The news of chip scarcity and unfolding US-China trade frictions have drawn significant public interest in semiconductor technology. Six-hundred-billion-dollar revenue of the semiconductor industry does not appear to be very large. But its implication on the Innovation edge of all significant civilian and military products has already reached a critical level. Hence, all major nations have been after semiconductor technology self-sufficiency. But ironically, in the beginning, inventor Bell Labs sought interested companies to license this technology for mere $25,000. At birth, this technology was not of much use for innovation.
Furthermore, semiconductor devices were costly too. Despite such a humble beginning, how has it become a critical technology in defining the edges of products, processes, firms, and nations? Besides, why the entry barrier has exponentially grown? More importantly, why is the semiconductor technology epicenter migratory in nature?
The semiconductor is neither a conductor nor an insulator. Its conductivity could be manipulated by controlling the availability of free charges by adding impurities and applying voltage. Semiconductor technology designs and makes semiconductor devices, voltage-controlled switches, or amplifiers. These devices are commonly called diodes and transistors. Typical usages of these devices are to make binary switches, amplifiers, and memory cells. Over the last 75 years, semiconductor technology has progressed to produce billions of these devices on a fingernail-sized silicon wafer. They are called microchips or chips. Often, we use the word semiconductor to refer to them. Microchips are the building blocks of smartphones, computers, consumer electronics, and many industrial products, including automobiles. Due to their growing role, semiconductor technology has been shaping the competitive edge. But how did it get birth, and how has it been growing?
Invention of Semiconductor Devices and Process Technology
The first member of semiconductor devices is Diode. It is a two-terminal electronic component with asymmetric conductance–low (ideally zero) resistance in one direction and high (ideally infinite) resistance in the other. Its invention has a root in German scientist Karl Ferdinand Braun’s discovery of the “unilateral conduction” across a contact between a metal and a mineral in 1874. After 20 years, in 1894, Bengali scientist Dr. Bose was the first to use a crystal for detecting radio waves. Subsequently, this invention led to wireless telegraphy innovation by Greenleaf Whittier Pickard, who invented a silicon crystal detector in 1903.
The Breakthrough in semiconductor devices came with the invention of the three-terminal solid-state device, the Transistor, in 1947. It helped to amplify signals and worked as a solid-state switch. Hence, it triggered the advancement of signal processing and switching in the telephone. Bell Labs pursued this invention for the purpose of improving the telephone system.
In the beginning, the production of every transistor was an expensive process. Hence, scientists and engineers were busy improving semiconductor technology. It led to the invention of the planner manufacturing process in 1959 and the integrated circuit invention in 1961. Subsequent growth in photolithography, design tools, chemicals, vapor depositors, and other equipment led to producing an increasing number of better-quality transistors on the same chip at a decreasing cost—giving birth to Moore’s Law. The continued advancement of semiconductor technology, keeping Moore’s Law alive over more than 60 years, has been the underlying reason for the rise of the semiconductor industry.
Life Cycle and Early Diffusion
As mentioned, semiconductors started the journey in an embryonic form. Its key device transistor was far poorer than what we know. Yes, it was smaller than vacuum tube devices. As opposed to 16 billion transistors on a nail-sized chip, less than a dozen transistors could fit within someone’s palm. They were expensive too. In 1957, Fairchild’s first batch of silicon transistors was priced at $150 apiece. Due to high prices, innovations out of transistors were not economically attractive for the civilian market. For example, a simple radio receiver needed at least five transistors, costing $750. But due to the weight and energy advantage over vacuum tubes, the US military found it attractive for reducing the weight of onboard computers. Hence, US firms focused on the military market. Due to the cold war race, the military need for semiconductor devices started rapidly growing, forming an entrepreneurial chain reaction, creating Silicon Valley.
By the mid-1960s, more than 50% output of the US semiconductor industry was destined for military programs and space missions. But the Japanese firms did not have the opportunity to leverage the military market. Hence, they focused on reinventing consumer electronics, like Radio and Television. But due to high cost and noisy signal processing performance, Sony led Japanese firms focused on improving the quality and reducing the cost. Due to the high amenability of progression, primarily due to the planner process and photolithography, Japanese firms leveraged transistors to reinvent most consumer electronics products. Consequentially, Japan rose as the semiconductor powerhouse and solid industrial economy. Due to Reinvention performance, Japanese consumer electronics products took over the market of the USA and Europe in the 1960s and 1970s, forcing many Western firms to exit.
The Emergence of Semiconductor as Reinvention and Incremental innovation Technology Core
Semiconductor devices, notably transistors and didoes, started changing the vacuum tube technology core of computers and consumer electronics. While US companies were busy reinventing computers for the US military and space missions, Japanese companies reinvented radio, Television, and other consumer electronics products. USA’s Western Electric also led the reinvention of telephone system repeaters, filters, and switches.
Over time, semiconductor technology has emerged as a preferred technology core for incremental advancement. For example, from washing machines and automobiles to fighter jets, semiconductor has been powering gradual improvement over several decades.
More interestingly, due to continued progress in quality and cost, semiconductor technology’s relentless support for incremental advancement has been powering Creative Destruction. For example, mobile has already become a creative destruction force to land phones. Similarly, the incremental addition of driving assistance features has been leading to autonomous vehicles. On the other hand, due to incremental advancement, the rise of PC as a creative destruction force to minicomputers is already known. Furthermore, a series of products is in the race for incremental advancement, making them intelligent machines. Consequentially, the relentless progression of semiconductor technology has been powering massive transformation in the space of innovation, competition, strategy, and policy.
