How microchips came to power your phone and the economy
This is just one of the stories from our “I’ve Always Wondered” series, where we tackle all of your questions about the world of business, no matter how big or small. Ever wondered if recycling is worth it? Or how store brands stack up against name brands? Check out more from the series here.
Listener Tim Boltin asks:
What makes a microchip so essential?
Microchips are essential to goods we use every day, the stock market and the global economy writ large. Issues in the chip industry tend to have ripple effects on industries around the world.
Take cars, for example. The demand for chips skyrocketed during the pandemic, constraining auto manufacturers. That halted new car production, and consumers are still feeling the resulting price hikes.
“A couple of decades ago, you could make a car with hardly any microchips,” said Chris Miller, professor of international history at Tufts University and author of “Chip War.” “Today, a typical new car will have 1,000 inside.”
They move your windshield wipers back and forth, and your windows up and down. They also help connect your car to a cellular network, and manage the power supply in electric vehicles, Miller added. Sometimes it takes a worldwide shortage to appreciate what you have.
“The entire economy today runs on semiconductors. And insofar as basically everything today is internet-based, connected to computing in some capacity, we can’t function without them,” Miller said. (Semiconductors are the material used to make microchips.)
Major tech companies are investing billions into artificial intelligence, making these components even more sought after. Rather than moving windshield wipers, AI microchips pack in enough computing power for machine learning, data analysis and natural language processing.
Nvidia was already the leading AI chip supplier before the AI craze took off two years ago. With its market capitalization of about $3.5 trillion, up from $144 billion in 2019, Nvidia is now the second-most valuable company in the world.
And the AI arms race is just starting. OpenAI, the parent company of ChatGPT, secured $6.6 billion in its latest round of funding. Apple has been investing about $1 billion a year in generative AI, Bloomberg reported in 2023, and just launched Apple Intelligence features that will proofread messages and generate images based on a simple description. A Google executive said earlier this year that the company is planning to spend more than $100 billion on AI.
Nvidia and competitors like AMD rely on Taiwan Semiconductor Manufacturing Co. to make their chips, leaving the supply chain vulnerable to geopolitical conflict.
“There’s extraordinary concentration, which works fine so long as there’s peace and stability in the Taiwan Strait. But, of course, [Chinese President] Xi Jinping has plenty of capability to disrupt that if he so chooses,” Miller said.
Or the region could face a cyberattack that shuts down production, which could “dramatically impact our economy,” said Rob Handfield, a professor of supply chain management at North Carolina State University.
Congress passed the CHIPS and Science Act in 2022 to bolster microchip manufacturing stateside, with the aim of boosting the U.S. economy and reducing bottlenecks in the industry.
“As a result of the CHIPS act, you’ve seen significant investment in chip manufacturing. For instance, Intel has invested in a huge facility in Columbus, Ohio,” Handfield said.
The Biden administration is also providing TSMC with up to $6.6 billion in grants so that it can build factories in Arizona. In October, an Arizona TSMC facility produced 4% more chips than its Taiwan plants, a promising development for the company since it indicates the manufacturing company will be able to afford the cost of making those chips.
Marketplace contributor Heather Long said Arizona, which has been dubbed the “Silicon Desert,” might become “ground zero for the new economy.”