How ASML, TSMC And Intel Dominate The Chip Market | CNBC Marathon

ASML has a monopoly on the manufacturing of EUV lithography machines, the most advanced type of lithography equipment needed to manufacture every advanced processor

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we use today. And this company is one of the most extraordinary organizations in the world. We are the only provider on the planet of this critical technology. The most advanced technology made in the United States. This vision that began 50 years ago with bringing the digital world to a

chip

. And this pace of technological innovation is unstoppable. At the center of this large factory in the Netherlands, in the middle of a months-long assembly process, there is a revolutionary machine that everyone has come to rely on.

An EUV machine could be seen right behind me. The size of a city bus but working with atomic-level precision, these EUV lithography machines are the most expensive step in the manufacturing of every advanced microchip powering the modern digital age. Data centers, cars and all iPhones. We are the only provider on the planet of this critical technology. These machines are the only way to print tiny designs on these chips. They cost up to $200 million and are only made by a single company, Advanced Semiconductor Materials Lithography (ASML). Today, ASML has a monopoly on the manufacturing of EUV lithography machines, the most advanced type of lithography equipment needed to manufacture each of the advanced processor chips we use today.

And this company is one of the most extraordinary organizations in the world. The machines they produce, each one of them, are among the most complicated devices ever made. Amid a chip shortage that has led to backorders for everything from PS5s to Teslas, the need for an ASML has never been greater. Its shares have soared since 2018 as its three biggest customers, chipmakers TSMC, Intel and Samsung, compete to be at the forefront of ASML's next breakthrough technology. The price of this next machine, which promises to push the boundaries of known physics, is more than $300 million. It is so expensive that most companies cannot afford it.

As the chip wars rage on, we wanted to find out what's really going on inside the quiet company that makes the machines that print them all. This is the optical part of the machine that makes EUV possible. We took a rare tour of ASML's clean rooms in California and the Netherlands to see how these machines use precision lasers, molten tin explosion, and the world's smoothest surface to bring our digital age to life. ASML's crucial role in the chip manufacturing stage has brought it great success in recent years, making it even more valuable today than Intel, one of the largest chip makers it supplies.

It's double-digit growth every year. And we are not a startup. You know, now we have 32,000 people. Peter Wennink has been CEO since 2013, but joined ASML in 1999, just 15 years after its humble beginnings. It began as a subsidiary of Dutch electronics giant Philips in 1984, conducting research from a leaky shed next to a Philips office building in Eindhoven, Netherlands. They were in dire financial situation, so we had no money. We were poor. And because the problems Philips had were so big, no one looked at this little team that was trying to do something crazy, so they neglected us. Still, in its first year, the company successfully launched a machine, the first of its kind, that used precise rays of light to print tiny designs on silicon to make microchips, a technology known as lithography.

The first lithography tool actually looked like a projector. Basically there is a grid that contains the entire image you want to project. Then there is an optical system that will take this image and project it onto the wafer. Semiconductor lithography was invented in a US military laboratory and for a long time, until the 1980s, the key lithography companies were American, based in New England. Chris Miller of Tufts University is writing a book called The Chip Wars: The Fight Over the World's Most Critical Technology. When the industry was preparing to jump into the early stages of EUV research, none of the US companies were ready to take the plunge in what would be an expensive and risky proposition, while ASML was.

In 1988, ASML had five offices in the United States with 84 employees and a new Dutch office that eventually became its headquarters in Veldhoven, where CNBC took a tour earlier this month. We are walking through the EUV factory, which has approximately 50,000 square meters of space with 1,500 employees working in shifts of seven to 24 to produce 100% of the EUV machines shipped around the world from this facility. With an innovative machine, ASML began to turn a profit and was listed on the Amsterdam and New York Stock Exchanges in 1995. In the 2000s, ASML was acquiring California technology companies such as Silicon Valley Group and several key vendors such as Cymer in San Diego, where I was also able to see inside the clean room where the ASML light source is produced.

So this is actually a nozzle manufacturing area where we actually build the nozzles. This is actually the piece where the tin comes out, that's what will create your EUV. EUV refers to extreme ultraviolet, an incredibly short wavelength of light that ASML uses to print smaller, more complex chips. But developing this revolutionary technology was incredibly expensive. We didn't have the money, so we went out and found partners, which was actually the basis of how we built the company. So we were forced to be system architects and integrators. In 2012, ASML offered about a quarter of its shares to its three largest customers: Intel, Samsung and Taiwan Semiconductor Manufacturing Co., or TSMC.

