Semiconductor–a technology core transforming innovation, economy and policy

Semiconductor billionaires are everywhere, even in less developed countries. Most of us carry several billion semiconductor devices in our pockets. A typical smartphone has a few billion semiconductor devices–transistors. For example, the A16 microchip used in Apple iPhone alone has 16 billion transistors. Its humble beginning as a three-legged device has been evolving, unleashing transformational effects on Innovation, economy, and policy.

Semiconductor refers to devices that are made by selectively adding impurities to materials that are neither conductors or insulators, like Silicon and Germanium, so that the flow of electrons can be controlled through voltage. Portraying semiconductors as new oil seems unfair. Unlike oil, semiconductor reinvents products and processes and accelerates the Incremental innovation race. Consequentially, innovation epicenters migrate across the boundaries of firms, industries, and countries. Semiconductor fuels the rise and fall of the economic edge of nations. Furthermore, by leveraging semiconductor economics, firms and nations have been increasing their monopolization footprint—making winner-takes-all a reality. Consequentially, the semiconductor has been changing the world order.

Due to the growing role of semiconductors in civilian and military products, it has become a national security issue. Hence, all major economies like the USA, China, India, Japan, and European Union would like to have semiconductor independence. As a result, we have already started witnessing major policy shifts-triggering chip war. But what is the semiconductor, and why is it so precious? And why does it have the power to reinvent products and processes and migrate innovation epicenters? Besides, why does it have the capability of fueling market power—resulting in growing monopolization?

Key Takeaways

Upon reading this article, readers will get an understanding of the following major topics:

• Purpose of semiconductors–usages
• Semiconductor devices, their properties, how they are formed, and integrated circuits;
• Semiconductor economics and the genesis of Moore’s law–fueling specialization and monopolization;
• Role of semiconductors powering innovation and Reinvention, fueling Creative Destruction, and rise and fall of firms;
• Innovation role of semiconductors on the economy as a whole–raising per capita income;
• Unfolding policies for making entries, expanding footprints, and restricting competitors in semiconductor production, usage, and trade.

Table of Contents

• Usages of semiconductor
• Semiconductor basic and devices
• Semiconductor economics–basis of Moore’s Law
• Innovation power of semiconductor
• Affecting public policies

Usages of semiconductor devices–what is the purpose?

Not only in electronic products like computers, TVs, or radios, semiconductors are used. Even conventional mechanical and electrical products are increasingly adopting semiconductors to improve their performance and safety. With the help of semiconductors, products are acquiring the capability of sensing, understanding, and decision-making–turning them into artificially intelligent products. For example, a modern car has already close to 1500 semiconductor devices. As a result, semiconductor cost in % of total cost of automobiles and many other products has ben rising. Diverse applications of semiconductors are supported by the following basic purposes of semiconductor devices:

1. Amplifying, filtering, mixing, and modulating analog signals–basic functions of radios, TVs, mobile phones, and many more devices.
2. Digitizing analog data into digital form and capturing signals like images in electronic forms
3. Building logic circuits for adding, subtracting, and performing other mathematical operations on data, which are core functions of computers
4. Switching and routing data–core functions of computer networks and internet
5. Developing data storage or memory devices such as solid-state drive
6. Making displays like OLED, LED, and LCD flat panels.
7. Embedding software running on semiconductor devices to make machines artificially intelligent.
8. Sensing and detecting objects for understanding situations and making decisions

Semiconductor examples–materials and devices

Materials having limited conductivity are known as semiconductors, such as Silicon, Germanium, and Galium Arsenide. The understanding of semiconductors started in the early 19^th century. It began with experiments on the electrical properties of materials. Scientists observed changes in resistance due to changes in heat and light. In 1874, Karl Ferdinand Braun observed conduction and rectification in metallic sulfides, leading to the invention of the first semiconductor device—a crystal detector. However, a century-long experimental journey left many questions unanswered and led to the development of only one useful device—power rectifiers using copper oxide and selenium (in the 1920s).

