Chip War is the tip of an iceberg of loss of America’s inventions. It’s not only the semiconductor chip. America cannot competitively make many products that it invented. Hence, they rely on imports. Examples are cameras, light bulbs, television, hard disks, displays, silicon chips, and many more. But what is the underlying cause of the loss of America’s inventions? Is it due to through sourcing of low-cost labor from less developed countries America lost the manufacturing edge of their inventions? Or is it due to the loss of intellectual property to China and others? And what is the solution to get back America’s invention edge?
Pundits and politicians alike have been after bringing back manufacturing to regain the edge of making, which America invented? Hence, politicians have been after policies and regulations for subsidies, R&D grants, and restricting access to high-end technologies by competitors like China.
But why does the innovation edge of invented products migrate across the boundaries of firms and nations? Is there a role of evolution through incremental advancement and reinvention? Could semiconductors play a vital role in fueling evolution, causing creative destruction, and unleashing disruptive innovation?
The propensity of making transistors better and less costly has formed semiconductor economics, opening the door to offering higher quality at less cost. Furthermore, reinvention waves begin in an inferior form, rapidly growing as a creative destruction force, bewildering incumbents (inventors). Consequentially, new entrants, often from foreign lands, snatched away the innovation edge of the products invented by America. Due to semiconductor economics, high-performing American firms have been failing in the incremental innovation and reinvention race. Consequentially, America has been losing its inventions.
Examples of Loss of America’s Inventions:
Some of the notable examples highlighting the underlying patterns driving the migration of America’s inventions are shown below. We hope these examples will clarify the role of semiconductor economics in the loss of America’s inventions.
Loss of light bulb to Nichia:
The light bulb is an icon of the invention. America’s Thomas Alva Edison invented it. This invention started fueling the demand for electricity consumption at the dawn of the 20th century, leading to the growth of America’s GE. For almost 100 years, GE was at the forefront of the global lighting and power business. But it is no more.
The journey of LED as a light source technology core started with the discovery of the Electroluminescence phenomenon in 1907 by the English experimenter H. J. Round of Marconi Labs. In the 1960s, American companies, research laboratories, and universities got involved in inventing practical LED devices. Notable initiatives came from GE, RCA, Texas Instruments, IBM, MIT Lincoln Laboratory, and Bell Labs. Like all other semiconductor devices, LED also emerged in primitive form. It was costly to manufacture LEDs. For example, in 1968, visible and infrared LEDs used to cost US$200 per unit. Hence, it has minimal practical use. Therefore, despite R&D activities and inventions, American companies could not leverage their innovation ability.
Due to high cost and limited use, LED was primarily left behind by American firms. But in the late 1980s, a small Japanese firm Nichia Corporation picked it up and started R&D funding to overcome a significant limitation—inventing sharp blue LED. This and other efforts led to the Nobel prize-winning scientific discovery of the invention of a perfect blue LED using gallium nitride (GaN). Consequentially, Nichia succeeded in innovating white and bright LED light bulbs. These semiconductor bulbs became far more energy efficient than Edison’s incandescent bulbs, wasting as high as 85% percent of energy. As a result, LED light bulbs rapidly grew as a better alternative, unleashing the creative destruction effect on America’s light bulb-producing edge.
Hence, it’s not low-cost labor or intellectual property infringement for which America lost the light bulb invention. Instead, due to semiconductor economics, American firms failed to make rational decisions, leading to this loss of America’s invention.
Loss of Radio and Television making to Sony:
In 1929, commercial radio was a more than billion dollars enterprise. America’s RCA and a few others were at the helm. But soon after the invention of the Transistor in 1947, America lost the edge of manufacturing Radio to Japan. In the 1960s, America’s dependence on the import of radio kept rising, leading to the loss of RCA’s radio-making business. But is it due to the low-cost labor of Japan America lost the edge? Ironically, no. Instead, Sony reinvented Radio by changing the vacuum tube technology core. But Sony was not the first. America’s RCA, Texas instruments, and a few others did it before Sony’s attempt. But as the Transistor radio emerged in an inferior form, they gave up.
Unlike them, Sony kept pursuing the refinement of the transistor for leveraging semiconductor economics. Very soon, Sony’s transistor radio became better and cheaper than what RCA was making out of the vacuum tube technology. Consequentially, America lost its radio-making edge to Japan. Similarly, America lost competitiveness in manufacturing Television, VCRs, audio recording, and many other consumer electronics.
Loss of Data Storage to Toshiba:
In 1957, IBM rolled out the hard disk invention, a 5MB hard drive weighing 1 ton. After almost 20 years, Toshiba entered the hard disk-making business. But due to superior performance in incremental innovation, Toshiba emerged as a global leader, compelling IBM to leave the hard disk market. Among many other technologies, lithography developed by the semiconductor industry helped hard disk innovation by making the read-write head increasingly smaller.
The subsequent development came from Toshiba’s invention of NAND flash memory. Ironically, its origin was traced back to floating-gate MOSFET (FGMOS) inventions at the Bell Labs in 1967. Like all other semiconductor devices, this device also emerged in primitive form. It was slow, and manufacturing was cumbersome. Hence, American companies targeted niche military applications for the early types of floating-gate memory such as EPROM and EEPROM in the 1970s. But inventive works of Fujio Masuoka, while working for Toshiba, led to the development of a new type of data storage product, NAND Flash memory, further weakening America’s data storage business.
Loss of Silicon chips to TSMC:
In the 1980s, American semiconductor companies like Intel, AMD, Motorola, Texas Instruments, and many others were booming. Consequentially, Silicon Valley blossomed so spectacularly that the whole world got surprised. But semiconductor economics misguided American iconic integrated device makers (IDMs) like Intel, resulting in the wrong decision.
