[justapassenger]

You have to take his words with a grain of salt. Without going into politics, it’s impossible to talk about TSMC without geopolitical context.

It’s essential to TSMC survival for their production to physically stay focused in Asia.

[ksec]

Morris Chang has been exceptionally clear on this issues when he was still CEO of TSMC, even before the whole politics and TSMC becoming leading edge.

It is impossible with respect to current cost structure, without substantial government money, while getting the same margin. Of course it is entirely possible to throw money at the problem and succeed. Which is what Intel is trying to do right now with the help of US government.

[m0zg]

> Morris Chang has been exceptionally clear

He can be "exceptionally clear" and still biased in favor of TMSC.

> It is impossible with respect to current cost structure

Well, we'll have to pay a few cents (or dollars) more per chip then. It is infeasible for us to continue to depend on TMSC in the long term - it will be taken over by our largest geopolitical adversary by 2030 at the latest. We do not have a choice but to either on-shore, or shift production to countries with far less geopolitical risk.

[PeterisP]

On the other hand, from the perspective of TSMC, if production does not get transferred to USA mainland, then it secures the future of TSMC because in that case USA will ensure that they do not get taken over by a geopolitical adversary in the coming decade. Geopolitical risk is not something external that exists in isolation; the location of semiconductor manufacturing is a big factor that shapes the geopolitical risk by shaping the interests of key players. If USA can afford to walk away, Taiwan is at large geopolitical risk; but as long as their interests are tied together, then the risk to Taiwan is greatly limited.

[petersellers]

> in that case USA will ensure that they do not get taken over by a geopolitical adversary in the coming decade

How will the USA ensure that?

[PeterisP]

If the push comes to shove, a US carrier group parked in Taiwan's territorial waters makes any sea invasion impossible if it's willing to shoot at Chinese ships; you can't ship and land a million soldiers across a hostile sea, and China can't (at the moment) win the sea battle.

It's debatable to what extent USA is willing to fight for that, but if it chooses to do so, then now and at least until 2030 USA has enough military might to enforce a stalemate/status quo across the Taiwan strait, no matter how much it gets escalated. China can force Kinmen and Matsu islands, but invading Taiwan proper requires either USA not joining the war or a stronger China.

So IMHO the fate of Taiwan in this century depends on how much USA will be willing to intervene to protect it; and the physical location of semiconductor factories is a big factor influencing that willingness.

[sudosysgen]

If a carrier is willing to shoot at Chinese ships and close enough to reliably do so, then the Chinese are willing to shoot at it and are close enough to reliably do so.

Chinese antiship weapons are significantly better than the US. Without immediately inducing Kessler syndrome and still being very lucky, I don't see how a US carrier is going to survive two dozen DF-21 missiles simultaneously, a couple hundred supersonic cruise missiles, and whatever submarines or UUVs the Chinese have got lurking there.

The US fleets most advanced weapon, SM-6, still can't reliably intercept MRBMs or SRBMs(https://www.defensedaily.com/mda-conducts-sm-6-missile-raid-..., https://www.reuters.com/business/aerospace-defense/us-fails-...) and has never intercepted a single IRBM. I struggle to see how it can possibly defend against dozens of IRBMs with advanced countermeasures that aren't on a predefined trajectory if it can't even hit a single one with no countermeasures. And by the way, they're building over 100 missiles a year. They could realistically have 1000 antiship IRBMs in a few year - more antiship IRBMs alone than the combined amount of interceptors of all carriers the US could hope to deploy within 8000km of Taiwan.

Right now the best the US can do is try to jam the missiles and deploy smoke, and hope they miss, which they probably won't.

A US carrier group in Taiwan's territorial waters is 100% getting absolutely wiped. The US will never risk getting their carriers that close to Chinese weapons, they'll stay thousands of kilometers away and hope for the best.

The US's best hope is to keep its assets far away from the theater and cooperate with Taiwan to try to whittle away the Chinese fleet and prevent them from setting up a beachhead, and hope the Chinese air defences, low-frequency radars, and signals intelligence platforms can't stop the counterattack.

The Chinese also won't need a million soldiers. They just need to get a few dozen thousand on the shores with air superiority and disable the Taiwanese military then take as much time as they want pacifying the island.

[m0zg]

In a full scale conflict, carrier group would be sunk by subs in the first 15 minutes. Those carrier groups are a relic of the past that only works against unsophisticated adversaries who do not have the largest submarine fleet in the world [1] or nukes. US military planners know this so any such things will be withdrawn shortly before shit is about to go down, or (more likely) never brought in in the first place. And it doubly does not work against adversaries without whom we can't even build anything because we outsourced all of our production there. In 2 years we couldn't even scale the production of N95 face masks on US soil, let alone anything more complicated. The colossus has legs of clay and US government (and its owner - the US business establishment) is to blame.

Prediction: Taiwan will be retaken by China by 2030 and the US will do bupkis about it other than saber rattling. It can't even do sanctions, since that'd be sort of like US imposing sanctions on its own manufacturing base. Xi knows this. He will use our weakness to his advantage. It would seem that business establishments are already acknowledging this, hence this massive investment in the US. On the other hand, this is also forcing China's hand - they can't afford to wait until it becomes feasible for the US to impose effective sanctions. Their colossus too has legs of clay. Except the legs are not as weak.

[1] https://www.globalfirepower.com/navy-submarines.php

[varenc]

I suppose "ensure" is too definite of a claim. But it's clear that the US can apply all types of pressure to try to hinder a takeover of TSMC/Taiwan. Methods range from open negotiations, to trade/economics sanctions, etc.

[ksec]

>He can be "exceptionally clear" and still biased in favor of TMSC.