A unified explanation of experimental findings emerged from the development of quantum mechanics, forming the theory of solid-state physics. The development of a science base in the form of quantum mechanics has been the underlying driver of the rapid growth of the invention of different types of semiconductor devices and their refinement during the latter part of the 20^th century. 

Examples of semiconductors are silicon and Germanium. Unlike oil, silicon-bearing sand is abundant. More or less, every country is blessed with far more sand than it can use. In raw form, semiconductors have minimal Utility. But knowledge of quantum physics has enabled scientists and engineers to change the intrinsic properties by adding impurities such as Boron. By adding suitable impurities through doping, we can increase the density of free electrons and placeholders of electrons known as holes. Consequentially, we end up having n-type or p-type semiconductors. The increase of electron density through doping results in an n-type; if we increase the density of holes or electron placeholders, we get an n-type semiconductor.

Formation of semiconductor devices by adding impurities through doping

Through controlled doping, a single semiconductor device crystal can have many p- and n-type regions, forming the p–n junctions between these regions. These junctions are at the core of developing many useful semiconductor devices. For example, a single p-n junction forms a diode. And p-n-p or n-p-n junctions create bipolar junction transistors. Of course, there have been many variations of diodes and transistors.

In 1947, scientists at the Bell Labs invented transistors—point-contact transistors. Subsequently, many transistors have been created. For example, over the last 70 years, more than 24 significant transistors, such as MOSFET and FinFET, have been invented.

Properties and types of semiconductor devices

A fundamental property of a diode is to allow current to flow only in one direction. This property is vital for power conversion devices. By the way, the p-n junction property is also amenable to producing light, leading to the realization of the light-emitting diode (LED).

On the other hand, we can use transistors to amplify signals and to turn on or off the current completely. Transistors’ amplifying signal and switching properties are vital for their practical applications. For example, we have succeeded in developing logic circuits or OR and AND gates through switching properties. These logic circuits are the fundamental building blocks of computers. Furthermore, we can also modify transistors to store data as charge accumulation. For example, NAND flash memory in the form of a thumb drive or solid-state disk drive (SSD) stores data through floating-gate MOSFET (FGMOS).

As explained, semiconductor devices have five significant properties: (i) rectifying, (ii) amplifying, (iii) switching, (iv) storing data, and (v) producing light. Often, we exclude LED from mainstream semiconductor industry discussion, as it has a unique role in transforming the lighting industry.

Integrated circuits—chips and chiplets

The ease of creating multiple p-n or n-p junctions on the same substrate through doping led to the invention of an integrated circuit (IC) in 1959. An IC integrates multiple diodes, transistors, resistors, and capacitors through segment-specific desired modification as a single integrated device—a chip. We also call them semiconductor chips. Over the decades, chip density has increased from a few devices to 15 billion in Apple’s A15 chip.

A state-of-the-art chip contains multiple building blocks such as a central processing unit (CPU), graphics processing unit (GPU), cache memory, and machine learning unit. Due to the growing complexity of monolithic ICs as system-on-chip (SoC), there has been a trend to develop each module as a small chip—known as a chiplet. Subsequently, multiple chiplets are interconnected for having an extensive system in package (SiP).

Semiconductor economics—a powerful force of reinvention and monopolization

In 1963, RCA was selling transistors for $7 apiece. Of course, it was far less than $150 apiece that Fairchild charged in 1957 to military customers. But at that price, the Transistor could not get much momentum to reach our palm in billions.

Unlike many other devices, semiconductor devices’ performance keeps improving with decreasing size and diminishing distance between devices. Of course, cost keeps falling with diminishing dimensions. Furthermore, semiconductors junctions are amenable to reorganization and reshaping, giving birth to different types of transistors, diodes, and other devices. Hence, the race has been to make the dimensions of devices smaller and reduce inter-device distance, leading to increasing chip density. Due to growing chip density, per-device costs kept falling. Consequentially, transistor density in chips started doubling every 18 to 24 months—giving birth to Moore’s law.

