right now on Slashdot there is a big discussion about the alleged threat of Chinese government placing backdoors into chips produced on their soil. Well, I always thought that the fab is the ultimate capital-intensive manufacture, requiring relatively few highly skilled technicians and lots of really expensive machines. If that’s the case, why would a multinational corporation locate such a facility in China? Or why would a Chinese-owned fab in China be able to easily outcompete a fab in America or in Japan?
Are there inherent economic reasons for the Chinese advantage in this particular industry? Or is the Chinese government somehow subsidizing it on a massive scale to make sure that the rest of the world ends up depending on chips that are “made in China”?
Well, the majority of chips in the world are manufactured not by American nor Japanese firms, but by the Taiwanese, who are increasingly looking to the mainland as a manufacturing base. And having fabs located in China offers logistical advantages, as the the various flipper flappers the chips go into are manufactured there in the mainland.
And why wouldn’t equally qualified but cheaper engineers be an attraction?
Environmental considerations are a huge cost too. Countries that allow you to turn their rivers into sewers and belch pollutants into the atmosphere ,are cheaper to manufacture in. It is not just labor costs.
5-10 billion is quite a bit, especially if you are just a company that makes a couple hundred million a year. The outsourcers offer competitive pricing with no big capital investment.
so in other words it sounds like a the Taiwanese/Chinese have beat the competition on more relaxed environmental regulation and readier access to capital, right? And if foreigners were to get really pissed off / paranoid over these alleged and/or real backdoors, you could have a Western company raise a few billions, set up a fab in some non-Chinese but still business-friendly location and promise to its customers that there will be no backdoors or other funny stuff there?
Well, they would be NSA backdoors for “lawful intercept.” I imagine there might be scenarios where products with these designs were somehow found in foreign markets.
Exactly. To add some more data to the fire, here is a list of EPA Superfund sites in California. Notice how many are semi-conductor related. Santa Clara County, home of Silicon Valley, has quite a few of these as one might expect.
I’m confused as well. Generally the little slabs of dirty silicon are produced in the US or other developed countries and shipped to third world countries to be put onto the chip packaging; i.e., the square black thing with the little legs or ball point array.
The biggest most advanced fabs I believe are in the US. Intel springs to mind. Taiwanese build the majority of smaller, more mass market chips. SMIC is a Taiwanese funded fab in Shanghai.
That said, Intel is building Fab 68 in Dalian now and IIRC it will be the most expensive foreign direct investment in China. The Chinese government and local Dalian government are spending a lot of money to build up the infrastructure (and an entire town) around the facility. Funny thing though, this was located in Northern China for political reasons, where water is scarce.
That said, US governments also offer significant tax advantages and other support.
The environmental and tax considerations may be a big draw, but I would bet that it’s because China will overtake the US soon if not this year as the worlds largest PC market. It makes sense for Intel to hedge it’s bets and be viewed as a good corporate citizen in China. This also would avoid a trade war risk because the Chinese retaliating (rightly or wrongly) to the US by placing a tariff on chicken imports is one thing, but placing a tariff on Intel chips is multiple orders of magnitude worse.
If you look at it on a global portfolio of investment basis, having 1 state of the art investment in China out of nearly 70 fabs, the cost advantages/disadvantages are likely to be insignificant.
Just IMHO but I think the back door design is in the tin foil territory. Who would want an Intel chip if it’s got a back door to the NSA, Chinese government, IRS or anywhere else?
I think it is tin-foil hat idea myself, but if Intel put something into their chips, what would anyone else do? It isn’t like there is an alternative. I know about AMD. Great little company and with their recent lawsuit victory, they even posted a profit for one year. But they aren’t a real alternative to Intel. Don’t buy a computer? If you want to run Windows, Mac OS you have no choice at all. If you want to use a supercomputer, you have little choice. If you run Linux, there are alternatives but they are expensive and slow.
Look at my link about backdoors in Cisco’s IOS. Yes, thats not hardware, but software, and has special provisions for whats called “lawful interfecept.” Who wants a cisco? Everyone. It doesnt hurt the brand. People just accept this as part of a broad set of tools for law enforcement. I doubt backdoors would be the market killer you think it is. Perhaps of a no-name chinese company, but American companies provide provisions to law enforcement all the time.
An interesting aside: South Korea’s investment in their semiconductor industry, which was heavily backed by the government, was one of the main things that set them up to get hurt by the Asian Financial Crisis in 1997. Quite a bit of the financing came from foreign loans that had to be repaid in Dollars. By the time the foundries came on line, competition and a weak domestic currency made them a lot less profitable than they were counting on.
Even if running a fab is capital intensive, how does the cost of building a fab compare to the cost of running it? Could it be that the savings on construction costs make up for it?