Speaker 1: Welcome to tech Stuff, a production from I Heart Radio.
Speaker 1: Hey there, and welcome to tech Stuff. I'm your host,
Speaker 1: Jonathan Strickland. I'm an executive producer with I Heart Radio.
Speaker 1: And how the tech are you? You know? One thing
Speaker 1: I have talked about a lot over the last couple
Speaker 1: of years has been the semiconductor chip shortage, which is
Speaker 1: impacting everything from PC manufacturing to the automotive industry too,
Speaker 1: you know, printer toner cartridges. And I frequently mentioned that
Speaker 1: many of the semiconductor fabrication facilities are in Taiwan. But
Speaker 1: then that got me to thinking, why are they in Taiwan?
Speaker 1: How did that happen? This was a big gap in
Speaker 1: my knowledge, so I thought I would look into it
Speaker 1: and then do an episode on it. And I am
Speaker 1: a big believer in context. I don't think you can
Speaker 1: just say our story begins in nineteen seventy four, because
Speaker 1: without an understanding of history and politics and social movements,
Speaker 1: you can't really grasp how Taiwan got to where it
Speaker 1: is and the different forces that are you know, present
Speaker 1: in Taiwan's economy in general and the semiconductor industry in particular.
Speaker 1: So we're going to do a super fast, high high
Speaker 1: level overview of Taiwan's history, because, as it turns out, history, politics,
Speaker 1: and economics i'll play a huge part in how and
Speaker 1: why Taiwan became and remains a critical component of the
Speaker 1: microchips supply chain. Also, keep in mind, again super high level,
Speaker 1: the history of Asia is far too complex for me
Speaker 1: to cover in depth. I mean I would have to
Speaker 1: dedicate an entire podcast and do you know, years of
Speaker 1: episodes to really even scratch the surface. But let's talk
Speaker 1: about Taiwan. First of all, Taiwan is an island. It's
Speaker 1: off the southeastern coast of mainland China. It's across from
Speaker 1: a province called Fu Chian. Also, my apologies for my pronunciation. Um,
Speaker 1: it's bad even in English. It's going to be terrible
Speaker 1: for Taiwanese and Chinese and other foreign names. As my
Speaker 1: relatives would say. I'm just laying that out here now
Speaker 1: because it's gonna happen. So, Taiwan is about a hundred
Speaker 1: miles or a hundred sixty kilometers off the coast of
Speaker 1: mainland China. The city of Taipei, on the northern tip
Speaker 1: of Taiwan is sort of the political center of the island.
Speaker 1: Even though it's on the northern tip. It's also the
Speaker 1: economic powerhouse of the island. But the fabrication plants or
Speaker 1: fabs or as you will sometimes here or sometimes you'll
Speaker 1: hear them called foundries, they're all the same thing. The foundry,
Speaker 1: fab fabrication plant. It just means in this case, a
Speaker 1: company that makes integrated circuits and semiconductors. All of these
Speaker 1: are are for the most part, are located in sin Chew.
Speaker 1: Again my apologies for pronunciation. Anyway, that's a city to
Speaker 1: the southwest of Taipei. It actually faces across from mainland China. Now,
Speaker 1: for at least ten thousand years, you had indigenous people
Speaker 1: living on Taiwan who were self governing, had different tribes
Speaker 1: of them, and you know, they had their own languages,
Speaker 1: they had their own conflicts with one another, etcetera. Beginning
Speaker 1: around a thousand years ago, people from what would become
Speaker 1: the Fuchian Province of China came to Taiwan um and
Speaker 1: like I said that that provinces in the southeast of China,
Speaker 1: it's essentially across the sea from Taiwan, and they would
Speaker 1: become known as the Hoklow and that migration would continue
Speaker 1: into the seventeenth century, so over the course of like
Speaker 1: six hundred years they were migrating. There was a second
Speaker 1: group from China known as the Hakka Uh and they
Speaker 1: began migrating to Taiwan as well. So you had these
Speaker 1: two different groups of mainland China uh folks who were
Speaker 1: migrating to Taiwan. The Hakka group were a group of
Speaker 1: people who frequently faced discrimination on the mainland. I've often
Speaker 1: seen them compared to other groups of folks who often
Speaker 1: were displaced in various regions, such as Jewish populations would
Speaker 1: frequently undergo this as well as Roma populations. Now, the
Speaker 1: Hoklo people's were greater in number, and they essentially claimed
Speaker 1: the coastal regions, the more favorable regions, and they forced
Speaker 1: the Hakka people's closer toward the interior. The aboriginals, the
Speaker 1: indigeno as people were even pushed further in. Today, the
Speaker 1: Hoklo and Hakka are considered the Taiwanese population. So the
Speaker 1: you have the aboriginals or indigenous people, and then you
Speaker 1: have the Taiwanese people. Those were the people who migrated
Speaker 1: from China, you know, between a thousand and you know,
Speaker 1: six hundred years ago, and they represent those people, the
Speaker 1: ones who migrated. They represent more than eight percent of
Speaker 1: Taiwan's population today. In fact, the Hoklore is the largest
Speaker 1: slice of that pie. I think it's something like between
Speaker 1: sixty and sixty of the population. But then after these
Speaker 1: migrations where people from mainland China began to settle in Taiwan,
Speaker 1: you had the era of colonization, and the Dutch and
