSMC, and expressed his opinions on the active promotion of semiconductor manufacturing in the United States. He said bluntly that the United States is now seeking to expand chip production in the country, which is expensive and wasteful and futile, because the U.S. chip manufacturing industry does not have the talent pool needed to expand and succeed. He argues that in the 1950s, 1960s and early 1970s, U.S. manufacturing was indeed strong because there was manufacturing talent, but then the talent shifted to the highly profitable design and finance industries. Today, the United States has the best design capabilities, but the unit cost of manufacturing is high, and it is difficult to compete in the world market.

For example, he said, TSMC set up a factory in Oregon in 1997, and in the past 25 years, although the Oregon plant has been profitable by improving operational efficiency, the cost of the Oregon plant is 50% higher than that of the factory in Taiwan. TSMC has repeatedly arranged American and foreign personnel for the Oregon plant, but with little success. He said that the large population of Taiwan is an indispensable condition for the success of TSMC's chip manufacturing. As professionals in the U.S. and other countries leave manufacturing, talent in Taiwan has matured, making it an ideal location for chip foundry.

Zhang Zhongmou's "criticism" of the US chip manufacturing industry has made the outside world think a lot. The most interesting thing is the speculation of Japan's Sankei News. The newspaper's report said that TSMC is currently building a new factory in Arizona, and Zhang Zhongmou "issued an excessive statement that does not need to be actively mentioned in public" and is "dissatisfied with the us subsidy issue for the chip industry that has not made any progress at all", and the statement is aimed at "verbal pressure" to urge the US government to implement the subsidy as soon as possible.

Why did the Japanese media make such speculations? There is a background to be given here. Last June, Intel CEO Pat Kissinger published an article on Politico, a professional website for American politics, about how wrong the U.S. government was in subsidizing TSMC. He said that TSMC's new plant currently built in the United States produces the most cutting-edge products called "5-nanometer chips", but the time of the new plant is 2024, when "5-nanometer chips" are no longer the most cutting-edge products, and "TSMC intends to leave the precious cutting-edge semiconductor technology in Taiwan after the new plant is put into operation." Therefore, "the United States will face two difficult choices, that is, to abandon the cultivation of the cutting-edge semiconductor industry, which is important in terms of national security, or to rely on insecure overseas companies to purchase the most cutting-edge semiconductors", and the United States "must make a wise choice". What is the wise choice? "Subsidies [that the government is using today] to invest in U.S. intellectual property are appropriate. U.S. taxes should be invested in companies with the most important technological assets in the United States."

However, the Japanese are obviously "thinking too much", to put it more politely, "living in the belly of a gentleman with the heart of a villain". Zhang Zhongmou's criticism of the U.S. government's violation of economic laws and soft and hard tried to bring the chip manufacturing industry back into the stream is consistent, unchanged, and consistently sharp and unfounded. As early as last April, he said bluntly: "Although the United States has carrots and sticks, but the unit cost is significantly higher than Taiwan, even if the US federal and state governments offer subsidies, but short-term subsidies can not make up for the long-term competitive disadvantage." Last October, he again pointed out in public that it is an impossible task to rebuild an entire semiconductor supply chain in the United States today, and even if tens of billions of dollars are spent, it will still find that the supply chain is incomplete, and the supply chain cost of such investment will be very high, even more expensive than the existing supply chain. He sarcastically said the U.S. government's move was "an attempt to turn the clock back." The speech was again straightforward, stressing that the United States' quest to expand chip production in the country was "expensive, wasteful and futile." From the point of view it holds, its criticism of the US government's retrograde behavior is based on the development trend and law of the industry, which is incompatible with what subsidies do not subsidize the wind and cattle.

And what's the point of a mere $52 billion (the chip bill proposes a $52 billion grant to the U.S. chip industry)? Zhang Zhongmou has said more than once that subsidies are useless: First, tens of billions of dollars in subsidies are far less than the amount needed to boost local chip manufacturing; second, even if the US federal and state governments offer enough subsidies, short-term subsidies cannot eliminate long-term competitive disadvantages.

Moreover, with the "position" of TSMC and Zhang Zhongmou in the global semiconductor industry, why should subsidies be put in the eyes? TSMC's going to the United States to build a new factory is well known, not based on economic logic, nor for subsidies, but on the choice of political limitations. As Zhang Zhongmou said, "This was done at the urging of the US government", not as desired.

In fact, it is Intel that really covets the US government subsidies. In June last year, Intel CEO Pat Kissinger issued a letter asking the U.S. government to "make a wise choice" not to pay subsidies to foreign companies, including TSMC, and to "invest U.S. taxes on companies with the most important technology assets in the United States." Last December, Pat Kissinger reiterated his call at a forum that the U.S. government should prioritize investment in its own chipmakers rather than TSMC and Samsung: "While setting up a factory with Samsung in the U.S. can reduce some geopolitical risks, investing in the domestic chip industry will bring greater benefits, such as having research and development, which is the IP you want, is it thinking of having intellectual property rights, R&D technology or taxes associated with it, or do you want those back to Asia?" "The thirst for government subsidies is overwhelming. No wonder Zhang Zhongmou said sarcastically: "Intel's CEO hopes to get more subsidies." ”

This is not surprising. In the chip manufacturing industry, Compared with TSMC, Intel has lagged behind a lot. A few days ago, TSMC announced its financial report for the first quarter of this year. The financial report said that in the first quarter of revenue, 5-nanometer process sales accounted for 20%, 7-nanometer process sales accounted for 30%, the two added up, advanced process revenue has reached half of the quarterly sales amount. TSMC also disclosed that the 3-nanometer process will be put into production in the second half of this year, which is expected to become the next big growth node, equivalent to the 5nm and 7nm families. In contrast, the mainstream process is still 14 nanometer process and 10 nanometer process, and the 7 nanometer process has not been completed for a long time. It can be observed that the more enterprises that lose in market competition, the more they call for government subsidies and the more they call for government protection. Why? It is because it is impossible to compete with opponents in the market, so it needs to rely on external forces to support.

It is not difficult to understand that the US government's soft and hard demand for chip companies to produce in the United States is due to the consideration of geopolitical risks on both sides of the strait. But Zhang Zhongmou clearly pointed out the crux of the matter: There was no war in the Taiwan Strait, and producing chips in the United States is an increase in cost and waste; in the event of a war between the two sides of the strait, the United States should worry about more than just the problem of chips.

"Expanding chip production in the U.S. is expensive, wasteful and futile." This is Zhang Zhongmou's advice, which is based on the long life course of engaging in the semiconductor industry and founding TSMC, as well as the deep insight into the development trend of the global semiconductor industry. Compared with the Japanese who only see subsidies, compared with the American policymakers who only see trees and do not see forests, the vision and pattern are much higher.

April 26, 2022