Semiconductors are a key component of our industrial economy and military. South Korean President Yoon Seok-yeo recently stated that leadership in semiconductor technology is paramount to the country’s economic survival ( Wall Street Journal , June 5, 2024). The implications for military issues are enormous. As David Goldman and I wrote in the Wall Street Journal on December 23, 2018, “Silicon, not steel, will win the next war.”
In this spirit, countries such as China, Taiwan, Japan, South Korea and the United States have allocated hundreds of billions of dollars of national funds to develop this industry. In the United States, $50 billion has been allocated to support manufacturing investments through the CHIPS Act. This huge budget must be considered in the context of the cost of building a state-of-the-art full-scale factory ($20-30 billion), which will become obsolete within a few years. Staying on the cutting edge of chip manufacturing technology is a major national effort.
As the originator of this industry, the United States faces new and significant competition. A top priority for the United States is to maintain its leadership in innovative product design, because that leadership impacts economic growth, and in this regard the United States still leads the world.
While the industry developed in the United States, much of the chip manufacturing and packaging has moved overseas. But the innovation in sophisticated, high-end products that is key to the value creation process is still primarily located in the United States. More than 50% of cutting-edge chips are designed in the United States and sold and supported by U.S.-based companies. This is because the United States has a large design technology base made up of many design-focused companies, a large academic community of designers, ongoing support from DARPA and other federal agencies, and a continuing availability of venture capital funding for new, innovative design companies.
An aggressive acquisition program allows startups with promising products to be bought by larger companies, providing them with the resources they need to expand rapidly. Thus, U.S.-designed, high-performance chips continue to lead the industry globally, thanks to American versatility and the ability to quickly move concepts into major commercial products.
Nvidia’s recent history is a great example of how an emerging American chip design company became one of the world’s three most valuable companies (around $3 trillion) based on its unique AI-enabled technology through innovative chip designs. The new technological concept behind AI is the use of “neural network” (massively parallel data processing) computing chips that mimic the way the human brain manages data. The idea has been well known in the scientific community for many years, but applying it to real problems has been uneconomical because it required so much chip processing power.
As economical chip densities increased over time, following Moore’s Law, image analysis researchers demonstrated the value of the technology. An early application was in computer gaming devices used in video games. But the breakthrough into big applications of AI came when NVIDIA CEO Jensen Huang saw the AI applications in NVIDIA products and decided the future of the company by divesting from other applications and focusing all efforts on AI applications. Today, the company has a virtual monopoly on processing chips for AI, and global sales are soaring at a run rate of over $100 billion per year.
What has driven this success is an important underlying factor: not U.S. government directives, but the creative work of thousands of talented engineers working in teams to turn new concepts into valuable products. To continue to maintain significant leadership in the world of chip technology, this underlying success factor must be supported and encouraged.
Dr. Henry Kressel is an engineer, author, business executive, and long-time private equity investor who has made many pioneering contributions to the field of electronics.