Speaker 1: Spanish both established a presence on Taiwan. The Dutch actually
Speaker 1: pushed the Spanish out. The Dutch presence was really an
Speaker 1: outpost of the East India Company, one of the most
Speaker 1: powerful entities in the six hundreds, not to be confused
Speaker 1: with the British East India Company, another very powerful corporation
Speaker 1: at that time. The Dutch one was kind of an
Speaker 1: early example of a company dominating in supply chains, like
Speaker 1: in shipbuilding and things like that. So, you know, it
Speaker 1: kind of seems like history is a way of repeating itself,
Speaker 1: because Taiwan would again become an important link in supply
Speaker 1: chains later on. In sixteen sixty two, Ming Dynasty loyalists
Speaker 1: from China fled to Taiwan as the Ming dynasty was
Speaker 1: collapsing in the Shing dynasty began to establish itself. The
Speaker 1: Chinese pushed the Dutch from Taiwan and asserted control over
Speaker 1: the island. So you have the Taiwanese uh which were
Speaker 1: the earlier migrants from China, and now you have the
Speaker 1: Ming dynasty loyalists establishing themselves in China. In sixteen eighty three,
Speaker 1: the Shing forces displaced the Ming forces, but Taiwan remained
Speaker 1: under Chinese control for two hundred years. Now, Asia in
Speaker 1: the eighteen hundreds was a pretty chaotic place, filled with
Speaker 1: lots of intrigue. You had major powers all at play
Speaker 1: in the area, many of which were going through their
Speaker 1: own internal revolutions. So you had China obviously an empire UH.
Speaker 1: You had Russia, which at the time was a monarchy. Japan,
Speaker 1: which in the nineteenth century cast off its military government
Speaker 1: which was called a shogunate, and in name, at least
Speaker 1: it returned to being an empire, though really it would
Speaker 1: mark an era in which Japanese would rapidly modernize. You
Speaker 1: also had Korea, which had defended itself against Japanese invasions
Speaker 1: in the seventeenth century. By the eighteen hundreds, Korea had
Speaker 1: become very much an isolationist nation resisting all outside influence
Speaker 1: and modernization. Now, the reason I mentioned all this is
Speaker 1: that these different political alignments would shape the region over
Speaker 1: the following century. Both Japan and China tried to gain
Speaker 1: influence over Korea. That precipitated into an all out war
Speaker 1: between China and Japan, and the Japanese forces, which had
Speaker 1: more effectively modernized and were better organized than the Chinese forces,
Speaker 1: one pretty much every single battle that they had with
Speaker 1: the Chinese. So in eight China signs the treaty with Japan,
Speaker 1: and as part of that treaty, China seeds Taiwan to Japan.
Speaker 1: So the Japanese take control of Taiwan. So again we
Speaker 1: went from the indigenous peoples to the early Chinese migrants,
Speaker 1: to the Dutch, to the Ming loyalists, to the Shing loyalists,
Speaker 1: to Japanese occupation. Uh a really intense amount of change
Speaker 1: for this one island. While Taiwan was under Japanese control,
Speaker 1: something else huge was happening in China. Towards the end
Speaker 1: of the nineteenth century. The Shing dynasty was falling apart
Speaker 1: for lots of reasons, kind of like the Ming dynasty
Speaker 1: had done. Centuries earlier, there were a lot of internal conflicts.
Speaker 1: There were pressures from countries like Russia, Britain, Japan, Germany, France,
Speaker 1: and the United States. And to get into all the
Speaker 1: details would require a mini series of its own. But
Speaker 1: all this tension, combined with a growing distrust and imperialism
Speaker 1: within China itself, led to the Chinese Revolution. This was
Speaker 1: around nineteen eleven and nineteen twelve, so China would ultimately
Speaker 1: shift at least a name into a republic. The Shing
Speaker 1: dynasty was overthrown and the Republic of China or r
Speaker 1: o C was born UM, and even that story is
Speaker 1: super complicated. Part of that process also saw a nationalist
Speaker 1: party called k MT taking formation UM, which was initially
Speaker 1: suppressed by the first r o C president. Turns out
Speaker 1: the first presid that was actually more of a dictator.
Speaker 1: He even tried to turn China back into a monarchy,
Speaker 1: which failed, But I digress. So we then get to
Speaker 1: a truly chaotic era in China's history in which various
Speaker 1: provinces rebelled against the dictator slash president, and many regions
Speaker 1: ended up being led by military commanders who became known
Speaker 1: as warlords UH. The KMT party, which again was a
Speaker 1: very China centric party. It was very much based in
Speaker 1: nationalist philosophies, this idea of you know, China is China,
Speaker 1: and we need to unify and we need to expunge
Speaker 1: all the foreign influence that has been trying to to
Speaker 1: control China up to this point. But you had another
Speaker 1: political party come to power, the Chinese Communist Party or CCP.
Speaker 1: These two parties would actually work together in kind of
Speaker 1: an unsteady alliance for a couple of different brief eras
Speaker 1: the Soviet Communists were influencing and encouraging the CCP. So
Speaker 1: the alliance between the ultra nationalistic KMT and the Soviet
Speaker 1: backed c c P was always uneasy, but a common
Speaker 1: enemy Japan kept the two parties united at least temporarily,
Speaker 1: and the war with Japan would overlap with World War Two.