They had to accelerate R&D for EUV, and the only way to do that is by involving their largest customers. And one way to make their commitment a reality is to make them shareholders. ASML is a Dutch company, but it is also a Dutch company that relies heavily on American components, particularly for its machines, and at the moment it also relies heavily on a Taiwanese customer for its sales. TSMC accounted for nearly 40% of ASML's sales last year. In 2019, the Taiwanese chipmaker was the first to ship high-volume chips made with EUV, a milestone that has kept it at the top of the pack ever since, with its chip technology at least one node ahead of Samsung and Intel. .

And it has been TSMC's customers who have reaped many benefits, such as AMD, Nvidia and others. And yes, it can be argued that this came at the expense of Intel not executing it. Intel just produced its first EUV chips this year, three years behind TSMC, but it has made a bold move in hopes of catching up: an early investment to secure the first prototype of ASML's next machine: High Numerical Aperture . To understand why the success of a giant like Intel depends on ASML, let's take a look at how EUV lithography revolutionized chip manufacturing. When you start to break down, what does it take to make an EUV lithography machine?

It's kind of a Nobel Prize in terms of the engineering involved. The chips are made of silicon, an abundant element found in rocks and sand that is purified, melted and then cut into circular wafers, the surface on which the grid-shaped chips are built. Each wafer can have dozens of thin layers, forming billions of transistors that determine what the chips can do. These layers are printed using lithography. Extremely precise light rays are projected through a mask of the chip design. When light hits the surface of the wafers, which have been coated with photoresist chemicals, it prints the tiny designs on each layer at extremely high volumes.

If you think about a typical processor chip, in an iPhone, for example, there will be more than 10 billion transistors on a chip, and Apple will sell 100 million or more iPhones for each model released. So you're already speaking in numbers that are much bigger than you or I remember how to pronounce them. As the wavelength of the light source when making chips becomes increasingly narrower, it gives us the ability to make chips with smaller characteristics, meaning the chip is faster, the chip can be smaller and the power consumption of the chip can be lower. The smallest transistors are more than 10,000 times thinner than a human hair.

Designs have become so small that ASML has had to develop new printing methods at the very edge of known physics. With the help of investments from customers and a consortium of scientists, ASML discovered a way to create large amounts of extreme ultraviolet light with a wavelength so short that it is not only invisible to the human eye, but is absorbed by all substances. natural, including air. Therefore, the entire process has to occur in a vacuum, a novelty in lithography. At 13.5 nanometers, ASML's EUV wavelength is the size of just five strands of DNA placed side by side.

Previous generation machines used deep ultraviolet light, or DUV, with a wavelength of 193 nanometers. The vast majority of ASML's business, 268 of the 309 machines sold in 2021, still use DUV technology, which is used to print less advanced and scarce chips. DUV is for anything that is low-tech, like a toaster or a refrigerator or even some of the electronics in your car. Today's iPhone 13 is EUV. Both DUV and EUV lithography are so advanced that they require precision down to the atom. This is an EUV cabin of our clean room, which is 10,000 times cleaner than outside air. We wear these clothes not to protect ourselves from the environment, but to protect the machine from the pollution we create.

This small thread may look like the strand of a spider web, but it is actually molten tin fired at a pressure of 4000 PSI. And this is how EUV light is created. This is continuous tin. It never, ever, never stops. The tin flows through a perfectly calibrated nozzle that we saw built in San Diego at a speed of 50,000 drops per second. A 30-kilowatt carbon dioxide laser hits each droplet twice a second, vaporizing them into plasma. These small explosions are what emit photons of EUV light. A large number of explosions need to occur because only about 5% of the photons reach the actual wafer.

The light particles are so short that they are absorbed by mirrors, the typical method used to direct light precisely through a lens. That's why ASML partnered with German optics company Zeiss, which creates the world's flattest surface. The flatness is truly incredible. If we took a mirror element that was maybe this big and scaled it up to the size of the country we were in, the largest bump would only be about a millimeter across the entire surface of a mirror the size of this country. EUV light bounces off these innovative Zeiss mirrors until it collides with photoresist chemicals on the surface of the silicon wafer to print tiny designs that form the chips.

