When Semiconductor Manufacturing Went East and Chip Design Followed

Today’s post is fully free and discusses why India is emerging as the chip design capital of the world. If you’re new, start here! On Sundays, I write deep-dive posts on critical semiconductor technology for the AI-age in an accessible manner for paid subscribers.

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Everything in its right place

It is trite to say that semiconductors is a global business. Using European wafer fab equipment and chemicals from Japan, chips are manufactured, packaged and tested in Southeast Asia. Supply chains are global as we found out the hard way during the Covid era; this has recently led many countries to try and develop chips indigenously.

We are here today because various countries had unique “strengths” which allowed them to define their space in the semiconductor industry. Outsourced Semiconductor Test and Assembly (OSAT) has been dominated by Southeast Asia since the 1960s primarily because they provided services at an order of magnitude lower than American chip makers could possibly manage in the US. As Chris Miller writes in Chip War,

In 1963, its first year of operation, the Hong Kong facility assembled 120 million devices. Production quality was excellent, because low labor costs meant Fairchild could hire trained engineers to run assembly lines, which would’ve been prohibitively expensive in California.

Silicon Valley’s famous taskmaster, the late Charlie Sporck, soon expanded Fairchild’s production to Taiwan, Malaysia, Singapore and South Korea because the cost of labor was even lower than Hong Kong, and most importantly, because there were no labor unions in Asia burning effigies of him for overworking them.

Morris Chang founded TSMC with the help of the Taiwanese government after getting shot down by Texas Instruments for proposing a manufacturing-only business unit without competing on the designs being made (and getting passed over for the CEO role). When Carver Mead and Lynn Conway described a set of “design rules” which, if followed, meant that anyone could design chips, it was a “Gutenberg moment” for semiconductors, as Miller puts it in his book. The fabless company model was born.

Who actually designs America’s chips?

The design of chips themselves, though, has historically been an American specialty. The largest chip companies in the world - AMD, Nvidia, Apple, Texas Instruments, Qualcomm - to name a few, have operated successfully on the ...