Speaker 1: So Japan once again won numerous conflicts against China and
Speaker 1: sapped much of the Republic of China's resources in the process.
Speaker 1: Uh the KMT was plagued with corruption and infighting, and
Speaker 1: meanwhile the Communist Party, the CCP, was growing more unified
Speaker 1: and more confident. Then we get to nineteen forty five
Speaker 1: and the end of World War Two and Japan surrenders,
Speaker 1: and as part of that, it seeds Taiwan back to China. Now,
Speaker 1: the last time China controlled Taiwan, it was the Shing
Speaker 1: dynasty that was in control. Now it was the Republic
Speaker 1: of China, which for all practical purposes really meant the KMT,
Speaker 1: that political party of nationalist China philosophy. But the c
Speaker 1: c P was rising in power and the k m
Speaker 1: T was in turmoil, and once again China entered into
Speaker 1: a civil war, and the c c P made massive
Speaker 1: strides against the KMT within China. So in nineteen forty nine,
Speaker 1: the Republic of China government fled to Taiwan and the
Speaker 1: Communist UH, the Chinese Communist Party, takes control of mainland China.
Speaker 1: So in nineteen forty nine we entered into the era
Speaker 1: of two China's up. Interestingly, the United States did not
Speaker 1: recognize mainland China's government as quote unquote China until nineteen
Speaker 1: seventy nine. I would say that's largely because of the
Speaker 1: Cold War, the fear of Soviet influence UH. And even
Speaker 1: though the Republic of China was essentially confined to Taiwan
Speaker 1: and the surrounding area. The that was what was recognized
Speaker 1: as quote unquote China. In nineteen seventy nine, that switched
Speaker 1: and now the United States still only recognizes China, it
Speaker 1: doesn't recognize Taiwan as being a separate country. So now
Speaker 1: it just recognizes the the mainland China government as the
Speaker 1: actual China in U s I S. So, yeah, we
Speaker 1: have to China's there's there's the mainland under the control
Speaker 1: of the Chinese Communist Party, and there is Taiwan, which
Speaker 1: is under the control of the Republic of China. And
Speaker 1: for decades, for practical purposes, that was just the KMT.
Speaker 1: More than a million Chinese fled to Taiwan in ninety
Speaker 1: nine as well, and the Republic of China in Taiwan
Speaker 1: would issue some emergency decrees in ninety forty nine as
Speaker 1: in order to try and maintain order in Taiwan uh
Speaker 1: and they were pretty restrictive, like one of them banned
Speaker 1: the formation of new political parties, so it kind of
Speaker 1: secured KMT as the party in power indefinitely. There were
Speaker 1: a couple of other smaller, mostly ineffective political parties that
Speaker 1: were active at the time, but KMT was was absolutely dominant,
Speaker 1: so they were effectively synonymous with the government of Taiwan.
Speaker 1: They also got rid of stuff like term limits, so
Speaker 1: it was really like just making sure that they had
Speaker 1: this on lockdown. The Republic of China would pursue a
Speaker 1: brutal anti communist campaign in Taiwan for decades. It was
Speaker 1: actually known as the White Terror that extended all the
Speaker 1: way into the nineteen nineties. In fact, that the Republic
Speaker 1: of China would declare martial law in Taiwan, which would
Speaker 1: last from nineteen nine to nineteen eight seven. So Taiwan's
Speaker 1: emergence as a player in the semiconductor space actually happened
Speaker 1: while all this was still a thing. So you might
Speaker 1: wonder why is he even talking about this, because these
Speaker 1: were policies that were actually active when Taiwan began to
Speaker 1: establish its semiconductor industry. Okay, we've got some more history
Speaker 1: to get through, and then I swear we're gonna talk
Speaker 1: about semi conductors. But first let's take a quick break. Okay,
Speaker 1: we're back mainland China. It gave the People's Republic of China,
Speaker 1: ruled by the Communist Party, maintains that Taiwan is still
Speaker 1: part of China. Uh. The k m T s platform
Speaker 1: in in Taiwan that that one maintains that Taiwan is
Speaker 1: separate from mainland China, but it views the Unified China
Speaker 1: idea as critical for trade and political relationships with the mainland. Uh.
Speaker 1: If I'm being honest, there's some subtleties here that I
Speaker 1: don't fully understand because it almost seems like the KMT
Speaker 1: is saying we also believe in the unified China, just
Speaker 1: you know, we're separate from them, and I it almost
Speaker 1: seems like double thing to me. But I'm sure that
Speaker 1: it's you know, fully logical, and I just don't grasp
Speaker 1: it because I haven't really been immersed in research enough
Speaker 1: to be able to understand it. Anyway, the tensions between
Speaker 1: Taiwan and China are key to understanding Taiwan's place in
Speaker 1: the semiconductor industry today and how like people are starting
Speaker 1: to wake up to the potential dangers of this uh,
Speaker 1: this tension between China and Taiwan. So since the mid forties,
Speaker 1: the Republic of China has maintained control of Taiwan. The
Speaker 1: KMT dominated the Republic of China for most of that period,
Speaker 1: but more recently that has changed. In two thousand, a
Speaker 1: candidate for the Democratic Progressive Party or DPP, defeated the
Speaker 1: KMT candidate for President of Taiwan. The DPP platform centered
Speaker 1: largely on the concept of a Taiwanese republic with independent sovereignty.
