All time, we have been benefiting from microchips, whether communicating over the smartphone, monitoring fire hazards, or tracking pets. Microchips determine how accurately missiles fly and hit targets and how future autonomous vehicles will save lives by reducing accidents. Through reinvention and cumulative effects of Incremental Innovation, microchips have been powering higher quality at the falling cost of all kinds of products. Hence, the race to exploit microchip potential has been heading towards price-setting capability—the highest quality at the lowest price. For fighting a war and attaining monopolistic trade advantage, a microchip is a new weapon. Hence, microchips have been growing as a new power center—triggering a chip war.
Chip war is a new form of war to attain global supremacy. Instead of occupying land, the focus has been to gain a microchip edge. The underlying cause of chip war is to attain a microchip edge and prevent the opponents from doing so. Microchips are everywhere. In 2020 alone, more than 932 billion microchips were produced, contributing $450 billion in revenue to the semiconductor industry. They are embedded in various products, from microwave ovens and smartphones to missiles. They have been transforming products, firms, and industries. Due to their transformative effect in the form of reinvention waves and the cumulative effect of incremental innovation, innovation epicenters have been migrating. Consequentially, they have been fueling the rise and fall of the commercial and military edge. Hence, microchips edge has become a national security issue—causing US-China Chip War.
What is it, and what does it do?
Microchips are tiny silicon chips having sensing, data processing, memory, and communication capabilities. By the way, not all microchips have all these four building blocks. Due to their growing role, they are becoming critical building blocks of all products, becoming the hearts of modern products. They regulate heating and cooking food or flying fighter jets. Implanted microchips track our pets and give kicks to ailing hearts. Machines behave like human beings showing artificial intelligence due to microchips. By making devices smart, they have been improving our quality of living standards.
Purpose, invention, and evolution of Microchips
As mentioned, Microchips are used in almost every electronic device we use today. From smartphones, gaming consoles, and cars to medical equipment, we find microchips at the heart of their functioning. They are made from silicon wafers. Microchip designs are printed in nano 3D dimension through lithography on the wafer. The size of a microchip varies from a tiny grain to more than a hundred square millimeters (mm2). They are made of semiconductor devices like transistors.
The precursor of microchip invention is IC. Within ten years of the invention of the Transistor, in 1959, Robert Noyce and Jack Kilby, among others, made significant contributions to producing multiple transistors and other discrete devices on the same silicon die, giving birth to integrated circuits (IC). As the growing density of IC kept decreasing per component cost and increasing the quality, the race started to integrate growing functionality on the same silicon die—a driving force of giving birth to microchips.
The first milestone of the microchip is Intel 4004—invented in 1971, comprising 2,250 transistors on a 12 mm2 silicon wafer or die area. This microchip became the heart of the functioning of calculators, elevators, and a few other products. Within a decade, it evolved as Intel 8088 microprocessor, powering personal computers (PCs). Its continued evolution led to the rise of the computer reinvention wave. In the 1980s, microprocessors started getting additional modules like memory and analog to digital signal converting and communicating modules, turning them into microcontrollers. The evolution has been continuing with the addition of graphic processing (GPU), neural network and machine learning units.
Transistor count or microchip density has been increasing to support growing functionality, reaching 16 billion transistors on Apple A16 bionic chip—powering iPhone 14. There has been a race to move to the next process node for shrinking size, reaching 4nm in 2022.
Example applications of Microchips—from tracking dogs, kicking ailing hearts to hitting the target
Statistics indicate that one in three pets will likely get lost at some point. The remedy could be microchips—a rice grain-sized radio-frequency identification transponder that carries a unique identification number. Similarly, in tracking our heart condition and kicking ailing hearts as and when needed, we have microchip implants—pacemakers. On the other hand, in guiding Javelin missiles to attack Russian tanks in the Ukraine war, 250 microchips were in action in each of the missiles.
The conventional use of microchips has been to make computers and electronic products. But their roles have been expanding in improving the efficacy and efficiency of a growing number of products. Once we add sensing, processing, and communication capabilities to products, we find a way to make them more effective in getting our jobs done more efficiently.
For example, automobiles had no microchips till the 1960s. But there has been a growing role of the microchip in making cars more energy efficient, comfortable, and safer. It’s estimated that a non-electric modern vehicle carries as high as 1,000 microchips, while EVs contain double that number. They perform numerous jobs pertaining to optimizing engine sparks, applying brakes, dealing with the transmission, assisting in steering wheels, winding window glasses, offering rearview, controlling internal climate, and offering entertainment.