In the 1980s, Fabless semiconductor companies were struggling to access foundry services to turn their design into silicon chips. Due to the small volume and low margin, Intel and many other IDMs avoided requests from fabless companies. On the other hand, Taiwan was looking for a market to leverage semiconductors. Hence, TSMC and UMC started welcoming these little companies for their foundry services.
Among many other rejections, Intel’s refusal to process Apple’s design of a processor for the iPhone is notable. Due to its small size and low margin, Intel did not entertain Steve Jobs’ request, compelling Apple to take two generations behind fab services (90nm as opposed to Intel’s 65nm). But due to the rapid growth of iPhone-type software-intensive smartphones, mobile handset makers started demanding exponentially growing processors. Consequentially, TSMC found a market for pursuing extensive R&D and transferring it into process innovation. As a result, along with the growth of smartphones, TSMC’s silicon processing capability kept sharpening, leading to becoming the global leader. Ironically, through the process, semiconductor inventing America has become the client of TSMC for high-end processors. Even establishing the TSMC’s plants in Arizona does not help America regain its silicon invention edge.
Loss of Camera to Sony:
In September 1888, George Eastman Patented his box-type camera. Subsequently, George Eastman and Henry A. Strong, on May 23, 1892, founded Kodak. Through incremental advancement of film, chemicals, and cameras over a period of 100 years, Kodak became a global icon of innovation. But intelligent leveraging of semiconductor economics by Japanese Sony led to the bankruptcy of this great American company.
In 1969, Bell Labs invented the 8×8 charge Coupled (CCD) electronic image sensor. Instead of film capturing the presence of photons through the change of chemical properties, CCD produces electrons in response to photons. CCD devices capture those electrons pixel by pixel, forming electronic images without requiring lengthy processing time. Hence, it may grow as an alternative to Kodak film. But this possibility emerged in primitive 8×8 image sensors, as opposed to more than 2 million pixels of standard photographs. But Sony envisioned its potential and kept poring R&D efforts to nurture the latent treasure. On the other hand, upon making the first digital camera in 1974, Kodak management decided against not pursuing it.
Kodak Engineer Steven Sasson’s digital camera weighing 8 pounds (3.6 kg) and having only 100 × 100 resolution (0.01 megapixels), gave no reason to Kodak management to foresee commercial viability. But the latent potential of semiconductor economics made them wrong in the 1990s. Over the years, Sony’s journey led to the high-quality CMOS image sensor, leading to digital cameras. The continued rise of quality and fall in cost led to the rise of the digital camera as a creative destruction force to film cameras. Consequentially, the camera invention epicenter migrated from America to Japan. Hence, it’s fair to say that America’s loss in camera manufacturing is not due to offshoring for low-cost labor. Instead, it happened due to semiconductor economics.
Evolution and migration patterns of inventions
Yes, America indeed invented many great technologies and innovated products around them. But irrespective of their greatness, each of them emerged in primitive form. Their success in creating wealth and a market needed a flow of ideas for incremental advancement and reinvention. They have been migrating across the boundaries of firms and nations through the process. Hence, due to this reality, inventions have an inherent migratory tendency.
Like all other great inventions, semiconductor devices, including initial contact and bipolar junction transistors followed by MOSFET and FinFET, also emerged in primitive form. But they were amenable to further incremental progression and reinvention. Due to embryonic and inferior beginning and latent potential of progression, often, inventors fail to make the rational decision to pursue them, leading to loss to competitors or followers.
Furthermore, semiconductor devices have been the target technology core of incremental innovation and reinvention of many products. Although this journey began with Radio, TVs, telephone switches, and computers, from automobiles to flush lights, many conventional mechanical and electrical products have been evolving through semiconductors. Consequentially, intelligent, rational decision in leveraging semiconductors has been migrating all kinds of inventions across the boundaries of inventing firms and nations. This has been the underlying case of the loss of America’s inventions.
Characteristics of Semiconductor Economics
Economics refers to production and consumption, creating consumer and producer surpluses. Specifically, offering higher quality at less cost increases production and consumption. And the rational decision to pursue technology for improving quality and reducing cost leads to the transfer of wealth. Within this context, semiconductor economics has five characteristics: (i) semiconductor devices are amenable to experience a higher quality and lower cost simultaneously, (ii) semiconductor devices emerge in primitive form, confusing decision making, (iii) they have a long runway of quality improvement and cost reduction, (iv) semiconductor devices improve through ideas, resulting in decreasing material and labor requirement, and (v) existing products are amenable to incremental advancement and reinvention out of semiconductor devices.
Incremental innovation race and Rise of creative destruction wave out of semiconductor economics—leading to the loss of America’s inventions
As explained, irrespective of the greatness, all inventions have a natural tendency of evolution and migration. Among many other factors, the decision-making dilemma is the underlying factor behind the migration of inventions across the boundaries of firms and nations. Due to semiconductor economics, American inventors have faced grave decision-making challenges. Consequentially, despite inventing and attaining an early lead in innovation and market creation, America has already lost many great inventions.
Ironically, the underlying reason has not been low-cost labor or infringement of intellectual properties. It does not mean that they did not have any role at all. Of course, they had, but not likely not significant though. Hence, saying no to globalization and bringing manufacturing back to America will not likely regain America’s invention edge. For example, suppose America says to LED lightbulbs and the digital camera and starts manufacturing their inventions of incandescent light bulbs and film cameras. In that case, America will get its inventions back.
But will it make America great again? Instead, America should focus on semiconductor economics to improve its decision-making abilities in pursuing reinvention. As every invention has a propensity of getting reinvented, America may get the edge of its inventions back by reinventing them by leveraging the economics of semiconductors or other emerging technologies. To begin with, there should be a focus on understanding the role of semiconductor economics causing the loss of America’s inventions.
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