Speaker 1: So this is more of a party that says we
Speaker 1: are our own nation, we should be considered as such.
Speaker 1: And you can say that the DPP in general favors
Speaker 1: closer ties with the United States and independence from China,
Speaker 1: while the KMT has tendencies of maintaining closer relationships with China.
Speaker 1: Uh A lot of the members of KMT are people
Speaker 1: who migrated from China to Taiwan, so they want to
Speaker 1: maintain those those ties, both economic and political. Now I
Speaker 1: mentioned that the population of Taiwan is ethnically more than
Speaker 1: eight percent Taiwanese. Again, those are the people who migrated
Speaker 1: from China hundreds of years ago, most of those being
Speaker 1: Hucklo or Fushian Chinese settlers. About two percent of the
Speaker 1: population are indigenous peoples whose history on the island stretches
Speaker 1: back thousands of years, and about fourteen percent of the
Speaker 1: population are mainland Chinese who relocated to Taiwan or a
Speaker 1: descended directly from you know, a generation that located relocated
Speaker 1: from China to Taiwan. Since two thousand, the power has
Speaker 1: shifted a couple of times between the KMT and the
Speaker 1: d p P, and currently the DPP controls a majority
Speaker 1: of the government of Taiwan. The island has had a
Speaker 1: few eras of industrialization, mostly that got started during the
Speaker 1: era of Japanese occupation, and so there was some industrialization
Speaker 1: that was occurring in Taiwan around World War One and
Speaker 1: World War Two. Under the Republic of China in the
Speaker 1: nineteen fifties and sixties, Taiwan experienced an incredibly rapid industrialization
Speaker 1: very it mostly in areas like textiles and light manufacturing,
Speaker 1: but it was happening at a pace that was well
Speaker 1: beyond what we saw develop in other countries like the
Speaker 1: United Kingdom. One of the practices that led to this,
Speaker 1: both in Taiwan and on mainland China, was a new
Speaker 1: policy that encouraged students to study abroad in fields like
Speaker 1: engineering before returning home to apply what they had learned
Speaker 1: and build out industry in their home country. Now hold
Speaker 1: that thought. We're going to shift gears for a second
Speaker 1: to talk about integrated circuits. Okay, before nineteen fifty nine,
Speaker 1: circuits consisted of electronic components that were connected to each
Speaker 1: other with physical wires to create a circuit. Uh, the
Speaker 1: invention of the transistor meant that circuits could be much
Speaker 1: smaller than they had been. The transistor was able to
Speaker 1: replace a component like the vacuum tube, and that's what
Speaker 1: allowed for the invention of things like the transistor radio,
Speaker 1: which was a device small enough to carry in your hand,
Speaker 1: whereas the radios of old those were like big table
Speaker 1: top or sometimes consoles, like a piece of furniture all
Speaker 1: on themselves. But transistors brought in the era of miniaturization. However,
Speaker 1: circuits were still kind of bulky. You know, you still
Speaker 1: had to use wires. You couldn't get too small because
Speaker 1: it became too difficult to connect the individual electronic components
Speaker 1: to two wires and you just reached a point of
Speaker 1: diminishing returns. But then Robert Noyce, who was working at Fairchild,
Speaker 1: and Jack Kilby who was working at Texas Instruments, each
Speaker 1: independently came up with a similar idea. What if you
Speaker 1: were to build out a circuit on a single silicon
Speaker 1: chip and you could etch connectors to every component, and
Speaker 1: you could build directly onto the chip and all the
Speaker 1: components would be integrated on that chip. It would be
Speaker 1: an integrated circuit or I see that could reduce the
Speaker 1: size of circuits even more than the shift from vacuum
Speaker 1: tubes to transistors did. Noise would ultimately get the patent
Speaker 1: for that invention from the patent office. They both filed
Speaker 1: for a patent. Noise just you know one. He just
Speaker 1: got it first, but both of them are credited in
Speaker 1: at least in most places, as being the inventor of
Speaker 1: the integrated circuit. Now, it's one thing to design an
Speaker 1: integrated circuit, it's another thing to produce them at scale.
Speaker 1: Production is a tough challenge, and it's made even tougher
Speaker 1: by the fact that as designs evolve and components shrink
Speaker 1: in size, you actually have to overhaul your entire manufacturing
Speaker 1: process in order to meet that design right Like, you
Speaker 1: can't just keep using the same process. It isn't designed
Speaker 1: to make things smaller. You have to actually reconfigure everything.
Speaker 1: So for that reason, it really didn't take very long
Speaker 1: after the invention of the integrated circuit for a lot
Speaker 1: of companies to see a problem. The cost of creating
Speaker 1: fabrication facilities was considerable, and the cost of overhauling them
Speaker 1: meant you couldn't just right off as a one time thing.
Speaker 1: You couldn't say, well, will invest fifteen million dollars to
Speaker 1: build out a facility and then we're done. No, it'd
Speaker 1: be we'll have to invest fifteen million dollars in a
Speaker 1: facility and then in a year we will have to
Speaker 1: spend another five million to update the facility. Now this
Speaker 1: opened up an opportunity a company could specialize in the
Speaker 1: manufacture of integrated circuits that had been designed by other companies.