We all know that mobile handsets are having increasingly software-intensive features. To power them, we need microchips and their growing power of them. Similarly, many other products like microwave ovens, washing machines, and airplanes have a growing microchip role, making them increasingly autonomous and more functional. For example, dolls can talk, listen, and move their arms like humans. There has been an increasing role of microchips for human-like functionalities in toys and industrial machinery like robots.
Underlying force–fueling reinvention waves and incremental innovation
The underlying force of the evolution of microchips and their growing roles in products and processes has been reinvention and incremental innovation. Initially, microchips became a target for reinventing computers, telephone switches, and consumer electronics products. Subsequently, the microchip has grown as a powerful technology core to replace the role of hardware with software, creating a reinvention wave. For example, the part of physical keyboards of mobile handsets or typewriters has been replaced with software running on microchips. On the other hand, the reinvention of light bulbs as LED ones has taken place due to the change of the role of filament or gas with LED chips.
The reinvention waves fueled by microchips tend to migrate innovation edge across the boundaries of firms and nations. For example, America lost several innovation epicenters to Japan due to the reinvention effect of microchips.
Microchips are also helpful in advancing products by adding incremental features and advancing existing ones. For example, adding microchips to automate window glass winding in automobiles has been an incremental feature. In addition to increasing perceived value, they sometimes contribute to cost reduction. Hence, there has been a race to leverage microchips in all kinds of products to improve willingness to pay and reduce the cost. The cumulative effect of consistent incremental innovation by leveraging microchips leads to sustained competitive advantage.
Specialization and monopolization causing microchips scarcity
The business success out of microchip production takes place from offering successive better versions. It results in outperforming the competition through a flow of incremental advancement– sometimes, through reinvention. Due to the arrival of the next process nodes, microchips produced using previous nodes lose their attractiveness. But to move to the next process node, there is a need for rising R&D and capital expenditure. Although the lead time for mobilization of the fund could be reduced, the time for R&D to learn and optimize to move to the next node for producing state-of-the-art chips is relatively inflexible.
Furthermore, due to high specialization at each layer of the semiconductor value chain, inputs supplied from each layer are limited to only a few producers. Due to high-level specialization and the need for sophisticated purpose-built machinery, the production at each layer is also not flexible. Hence, the scalability of the supply of microchips is limited. Therefore, all of a sudden, the production of microchips could not be increased as sudden jumps.
During the COVID pandemic time, there was a disruption in production at several layers of the value chain. Besides, a spike in demand for smartphones and personal computers showed up for online classrooms and working from home. Hence, a gap between supply and demand showed up, creating a scarcity of microchips. But it’s a short-run effect.
Microchips powering the Fourth Industrial Revolution
Unique technology cores power every industrial revolution. For example, steam engines and mechanical engineering fueled the 1st industrial revolution. Similarly, the 2nd industrial revolution unfolded due to the reinvention waves and cumulative effect of incremental innovations out of electrical and vacuum tube-based electronics technology core. The underlying technology core of the 3rd industrial revolution has been microchips and software running on them. But the target areas of microchips have been so far in augmenting human roles in the usage and production of products.
The fourth industrial revolution targets reinventing products and processes by changing human beings’ cognitive roles with advanced microchip technology core. Microchips with the power of software and sensors will be imitating human beings’ sensing, perception, and decision-making roles. As a result, automobiles will drive themselves, making them safer and more productive. Similarly, microchips will power precision farming and medicine for higher efficacy and efficiency. Microchips will likely be powering the fourth industrial revolution by changing human roles with machine intelligence.
Rising as national security issue–causing chip war
As explained, due to the capability of fueling reinvention and sustaining incremental innovation, microchips have been changing the edge of both civilian and military products. Firms and nations can outperform opponents in international trade and military conflicts with a sustained higher microchip edge. Besides, the microchip trade has reached a substantial level, reaching $600 billion in 2022. Furthermore, the growth will likely reach $1 trillion by 2030. Hence, having a microchip edge is a growing national security urgency.
Due to the growing importance of international trade and military, powerful nations have come up with massive programs for attaining microchip independence. For example, as the import of semiconductors reached as high as $350 billion in 2019, China came up with a $150 billion program to increase the domestic production of microchips. Similarly, the European Union, India, Canada, and Japan have rolled out their national semiconductor strategy and programs. Most notable has been USA’s Chips and Science Act 2022. To regain its silicon edge and reduce dependence on imports, the USA has rolled out a $52 billion subsidy program for production, R&D, and education.
Furthermore, there have been an additional $23 billion in tax incentives. More importantly, the USA has mobilized harsh regulatory measures with allies to prevent China from attaining the microchip edge. Hence, the USA has imposed restrictions on the export of high-end chips and semiconductor equipment to China. Such measures have triggered the US-China chip war. To counter it, China has come up with $143 billion program.
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