But to keep benefiting from higher performance, growing density, and falling per transistor cost, R&D and plant capital expenditures have been exponentially increasing. As a result, Economies of Scale advantage have been growing, fueling market power accumulation. There is also Economies of Scope advantage as the same design building blocks could be reused in designing higher-level, application-specific chips. This attribute has given birth to intellectual property or IP core business. Such IP core cores could be produced as small chips or chiplets. A set of suitable chiplets could be interconnected to form a system on a chip package. Both the economies of scale and scope advantages are at the core of fueling the reinvention wave to unleash creative destruction and monopolization effects.

Transforming inventions and innovations

Reinvention power of semiconductor

As the transistor emerged as smaller, less energy-consuming, and more reliable than vacuum tubes, it became a candidate technology core to change the matured vacuum tubes. The reinvention journey started with changing the vacuum tube technology core of Radio, Television, computers, and many other consumer electronic products with semiconductor devices. Transistor circuits such as amplifiers, signal generators, filters, and mixers became candidates for reinventing electronic products in dealing with analog signals. Some of them were Radio, Television, Audio recorders, and many more. On the other hand, switching behavior led to binary logic circuits like AND and OR gates. Hence, semiconductor devices-based logic circuits became a candidate to reinvent computers. Due to the increasing integration, the reinvention power of semiconductors kept increasing.

The growing density of ICs kept increasing the scope of developing complex software. As a result, in the 2^nd wave of reinvention, typical mechanical devices became a target of reinvention. One notable example is the typewriter that has been turned into word processor software. The ease of developing software also led to the reinventing of human-machine interfaces giving birth to the graphical user interface (GUI). The change of keyboard-based interfaces with software-centric multitouch has led to reinventions of mobile handsets into iPhone type smartphones—turning Apple a monopoly.

The advancement of sensors due to semiconductor technology and ease of developing software has also been progressing in reinventing human roles in using and making products. For example, the human role in driving automobiles is now a target for replacement with software running on semiconductor devices. Semiconductors have been growing to reinvent all kinds of products by changing mechanical, electrical, and human role-centric technology core. Hence, from the light bulb to medical imaging, all kinds of products are targets for reinvention. Some of them have already been transformed. For example, digital X-rays no longer need film, and LED light bulbs no longer heat filaments or excite gases.

Incremental and sustaining innovation power

In addition to reinvention, semiconductors are also very useful for incremental advancement. For example, although the technology core of air conditioners or microwave ovens remained the same, gradual advancement has occurred due to semiconductors. Several areas have been improving, from user interfaces to power conversions. On the other hand, reinvention with the semiconductor technology core makes it easier to keep adding and improving features. For example, smartphones are pretty amenable to advancement through software-centric feature addition.

Process innovation benefiting from semiconductors

Sensing, monitoring, inspection, control, and actuation in manufacturing processes have transformed due to semiconductors. As a result, although potato chips do not have any semiconductor components, they benefit in quality and cost due to the growing role of semiconductors in processing potatoes. Like potato chips, all kinds of products have been benefiting from the production process enhancement from semiconductors. Hence, producers are after the growing role of semiconductors to improve precision, reduce wastage, lower human touch, and improve safety. Therefore, ideas out of semiconductors have been advancing the production processes for enhancing the quality and lowering the cost of whatever we have been producing and consuming. Even the role of semiconductors in primary agriculture has been increasing. Among others, the growing role of UAVs in precision farming is notable.