The aim must be so precise that, according to TSMC, it is equivalent to shining a laser from the moon to hit a coin on Earth. So your can is inside the tank here and then you're shooting like this. Pete Mayol has run this clean room for six years. If there is any type of defective particle even at the tip of that capillary, it is a failure. We will move and start again. And the speed and scale at which this has to happen is staggering. ASML says an EUV machine produces about 3,000 wafers a day. There can be hundreds of chips on a 300-millimeter wafer and up to 10 billion transistors per chip.

They take extraordinary engineering and physics achievements and are able to replicate them on a mass production scale and at a low enough cost that these machines can be used in chip factories to produce thousands and millions of chips for the companies that buy them. them. A complete EUV machine is actually made up of seven different modules, each built at one of ASML's six manufacturing sites among its 60 total locations worldwide, then shipped and reassembled in Veldhoven for testing. It is then dismantled again for shipping, requiring 20 trucks and three fully loaded 747s. In 2021, ASML sold 42 EUV machines, bringing the total total it has shipped to approximately 140.

With each machine costing up to $200 million, only five customers can afford to purchase EUV systems: Micron, SK Hynix, Samsung, Intel and TSMC. , the latter three represent almost 84% of ASML's business. It has certainly eliminated many players from that

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. Then we saw GlobalFoundries five years ago or more say that they were not going to pursue a seven-nanometer chip. The handful of greatIts customers are furiously adding capacity to try to alleviate the global chip shortage, which is also affecting ASML. We got a lot of messages from our suppliers saying, Hey, we might be delayed in delivering our modules to you because we can't get the chips.

And we said, if we can't get the chips, we can't make machines to make more chips. So there is a vicious circle. We're still getting there, fingers crossed, but it's a daily struggle. The question is: can ASML meet the demand? I think the answer is probably yes. Maybe the growth will exceed even their goals, that's possible, but they are certainly preparing to increase their production, which I think is good news if you are worried about chip shortages. The world needs more chips, so we need to make more machines, which, by the way, will continue to increase the average selling price as long as we can reduce the cost per transistor, which is exactly what we have been doing for the last few years. last 38 years, and we will continue to do so for the next two decades.

Previously, EUV chip makers had three companies they could choose from for their photolithography tools: ASML, Nikon and Canon. Nikon in Japan is still a competitor for DUV, but ASML is the only option for EUV. Experts say it could take decades for any other company to catch up, not only because of ASML's proprietary technology, but because it has built complex, often exclusive agreements with nearly 800 suppliers. And we are unique to our clients, just as some of our suppliers are unique to us, and those almost symbiotic. Some people say relationships are worse than being married because you can't get a divorce.

It takes ten years not only to obtain the technology, but also to be accepted. Therefore, buyers of semiconductor factories are very risk averse. One of the ways ASML has protected itself against supply chain risks is by purchasing some of its suppliers, such as Berliner Glas in 2020. A fire broke out there in January, but Wennink says it will not significantly affect the system's production. in 2022. ASML projects sales growth of 20% this year and an annual revenue growth rate of 11% through the end of the decade. In reality, it is driven by you. You are asking for more solutions that will help you have a better life, make your life easier or more productive.

We are transforming into a sensory world. There are sensors everywhere: they're in your car, they're in your refrigerator, they're in your PC, they're everywhere. Sensors, they need semiconductors. All of the world's most advanced semiconductors are manufactured in Asia by two of ASML's largest customers: TSMC and Samsung. But the chip shortage has raised concerns about foreign dependency. That's why you see all these initiatives around the world: the US Chip Law, the EU Chip Law, the Korean Chip Law, the Japan Chip Law, the Chip Law from China. Now it is a very strategic product. Intel just announced a $20 billion chip factory in Ohio, and it's also building one in Arizona, right down the road from a massive new factory where TSMC will make advanced chips in the US for the first time.

And Samsung is building a $17 billion factory in Texas. This all came after President Joe Biden proposed the Chip Act with $52 billion in subsidies for chip companies to manufacture on American soil. It means we need to ship our machines earlier, earlier and in greater volume. So it means we need to hire more people in the United States. Is slow. Their people. I think that's where the biggest challenge will be. But this move towards domestic production has another side that poses a challenge for ASML. The desire to stop sharing chip manufacturing technology with China. China has wanted to enter that race, but there have been politically generated reasons why China has not had access to the same type of technology as other companies.