Speaker 1: So you would have some companies just working in R
Speaker 1: and D and they would build out new designs for
Speaker 1: semiconductor chips, but they wouldn't be ready, they wouldn't be
Speaker 1: capable of manufacturing those on a scale that would allow
Speaker 1: them to you know, use them as products. So then
Speaker 1: they would partner with a fabrication company. They would become
Speaker 1: a customer of the fabrication company. In the fabrication company
Speaker 1: would just focus on building out integrated circuits at scale.
Speaker 1: That scale thing is important because if you are able
Speaker 1: to operate at scale, you can bring down the cost
Speaker 1: of the individual components that you need in order to
Speaker 1: actually make the thing. As the costs come down, if
Speaker 1: the price stays the same, then you you make profit.
Speaker 1: All right. So let's get back to Taiwan in in
Speaker 1: Sincho City, and again my apologies for all the terrible pronunciations.
Speaker 1: The Industrial Technology Research Institute or I t r I
Speaker 1: was founded. It's a nonprofit organization. And you might say,
Speaker 1: by whom who was it that founded the I t
Speaker 1: r I. I am not entirely sure. My research just
Speaker 1: gave me that date and the fact that it was founded.
Speaker 1: I looked in lots of places and unfortunately a ton
Speaker 1: of them have nearly identical wording, which tells me that
Speaker 1: they're all drawing from the same source. So I don't
Speaker 1: have more information on that. I'm sure people out there
Speaker 1: know who are listening to this. They can let me
Speaker 1: know tech stuff hsw on Twitter because I'm curious anyway.
Speaker 1: I t r I is a technology R and D
Speaker 1: institution that would play a key role in launching the
Speaker 1: semiconductor industry in Taiwan. And then we get a story
Speaker 1: that goes like this, at a group of seven people,
Speaker 1: among them Taiwan's Minister of Economic affairs, and another one
Speaker 1: was a Chinese born executive who worked at Radio Corporation
Speaker 1: of America or r c A. I've done multiple episodes
Speaker 1: about r c A, so you can listen to those
Speaker 1: to learn about how influential and important that company was. Uh.
Speaker 1: They met for breakfast at a stall in Taipei again
Speaker 1: along with like five other people. This was in nineteen
Speaker 1: seventy four, and they were talking about how Taiwan could
Speaker 1: be part of the semiconductor manufacturing industry. Now, the story
Speaker 1: says that the r c A executive or Taiwanese officials
Speaker 1: to invest in building out fabrication facilities for integrated circuits,
Speaker 1: and the officials were eager to bolster Taiwan's economy. This
Speaker 1: is nineteen seventy four. That means this is following in
Speaker 1: the wake of the nineteen seventy three oil crisis, which
Speaker 1: in itself was the result of a massive political disagreement,
Speaker 1: which is putting it lightly. That happened on a global scale,
Speaker 1: and even countries that weren't directly connected to the oil
Speaker 1: crisis got affected by it through you know, the fact
Speaker 1: that countries that were affected, uh, you know, the international
Speaker 1: commerce meant that this was a ripple effect across the
Speaker 1: entire world, so Taiwan was hit by that. Now the
Speaker 1: case was made that Taiwan could build up fabrication facilities
Speaker 1: and other companies could rely upon those facilities to build
Speaker 1: their designed circuits. The integrated circuit was less than twenty
Speaker 1: years old at this point, and already they were getting
Speaker 1: complicated enough that small fabrication facilities were beginning to get
Speaker 1: left behind. And this is really where Moore's law comes
Speaker 1: into play. So Moore's law is really an observation rather
Speaker 1: than a law. Gordon Moore observed a trend driven by
Speaker 1: economic demand in which companies were doubling the number of
Speaker 1: discrete components on integrated circuits every two years or so.
Speaker 1: Today we tend to think of this as computers get
Speaker 1: twice as powerful every two years, So the computers of
Speaker 1: today are twice as powerful as the computers of two
Speaker 1: years ago. But the original observation was that economic factors
Speaker 1: primarily drove companies so that they would put our cram
Speaker 1: twice as many components on a on a one inch
Speaker 1: wafer of silicon. Every two years they would double. So
Speaker 1: if you have you know in year one, if you
Speaker 1: have a transistor with a thousand components, then by year
Speaker 1: three year building circuits that have two thousand components, and
Speaker 1: then by or five you're talking about four thousand components
Speaker 1: and so on, and that gets really big, really fast.
Speaker 1: This was opening up tons of pathways in technology, but
Speaker 1: it also stood as a huge challenge to manufacture chips
Speaker 1: at scale. Meanwhile, the companies doing the R and D
Speaker 1: and chip design weren't necessarily in a position to build
Speaker 1: out their own fab facilities. So it was an area
Speaker 1: of opportunity Taiwan could lay the foundation to be a
Speaker 1: link in the supply chain, the place where companies would
Speaker 1: have their designs actually manufactured. Those finished chips could then
Speaker 1: be sent elsewhere, maybe for packaging or even into incorporation
Speaker 1: and other technologies you know, from handheld electronics to military systems,
Speaker 1: to weapons to vehicles and everything in between. Now, this
Speaker 1: was not going to happen overnight. The r c A
Speaker 1: executive estimated it would take ten million dollars in investment
Speaker 1: in four years to just get things moving in the
Speaker 1: right direction. See when I say you've got to build
Speaker 1: up fabric a facilities, that sounds pretty straightforward, but you
Speaker 1: have to understand that chip fabrication requires incredibly specialized equipment
Speaker 1: as well as knowledge and skill. Taiwan would have to
Speaker 1: secure all of those in order to make this work.