Semiconductor Product and Process Technology
Semiconductor products started the journey as two-legged diode and three-legged transistors. The development planner production process (in 1957) through adding impurities (through vapor diffusion) at different sections of the same substrate or wafer of a pure semiconductor like Silicon or Germanium opened the door of miniaturization, quality improvement, and cost reduction. Designers used it to design and fabricate multiple transistors, diodes, resistors, and the interconnection among, inventing integrated circuits in 1961. By this time, the process technology took a standard form through taking optical images of chip layout on photo-resist coated wafers, etching unexposed areas, and adding impurities through the deposition. The advancement of photolithography machines, chemicals, design software, vapor deposition machines, and other equipment led to a widening window of reducing the size of devices and the length of their interconnections. Hence, the race started to increase transistor density on the same chips.
The growing scope of producing an increasing number of transistors on the same chip area (number of transistors per square mm) for reducing the cost per transistor and improving the quality, giving birth to Moore’s law, led to semiconductor Product innovation. In addition to device innovation like MOSFET or FinFET, the race unfolded for innovating application-specific chips having growing transistor density. This race led to microprocessor innovation, giving birth to Intel 4004, having 2300 transistors in 1971. This race has led to producing 16 billion transistors on a single chip, Apple A16, in 2022.
Semiconductor Technology Importance
As explained, despite the humble beginning, semiconductor devices or microchips have been taking growing roles in increasing products and production processes. It has been happening due to the amenability of the progression of the life cycle, making transistors increasingly better and cheaper. As a result, the innovation edge of all kinds of products and processes depends on using leading-edge microchips.
Hence, in addition to volume, access to the next edge of semiconductor technology has been crucial for competitiveness edge, both on military and civilian fronts. Thus, it has grown from a mere tool of changing vacuum tubes to defining factors for national security and prosperity edge. Hence, all major economies would like to have control of their edge. Furthermore, the USA wants to prevent China from gaining the leading edge in semiconductor technology so that China cannot keep rising as a global military and commercial force. On the other hand, countries like India and a few other developing economies are desperate to establish their footprints. Besides, most of the advanced economies would like to expand their presence.
Furthermore, by leveraging semiconductors, Japan, South Korea, and Taiwan have succeeded in creating economic value through knowledge and ideas. In addition to being producers of semiconductors devices, they have succeeded in outperforming the global race of advancing existing products by harnessing semiconductor technology edge. In retrospect, the underlying reason for the rise of these three economies to high-income status has been due to their success in advancing semiconductor technology and leveraging it to drive both product and Process innovation. On the other hand, countries like India, Brazil, and many others could not succeed in developing a solid industrial base due to their lack of presence in the semiconductor technology space. As semiconductor technology is still amenable to progression, shaping the global military and commercial edge, more or less all countries find it highly relevant to their national core development and security agenda.
Globally Distributed Monopolistic Semiconductor Industry Value Chain
Over the last 70 years, there has been a race in specialization for profitably increasing transistor density in microchips and increasing the quality—giving birth and keeping alive Moore’s law. Such specialization race has developed intellectual property and complex competence in each microchip fabrication. As a result, a well-demarcated value chain has formed with multiple layers. Furthermore, there has been a monopolistic situation in each layer, and these layers are distributed over as high as 25 countries. For example, in wafers and chemicals, Japan has a stronghold.
On the other hand, in microchip design IP, process equipment, and design automation software, the US has leading position. Dutch ASML is well known for lithography machines, followed by Japanese Nikon and Canon. For fine-tuning the high production process, TSMC is the global champion.
Growth and Geographical Migration of Semiconductor Industry Edge
In the 1950s, the semiconductor industry started to grow in two clusters. The first one was in the Bay Area of California. And the next one was in Japan. The underlying force of the semiconductor industry’s growth in California was to supply semiconductor devices to reinvent onboard computers of the US military. Contrary to the military market, Japanese firms targeted to develop and leverage semiconductor technology for reinventing consumer electronics products.
The 3rd wave of growth in the semiconductor industry emerged from the rise of the PC. Due to the continued progression of the processor and memory, PC started penetrating at an astronomical speed, expanding the demand for the semiconductor industry. The growth of mobile handsets from feature phones to smartphones due to the further progression of semiconductor technology formed the 4th wave of change. The fifth wave of growth has been unfolding to transfer dumb industrial devices into intelligent machines.
Interestingly, the epicenter of semiconductors has been migrating due to the rise and fall of the Waves of Innovation powered by semiconductors. For example, despite the early progress in the semiconductor industry in the USA due to the military adoption of transistors and microchips, the epicenter migrated to Japan due to the rise of the reinvention wave of consumer electronics. Subsequently, it returned to the USA due to the rise of the Intel processor-based PC wave. But it has migrated again from the USA, centering in Taiwan. The rise of the 5th wave is yet to determine the next epicenter. It seems that China is desperate to host it. The USA is equally desperate to regain the epicenter during the 5th wave.
Challenges in Establishing and Strengthening Position in the Semiconduction Technology Value Chain
Due to growing importance, all major economies have geared up their strategy, policy, and investments to strengthen their positions in the global semiconductor industry. Examples include the USA’s Chips Act, the European Chips Act, India’s $10 billion subsidy, and China’s $150 billion, preceded by an initial investment in the Make in China plan. But most of these investments are targeted to allure production plants through subsidies. But historically, the migration of semiconductor technology epicenter has been due to the rise and fall of innovations and technology waves. Hence, unless such unfolding waves are not detected and leveraged through innovation and technological advancement, such new initiatives run the risk of wasteful investment.
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