Back in 2018, the Trump administration reportedly pressured ASML not to sell EUV systems to China. ASML has yet to sell a single EUV machine to China. 43, 42 countries around the world have agreed to impose export control measures because it is very critical. So it is not our choice, it is the governments choice. ASML also refurbishes older lithography systems and ships many of them to China. Newer DUV machines dating back to their early systems from the 1990s. 96% of all the machines we sold and shipped are still working. There is much debate about whether selling additional DUV equipment to China is also a national security risk by allowing China to increase its capacity to manufacture near-cutting-edge semiconductors.

So I think there is some possibility that in the coming years new restrictions will be placed on ASML's ability to sell DUV equipment to China as well. If export controls were expanded to include DUV machines, it could greatly affect ASML results. This is where the greatest demand is. This is where the exponential curve is. So believe me, we need all the manufacturing capabilities on the planet, whether in Korea or China, to continue adding capacity. Let's go see the big boy. And then there's the question of whether demand for the most advanced chips will remain high enough to support the continued development of ASML's next-generation EUV machine, High-NA.

This is the machine that Intel announced it will have for the first time in 2025 and ASML has already sold four other units. This is EXE:5000. So this is what we will test for High-NA. This will be what will make our next generations even better. But even now, before bigger and better machines exist, the world's dependence on an ASML is only growing, no matter what gets in the way. What can really get in the way is geopolitics, like the war in Russia and Ukraine right now, which are big points of geopolitical friction that, of course, can not only hurt us but also the global economy.

But other than that, let's hope and pray that it can be controlled, then it will all be a matter of execution. And we will continue to reduce the cost per transistor and provide the world with increasingly powerful semiconductors. That's not going to stop. Chips are in everything and have been in short supply since just a few months after the pandemic last year. That's why it's been difficult to buy everything from cars to PS5. It turns out that one company manufactures 24% of all the chips in the world and more than 90% of the most advanced ones. The smallest and fastest chips used in today's iPhones, supercomputers and cars.

We even have products that landed on the last Mars launch that are taking pictures of Mars. Taiwan Semiconductor Manufacturing Company, or TSMC, isn't a household name, but it quietly makes chips for every new iPhone, American fighter jets, the highest-end processors, you name it. And now it is investing $100 billion over three years to increase production amid the shortage. The combined production of what we are doing exceeds 12 million wafers a year. But the world's huge dependence on TSMC may also make the global chip supply vulnerable to earthquakes, droughts and geopolitical tensions with China. It has become almost a cutting-edge monopoly, and all of those manufacturing operations, for the most part, are outside of Taiwan.

This becomes a matter of national importance for the United States, but not only for the United States, but for the Western world. TSMC almost always keeps its production sites closed to American video crews. Until now. The total space for this factory is around 2.3 million square feet. The United States was the birthplace of advanced silicon, but for decades it has been losing

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share to Asia, where 75% of chip production currently occurs. TSMC is now bringing the world's most advanced chip manufacturing to the US with a $12 billion manufacturing plant in the middle of the Arizona desert. When it enters production in 2024, it will be the most advanced technology made in the United States.

We took an exclusive tour of the fabulous site in north Phoenix to learn the truth about the secretive Taiwanese company and why the world's largest contract chipmaker is bringing cutting-edge chip manufacturing to American soil. When Morris Chang first proposed the idea of ​​TSMC in the mid-1980s, investors were skeptical. Born in China and educated at Harvard, MIT and Stanford, Chang moved to Taiwan after 25 years at Texas Instruments. There, the government asked him to create a Taiwanese semiconductor company that would become a world leader. His idea focuses solely on manufacturing, which is now known as a pure foundry.

When you're focused on just one thing, you do something really well. Rick Cassidy is TSMC's top executive in the US. He has been with the company for 23 years. The portion we got was the foundry, and that's what we do. And we put all our resources into doing that. Chang bet heavily on a need that did not exist in the eighties. When he founded TSMC in 1987, giants like Intel and Texas Instruments prided themselves on designing and manufacturing their own chips. A legendary saying in the industry back then was: Real men have fabulous ones. When Morris went out looking for financing, he went to a lot of well-known companies and they told him: Morris, your idea is not going to take off.

If you lift it off the ground, it can't climb. But as chips became more complex, manufacturing them became a huge task. Building a factory today requires at least two years and $10 billion. It has become almost impossible for even the biggest chip companies - Intel, Nvidia, Broadcom, Qualcomm, AMD - to do it all and keep up with the most advanced technology. Intel, for example, still designs and manufactures its own chips, but has fallen behind Samsung and TSMC in recent years, and even relies on TSMC to manufacture some of its chips. So if you were a smart designer, you didn't have to have billions of dollars in a factory behind you, for the first time, with the emergence of TSM.