Speaker 1: Taiwan at the time had not advanced beyond the assembly
Speaker 1: stage of production in the semiconductor industry. So, in other words,
Speaker 1: the companies in Taiwan at that point they were putting
Speaker 1: together components that had been made by you know, companies
Speaker 1: in other countries, and they were just assembling them. Typically,
Speaker 1: you would then see, if you know, Taiwan was to
Speaker 1: follow the normal evolutionary path, you would see Taiwanese companies
Speaker 1: jump into developing transistors next. But the Taiwanese officials decided
Speaker 1: they needed a faster route, and so they made the
Speaker 1: decision to acquire the technologies they needed to go straight
Speaker 1: into integrated circuit fabrication, skipping over the whole transistor manufacturing stage.
Speaker 1: In nineteen s R. C A agreed to transfer semiconductor
Speaker 1: technology to Taiwan. Specifically, it was the seven micrometer c
Speaker 1: MOSS or complementary metal oxide semiconductor process technology. You will
Speaker 1: sometimes hear the word node used in semiconductors, and you'll
Speaker 1: hear a measurement right you'll hear a size like seven
Speaker 1: micrometers is pretty small. Uh, it's nowhere near as small
Speaker 1: as the components that are on chips these days. But yeah,
Speaker 1: seven micrometers nodes. Uh. If you hear the word note,
Speaker 1: it's just talking about the process that's being used to
Speaker 1: create these particular types of semiconductor chips. Engineers from Taiwan
Speaker 1: traveled to the United States to train at our c
Speaker 1: A facilities. They stayed there for a full year to
Speaker 1: learn the ropes of semiconductor manufacturing. It wasn't unusual for
Speaker 1: Taiwanese students to study overseas. They were continuously encouraged to
Speaker 1: do so, and they would often take jobs with Pani's
Speaker 1: in Silicon Valley. They would build up their knowledge and experience,
Speaker 1: and then they would return to Taiwan to bolster the
Speaker 1: burgeoning industry back home. Now. To do that, organizers working
Speaker 1: on behalf of Taiwan established the Electronics Research and Service
Speaker 1: Organization or e r s O in the United States.
Speaker 1: The e r s O would help secure knowledge and
Speaker 1: technology necessary to power Taiwan's efforts at home, among many
Speaker 1: many other duties. The r s O was actually critical
Speaker 1: in this endeavor Okay, we've got more to cover, but
Speaker 1: we need to take another quick break. Okay, we're back.
Speaker 1: Between nineteen seventy six and ninety nine, the collaborative efforts
Speaker 1: of organizations like the Electronics Research and Service Organization you
Speaker 1: know E r s O and I t R I
Speaker 1: and many many others established a demonstration factory where foreign
Speaker 1: trained engineers could return to Taiwan and put their knowledge
Speaker 1: to work, and established manufacturing best practices for semiconductors. It
Speaker 1: was kind of like training for the big game. It
Speaker 1: was all about, all right, let's find out what works
Speaker 1: best so that we can hit the ground running when
Speaker 1: we're ready to open for business and accept customers. The
Speaker 1: following years saw more investments into the semiconductor manufacturing UH
Speaker 1: space in Taiwan. The size of the discrete components on
Speaker 1: chips shrunk from seven micrometers to three and a half micrometers.
Speaker 1: Thanks More's law, I t r I was able to
Speaker 1: secure technology from overseas and distribute it to Taiwanese firms
Speaker 1: as well as to I t r eyes own pilot plant.
Speaker 1: In I t R I spun off a group that
Speaker 1: had been working on integrated chip manufacturing, and that group
Speaker 1: would become Taiwan's first private integrated circuit fab facility. It
Speaker 1: was called United micro Electronics Corporation or u m C,
Speaker 1: and several folks who were at I t R I,
Speaker 1: which in itself again is a nonprofit organization. Several of
Speaker 1: them would then go on to found companies in Taiwan
Speaker 1: in the semiconductor space, so it became kind of an incubator.
Speaker 1: But the really big player in Taiwan would emerge in
Speaker 1: nineteen eight seven thanks to Morris Chang. Now. Chang was
Speaker 1: born in China, but he earned advanced degrees in engineering
Speaker 1: at M I T and Stanford and then worked at
Speaker 1: Texas Instruments for twenty five years, specifically in semiconductor design
Speaker 1: and manufacturing in NIVE. The Taiwanese government contacted Chang to
Speaker 1: bring his expertise back to Taiwan, so Chang went to
Speaker 1: Taiwan and he joined the I t R I. He
Speaker 1: became the chairman and president of the organization in nineteen
Speaker 1: eighty six and he oversaw the launch of a sophisticated
Speaker 1: semiconductor wafer fab plant on I t r I s campus,
Speaker 1: and in nineteen eight seven he took the lead on
Speaker 1: establishing the Taiwan Semiconductor Manufacturing Company, or t s MC.