Growing role of semiconductors influences public policies

Semiconductor economics powers migration and monopolization—changing the world order  

Despite the capability of unleashing the transformational effect, the reinvention potential of semiconductors emerges in a primitive form. For example, an electronic image sensor got invented as an 8×8 highly noisy device. Similarly, transistor radio prototypes in the 1950s were far more expensive and poorer than vacuum tube-based ones. Hence, in the beginning, it confuses the likely future. Therefore, companies like RCA and Kodak avoided pursuing semiconductor technology core to reinvent their products. But due to the amenability of rapid progression, new entrants like Sony succeeded in making inferior beginnings into far better alternatives, leading to the migration of innovation epicenters. Consequentially, America lost the edge in many inventions to Japan.

Similarly, IBM could not understand the likely future of the PC. On the other hand, Intel made a mistake in envisioning the future of the smartphone, leading to the rejection of Apple’s request to make the processor for the iPhone. But that decision failure led to the migration of semiconductor edge from Silicon Valley to Taiwan.   

Subsidy race for reducing dependence on semiconductor import

Due to growing dependence on the import of semiconductors from Taiwan, and slowing down the expansion of Chinese semiconductor production, the USA has come up with Chips Act in 2022. This act allows the US government to offer as high as $52 billion in subsidies to attract private investment for increasing semiconductor manufacturing on US soil. Due to this subsidy package, major companies like Intel, TSMC and Samsung have been pouring billions to set up new fabs or expand existing ones in the USA. To counter it, China has developed a $143 billion fund over 2023-2028. Furthermore, to increase semiconductor production in Europe, the EU has passed its own version of the Chips Act, channeling $47 billion public money for attracting private investment in chip manufacturing in European countries. Among the less developed countries, India’s offering of a $10 billion subsidy package for tracking foreign semiconductor firms is notable. It’s learned that India has been offering as high as 75% capital investment as a subsidy–perhaps, the highest in the world. Such massive subsidies have been undermining the race for specialization, the underlying reason for the rise of the semiconductor industry from a very humble beginning.

Chip War

For taking the low-cost labor advantage in manufacturing and assembling, the world has turned China into a global factory for OEMs. As a result, semiconductor import in China has surpassed oil import, reaching over $350 billion in 2021. Hence, China has envisioned boosting domestic semiconductor device production. On the other hand, due to Intel’s decision failure, the smartphone rise kept fueling the silicon edge of TSMC and Samsung—making them the top global players. In the high-end chip market, TSMC had a 90% market share in 2021.

On the other hand, due to close trade linkage and military influence on Taiwan, China has been on the way to replicating the silicon edge of TSMC, making even the USA dependent on China for semiconductors.  But due t the growing role of semiconductors in sharpening both civilian and military products, the USA finds it a national security threat. Hence, through the enactment of the Chip Act, the USA has triggered Chip War with the winning target of reducing import dependence and keeping China behind.

Winning Chip War

To win the Chip War, America has been after massive subsidies for alluring high-end chip production on US soil. Besides, it has substantially increased R&D funding, and for addressing human resource needs, expansion of STEM education and easing immigration of foreign STEM graduates are on the table. But in retrospect, subsidies and STEM competence alone fail to succeed in developing silicon edge. Instead, the race to pursue new reinvention waves to deliver increasingly complex chips profitably does turn silicon edge turn by turn. For example, Japan got silicon edge due to reinvention waves of consumer electronics. Similarly, Intel attained the global edge due to fueling the PC wave. On the other hand, TSMC has grown as a worldwide monopoly in high-end chips due to its mission of processing wafers to fuel smartphone waves.   

Due to the growing role of semiconductors in all kinds of products and processes, the importance of semiconductors has been increasing. Besides, its ability to make products better and cheaper has been changing its competitiveness. Furthermore, due to the illusive beginning of reinvention waves, incumbent firms have been making wrong decisions, leading to the migration of innovation epicenters across the boundaries of nations. Besides, due to the long runway of economies of scale and scope advantage, firms and countries having a solid grip on semiconductor production and usage have been gaining Monopolistic market power. Hence, semiconductor has emerged as a technology core changing the world order. Therefore, Chip War has already unfolded.   

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