Probably. But It wasn't that TSMC doesn't want to move, he made it clear the maths doesn't work out. Giga Fabs operate at scale and efficiency is precisely why you could make a $30 M1 Die.

>Well, we'll have to pay a few cents (or dollars) more per chip then.

That is easier for mature node. But most of the time we are not talking about mature node but leading edge.

If the maths were a few cents or even a few dollar things would have been done already. In US, for TSMC having the same margin would probably put M1 close to $50, while having higher initial R&D cost, meaning more volume to amortise the cost, or higher final retail price depending on sector.

So Morris's question to TSMC's client, are you willing to pay 50% to double for US made silicon. As far as all major US players, that is Qualcomm, Nvidia, AMD and Apple. The answer has been a simple no. They want it cheaper! ( Looking at Nvidia's constantly moaning )

Of course there is another path, forcing TSMC to operate in US while lowering their Net Profit margin. Which is likely what is happening here. The only good thing is that US is finally understanding the risk of its supply chain. For some people like me who has been crying about it for nearly a decade.

[m0zg]

OK, then we'll pay $20 more for a $3K laptop. Hardly a tragedy. Same with labor by the way. If Apple made phones here and charged $20-30 more per unit, their user base wouldn't even blink.

[ksec]

I guess I have to be explicit.

For a $3K Laptop you are looking at M1 Pro or M1 Max, those would cost at least $50 to $100 more BOM cost. Excluding other factor. That translate to roughly $125 to $250 retail price increase at the same margin.

For a labour of $20 to $30 increase per iPhone unit, would equate retail price increase of $50 to $75. Excluding other factors. Not to mention I seriously doubt labour would be an increase of only $20-30 per unit. The different in cost / productivity is likely higher than 3x.

[m0zg]

There's not a whole hour of labor in each iPhone. Not even close. Humans just put together robot-assembled boards, screens, and so on. If this is re-shored, it wouldn't be that difficult for Apple to reduce manual labor even further than that, possibly to near zero. I've tried to repair an iPhone PCB once where an SMD resistor fell off. I couldn't do it, even though I have a hot air workstation and a bench microscope. Humans can't work on SMD components you can't even see without magnification.

And I'd like to understand how it is that an M1 Pro die, which is manufactured _solely_ by robots, and can't even use human labor would cost $100 per unit more here than anywhere else in the world. Heck the chip itself likely costs less than that to manufacture (do remember that we're excluding the design cost, which is the same).

This is quite literally the case of big businesses selling their (for some tenuous definition of "their" - they don't much care where they are situated as long as they have access to US market) country out for a buck.

[nathanm412]

It's essential to Taiwan's survival for production to physically stay focused in Taiwan. I don't know if the US would be as willing to defend Taiwan if our own recovery wasn't affected by the chip shortage.

[ineedasername]

Yep. to use a quote I've heard about another resource: "No one would care as much about stability in the Middle East if they produced toothpaste instead of Oil".

Unfortunately at the same time for Taiwan, once the West's reliance on that area of the world for production becomes less of an issue, China's timeline gets accelerated much faster to the "No but really you're part of the PRC" point. Similar to how the PRC ratcheted up control over Hong Kong in 2020 when the rest of the world was basically "Sorry HK we got COVID issues k'bye"

[bytelines]

> Similar to how the PRC ratcheted up control over Hong Kong in 2020 when the rest of the world was basically "Sorry HK we got COVID issues k'bye"

Little more complicated than that - with HK there wasn't much the west could really do, or any obligation to do anything at all. There were no treaty obligations, as far as I'm aware of.

Obligations to Taiwan have been covered since 1979, and there's the whole matter of the PRC needing to do am amphibious invasion against a prepared foe.

I'd argue they are not similar at all, really. Similar only in PRC's ambitions.

[drawkbox]

Once the chip shortage happened, partially due to geopolitical reasons, that changed everything. The West/US will never fully rely on a single point of failure again no matter how hard the HBS MBAs and Chicago thinking push it to trim and be "efficient". Some industries are too important for other industries and leverage on that over those areas is too risky and costly now.

I'd pay double right now for GPUs directly from the source, not from some sketchy third party.

Right now our EV/auto, space and even AR/XR industries as well as gaming and everything that requires chips, we are at the mercy of an external market that has a slant against the West. It will take some years to get out but we'll never not expect that in the future again. If costs go up costs go up, but availability should never be allowed to be used as leverage again, that is too risky and too costly long term.

Availability that is reliable is always more important than efficiency or cost, because right now lack of availability is costing lots of extra time that has the potential to lose entire industries, that is not acceptable in any way.

Very little margin and too much optimization/efficiency is bad for resilience. Couple that with private equity backed near entire market leverage monopolies/duopolies/oligopolies that control necessary supply and you have trouble.

HBS is even realizing too much optimization/efficiency is a bad thing. The slack/margin is squeezed out and with that, an ability to change vectors quickly. It is the large company/startup agility difference with the added weight of physical/expensive manufacturing.

The High Price of Efficiency, Our Obsession with Efficiency Is Destroying Our Resilience [1]

> Superefficient businesses create the potential for social disorder.

> A superefficient dominant model elevates the risk of catastrophic failure.

> *If a system is highly efficient, odds are that efficient players will game it.*

Hopefully that same mistake is not made in the future. It will take time to build up diversification of market leverage in terms of chips for availability. Hopefully we have learned our lesson about too much concentration, with that comes leverage and sometimes a "gaming" of the market.

This chip shortage, and all the supply chain problems during the pandemic as well, will hopefully introduce more wisdom and knowledge into business institutions that just because things are ok while being overly super efficient, that is almost a bigger risk than higher prices/costs. Competition is a leverage reducer. Margin is a softer ride even if the profit margins aren't as big.

[1] https://hbr.org/2019/01/the-high-price-of-efficiency