Speaker 1: The company received financial backing from the Taiwanese government and
Speaker 1: from the Dutch company Phillips, and from private investors. Chang's
Speaker 1: leadership established several practices that secured Taiwan's place as a
Speaker 1: key link in the semiconductor supply chain. For one, he
Speaker 1: set prices for semiconductor manufacturing ahead of the cost curve.
Speaker 1: This was a big controversial decision at the time, so
Speaker 1: his logic was that he would sacrifice short term profits
Speaker 1: in order to get a firm hold of market share,
Speaker 1: and then he could hit a manufacturing scale that would
Speaker 1: bring costs down, but the price would remain steady. So again,
Speaker 1: like bye bye, producing at scale, the individual components he
Speaker 1: needed would end up coming down. It's like buying in bulk, right.
Speaker 1: If you buy in bulk, the individual price for each
Speaker 1: unit comes down typically, So if you do that, but
Speaker 1: the product you're selling remains steady at its price, well
Speaker 1: you have long term profits that way. Not everyone thought
Speaker 1: this was gonna work, but boy howdy did it work.
Speaker 1: The competitive pricing brought t s MC lots of customers
Speaker 1: early on. This was particularly impressive because the company was
Speaker 1: actually a couple of nodes behind the industry leaders. Remember
Speaker 1: nodes referred to processes to make semiconductor chips. And when
Speaker 1: I say a couple of nodes behind, typically what we're
Speaker 1: talking about is the size of the components that you
Speaker 1: can you can make on a chip. The more components
Speaker 1: you can make on a chip, the more sophisticated the
Speaker 1: chip is, the more powerful it can be. Not everything
Speaker 1: needs that kind of a chip, right, Like if you're
Speaker 1: talking about a toaster, you probably don't need a super
Speaker 1: sophisticated chip. So t SMC starts getting customers that are
Speaker 1: looking for a cost effective but not necessarily bleeding edge
Speaker 1: semiconductor fabrication facility, and in the meantime, the company kept
Speaker 1: reinvesting in itself in order to try and catch up
Speaker 1: with its competitors, which it did like Over time, it
Speaker 1: started to close that gap so that it was able
Speaker 1: to to build out the facilities and to acquire the
Speaker 1: technology necessary to produce chips at nodes that were more
Speaker 1: like the the leading UH standard, So they were able
Speaker 1: to both operate as a business and to advance their
Speaker 1: own technology at the same time. It's pretty impressive. Another
Speaker 1: practice that chain oversaw a t SMC was creating an
Speaker 1: efficient design cycle so that the time to market would
Speaker 1: be as short as possible. This was for t SMCS customers.
Speaker 1: In other words, the fabrication facility made it easy for
Speaker 1: chip designers to go from their idea to production. They
Speaker 1: created processes that made that very efficient so that there
Speaker 1: was not much of a delay from the point where
Speaker 1: you say, here's what we want and being able to
Speaker 1: produce it at scale. So that made t SMC a
Speaker 1: go to fabrication partner for tons of fabulous chip designers.
Speaker 1: Fabulous just means it's a company that designs chips, but
Speaker 1: it doesn't manufacture them. Heck, t SMC is the dominant
Speaker 1: company in that industry today. They have somewhere around fifty
Speaker 1: three to fifty six percent of the global market share
Speaker 1: and semiconductor fabrication. So it's not really an exaggeration to
Speaker 1: say that there's a fifty fifty chance that any semiconductor
Speaker 1: chip you come across was produced it was manufactured at
Speaker 1: t SMC. Not designed there necessarily, but produced there. It's
Speaker 1: one of just a few company eas another one being
Speaker 1: Samsung that has a fab facility that can make chips
Speaker 1: using the five nanometer node process. Once upon a time,
Speaker 1: as I said, those sizes that we refer to in
Speaker 1: processes actually related to the components on chips, Like seven
Speaker 1: micrometers had a direct relationship with the size of components
Speaker 1: that were on a chip. These days, when we're talking
Speaker 1: about things like five nanometers, we're no longer really talking
Speaker 1: about the size of anything on that chip anymore. It's
Speaker 1: now more or less just a designation to say the
Speaker 1: next generation of you know, chip process design, and even
Speaker 1: that's on borrowed time. T SMC plans to commercialize the
Speaker 1: three nanometer node process this year, so it will be
Speaker 1: replaced possibly about the time this episode comes out. So
Speaker 1: t s MC essentially cornered the market on semiconductor fabrication
Speaker 1: in lots of respects. And as integrated circuits get more complicated,
Speaker 1: building out a foundry that can make those kinds of
Speaker 1: circuits gets more expensive. So there's this increasingly high hurdle
Speaker 1: for anyone else to overcome if they want to get
Speaker 1: into that business, and as we've seen over the last
Speaker 1: couple of years, that can be a big problem. Uh,
Speaker 1: it's essentially the the issue of putting all your eggs
Speaker 1: in one basket. Demand for chips has been incredibly high,
Speaker 1: but lots of factors have impacted t SMC recently and
Speaker 1: their capability of producing and shipping chips. One of those
Speaker 1: is actually political tensions between the United States and China.