Now, each major step in chip manufacturing is typically handled by an independent company. Some, like Arm and MIPS, focus on IP and architecture, providing the building blocks for designing chips. Then there is electronic design automation, EDA companies, such as Cadence and Synopsys, writing the software used to design chips. Only one company, ASML, makes the $180 million extreme ultraviolet light machines needed to etch designs into the most advanced chips. And then, of course, there are the successful fabless companies that design the chips. Think Apple, Qualcomm, Nvidia and many more. As these fabless companies took off, TSMC found itself on a flywheel, making more and more of the world's chips.

And this has allowed TSMC to not only catch up but, in my opinion, surpass Intel to become the largest manufacturing technology on the planet and responsible for becoming one of the ten most valuable companies in terms of market capitalization on the planet. . TSMC was first listed on the Taiwan Stock Exchange in 1994. In 1997, it became the first Taiwanese company to be listed on the New York Stock Exchange. By the 2000s, it had caught up with the other 20 companies making the most advanced chips of the time. As technology continued to advance, more and more fell behind until today, there are only two manufacturers left that can make the most advanced five-nanometer chips: TSMC and Samsung.

In 2013, Apple began relying on TSMC to manufacture its A-series chips for the iPhone, moving away from Samsung, a direct competitor in mobile phones. Today, there's a TSMC chip inside every iPhone on the market, and Apple has also moved away from Intel, now relying on TSMC to make the chips inside most Macs. But they remain in the background. So Apple gets all the praise when a new phone comes out. We let our products speak for themselves. Its success generates all the business we could hope for. As for why TSMC hasn't allowed US media onto its sites until now, does part of the secrecy have to do with

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lectual property?

Of course, because this

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lectual property protection is very important in this industry, not only for TSMC but also for other companies in the industry. In 2018, at age 86, Chang retired as president of TSMC. His radical and unique foundry idea continues to bear fruit. With a new factory opening in Taiwan next year, TSMC is in a race with Samsung to make the world's first three-nanometer chips, and Intel plans to get there in 2025. In addition to next-generation three- and five-nanometer chips nanometers, TSMC also makes cutting-edge three- and five-nanometer chips. larger chips for everything from cars to coffee makers. To understand the different types ofchips and why nanometers are important, let's see how they are made.

Silicon, an abundant element found in rocks and sand, is purified, fused, and then cut into circular wafers. These wafers are the surface on which the grid-shaped chips are built. Each chip on the wafer can have hundreds of tiny layers, each made up of transistors and electrical circuits that determine what the chip can do. The tiny circuits are printed on each layer using lithography, extremely precise rays of light. The smaller the width of the transistor gate, five nanometers, three nanometers, the more processing power can fit into a given space with less power needed. The smallest transistors are more than 10,000 times thinner than a human hair.

Most of the chips are probably the size, a large one, of my thumbnail. There you could have something like over 50 billion transistors and they all have to work. These are parts that will be used in many different places: CPU, GPU, IPU, etc. They will be used on smartphones. Larger chips are used in most home devices, such as the television remote control or electric toothbrush. Cars typically use less advanced 28- to 40-nanometer chips, and all types of chips have been affected by the shortage. Automakers like GM and Toyota have halted production at some plants, and Apple is cutting its 2021 production targets for the iPhone 13, with orders for the 13 Pro Max delayed by more than a month.

Right now, no factory in the United States can make five-nanometer chips, but TSMC is changing that. From the F-35 Strike Fighter to these consumer products, their customer base is broad. More than 500 companies are its clients in the United States. And as a consequence of that, we knew that they were going to need to be in the United States at some point. Chris Camacho of the Greater Phoenix Economic Council visited TSMC factories in Taiwan during the five years he helped negotiate the deal that brought the project to Arizona. Robotics, automation, mechanization happen before your eyes. And so you can see how these things not only require so much capital, but their production is so significant.

TSMC has been building this massive five-nanometer factory on the outskirts of Phoenix for six months that will produce 20,000 wafers per month starting in 2024. The chips on the wafers will end up in iPhones, high-end processors and much more. Arizona Project Leader Tony Chen has led 17 other great construction projects in his 23 years at TSMC. This approach is designed for a five-nanometer fab. That is a copy of the factory we have in Taiwan. Down the road, Intel is building two new factories, spending $20 billion. These huge buildings, used to make tiny chips, have brought some of the largest equipment in the world to Arizona.