Speaker 1: Both the US and China play a very important role
Speaker 1: in the semiconductor chain. Taiwan ships a lot of semiconductors
Speaker 1: to China. China represents an enormous revenue source for Taiwan,
Speaker 1: especially in the semiconductor industry, so that is a big
Speaker 1: concern for Taiwan. And the United States has the lion's
Speaker 1: share of the chip design companies in the world, so
Speaker 1: they are big customers of those foundries, and the trade
Speaker 1: war between the United States and China kind of puts
Speaker 1: Taiwan in the middle and things get pretty hairy. Like
Speaker 1: t SMC, for example, stopped making chips for the Chinese
Speaker 1: telecom company Huawei in the wake of accusations that Huawei
Speaker 1: was potentially using tech to conduct surveillance on other countries
Speaker 1: through those countries owned telecommunications systems. So you know, like
Speaker 1: the United States builds out a cellular network and the
Speaker 1: cellular network has Huahwei components in it. The fear was, Oh,
Speaker 1: the Chinese could be using that too, you know, listen
Speaker 1: in on conversations and steal information from the United States,
Speaker 1: or to compromise the integrity of the telecommunication system in
Speaker 1: the US. And there's this ongoing concern about that. So
Speaker 1: t s MC decided to side with the United States
Speaker 1: on this one. Uh and there are always tensions that
Speaker 1: China could potentially try to force Taiwan to reunify with
Speaker 1: mainland China. In fact, Taiwan has held a few notable
Speaker 1: war games to simulate a Chinese invasion to train for
Speaker 1: that eventuality, or perhaps just to provide a type of
Speaker 1: military theater to show that the island is willing to
Speaker 1: fight to retain its semi independence from mainland China. COVID
Speaker 1: also really hit the supply chain hard, and that's really
Speaker 1: pulled back the curtain on how dangerous it is to
Speaker 1: be so dependent upon a single region, really a single
Speaker 1: company for the majority of semiconductor chips, right Like. It
Speaker 1: has really shown that when that there's something that interferes
Speaker 1: with that, it has this massive impact around the world.
Speaker 1: Both the United States and China are pushing to establish
Speaker 1: uh FAT foundries in their respective countries, so they're trying
Speaker 1: to build out fab facilities within the United States or
Speaker 1: within China. In fact, SMC has been has been tapped
Speaker 1: with establishing a foundry in the United States. The current
Speaker 1: estimation is that China, their technology for semiconductor fabrication, is
Speaker 1: about ten years behind everybody else technologically speaking, and that
Speaker 1: due to the speed at which tech evolves, it will
Speaker 1: be very hard for China to close that gap at
Speaker 1: least in the near future. The United States is much
Speaker 1: further along technologically, but we still have to invest billions
Speaker 1: of dollars to build out foundries, so there's an economic barrier,
Speaker 1: not a technological barrier. Now it really raises questions also
Speaker 1: about Taiwan's future in this space. I mean, it may
Speaker 1: well be that in a decade Taiwan will no longer
Speaker 1: be the dominant party for semiconductor fabrication. We may see
Speaker 1: that built out in other parts of the world where
Speaker 1: we've dispersed that a bit, which in some ways is
Speaker 1: good obviously because it means that you know, the supply
Speaker 1: chain becomes more becomes stronger. Obviously, a chain is only
Speaker 1: as strong as its weakest links. So if something happens
Speaker 1: to one link, then everything beyond that is affected, and uh,
Speaker 1: we've seen that with the semiconductor shortage. So the idea
Speaker 1: being if we can have more fabrication facilities that are
Speaker 1: capable of producing at scale, we can avoid that kind
Speaker 1: of thing in the future. But it also potentially means
Speaker 1: a massive economic impact on Taiwan. They make billions of dollars.
Speaker 1: T SMC generates billions of dollars of revenue every quarter.
Speaker 1: I want to say that the most recent quarter the
Speaker 1: company reported six billion dollars in revenue. That's a lot
Speaker 1: of money, so it could be a massive blow to
Speaker 1: Taiwan as well. Meanwhile, obviously the the political and social
Speaker 1: changes in Taiwan are further distancing itself from what's going
Speaker 1: on in mainland China. Anyway. That is kind of the
Speaker 1: short version forty minutes plus of why Taiwan is so
Speaker 1: associated with semiconductor manufacturing. It literally is because we reached
Speaker 1: a point where someone was going to have to make
Speaker 1: that huge investment in order to meet the demands of
Speaker 1: chip designers, and the Taiwanese government were willing to put
Speaker 1: forth that kind of investment to establish themselves as that party,
Speaker 1: and that's how it happened. Um, but yeah, I hope
Speaker 1: you enjoyed this this episode, I highly recommend that you
Speaker 1: read up on the history of China, the history of Taiwan,
Speaker 1: the history of Asia really for that that whole period
Speaker 1: I was talking about, because it really explains why things
Speaker 1: are the way they are today and how these very
Speaker 1: geopolitical issues can end up being a huge challenge for
Speaker 1: for global businesses today. If you have suggestions for topics
Speaker 1: I should cover in future episodes of tech Stuff, please
Speaker 1: do not hesitate to reach out. The Twitter handle for
Speaker 1: our show is text Stuff hs W and I'll talk
Speaker 1: to you again really soon. Text Stuff is an I
Speaker 1: Heart Radio production. For more podcasts from my Heart Radio,
Speaker 1: visit the i Heart Radio app, Apple Podcasts, or wherever
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