This is the largest crane Manitowoc manufactures. There are only two and it is a 2,300 ton crane. Since we started, our earth contractor has moved over 3,731,000 cubic yards of earth. We have also used more than 260 million gallons of water. In fact, building a factory and making chips requires an incredible amount of water, something that is not easy to find in the middle of the desert. Arizona's largest water source is groundwater, but deep wells on large farms are depleting groundwater faster than it is replenished naturally. We need about 4.7 million gallons per day of water to support production. TSMC is no stranger to water shortages.

Taiwan is facing its worst drought in 56 years, something that TSMC says has not affected production. In Arizona, TSMC says an on-site water treatment center will recycle up to 90% of the water used in the factory. And then ultimately, that water will be reinjected into the aquifer in partnership with the city of Phoenix after reverse osmosis solutions and other technologies are provided. Another challenge of producing the most advanced chips in the United States? The current specialists are all in Asia. TSMC's best engineers are currently in Taiwan. They will probably stay in Taiwan. The most cutting-edge research and development will be carried out in Taiwan.

To solve this, recruiter Roxanna Vega says TSMC will bring in some of its best experts from Taiwan. They are considered subject matter experts in what they do in our factories there. And depending, it will be a temporary assignment. Two maybe three years. TSMC has already sent about 300 new American employees to Taiwan for 12 to 18 months to get up to speed. And the opportunity to train at our five-nanometer gigafab in Taiwan will give you an idea of ​​how immense and modern our tools, machinery and everything else will be here in Arizona. Taiwan is not very good when it comes to analog semiconductor design, and by moving to the United States we will be able to tap into a much larger number of analog designers.

This diversification is a key reason for TSMC to bring advanced manufacturing to the US. And then there's the proximity to its huge US-based fabless customers like Apple, Nvidia and Qualcomm. If you want more capacity, you have to build more factories. And that's one of the reasons we moved to the U.S. Our customers want us in the U.S. The U.S. government wants us here. More than 60% of its customer base remains US companies. That's why some of these companies, like Apple, had hinted that they wanted their supplier to be closer to home just in case.

TSMC has 12 factories, almost all in Taiwan and China. They represent almost 54% of all global foundry revenues. And this heavy reliance of TSMC on Taiwan leaves the world vulnerable to potential downturns, from earthquakes, the current drought there, or geopolitical tensions revolving around the United States, China and Taiwan. But some refer to TSMC as Taiwan's silicon shield. The silicon shield, TSMC, is extremely, extremely important. And I think people depend on us. The media paints a very bleak picture of this situation, but I'm actually much more optimistic, partly because of this idea, the semiconductor shield. China, from now on, needs them for its cutting-edge manufacturing.

The United States also relies heavily on chips coming out of Taiwan. A key reason why the government worked hard to convince TSMC to bring its technology here. We won't have to worry about geopolitical conflict. We won't have to worry about another major pandemic. We will have these types of manufacturing capabilities on American soil. Today, only 12% of the world's semiconductors are made in the US, down from 37% in 1990. In the days of Bell Labs, in the early days of Silicon Valley, we were probably at 100% . Both state and federal officials are eager to convince TSMC to bring advanced silicon to the country where it first took off.

The state of Arizona has a number of programs, including the Qualified Facilities Tax Credit and the Quality Jobs Tax Credit, that are actually an incentive to help reduce the cost of operations. On top of that, the city of Phoenix put together a $200 million infrastructure package that helps TSMC access water and necessary additional infrastructure. The Biden administration has proposed $52 billion in subsidies for chip companies like TSMC to manufacture on U.S. soil. It has been nicknamed the Chips Law. This is infrastructure. Look, then, we need to build today's infrastructure, not fix yesterday's. And things like the Chip Act are absolutely critical to the success of our country, not only to compete but to recruit these types of companies to operate in the US.

Otherwise, we will be importing chips for the rest of our lives. Over the last 20, 30, 40 years, we've been slowly incorporating that manufacturing element, especially as we've seen costs decline in other countries. It is 20% to 25% cheaper for American companies to produce their semiconductors outside the United States. TSMC's Rick Cassidy was involved in the discussions that led to the Chips Act. We want nothing more than to create a level playing field so that it doesn't cost more to make chips in the US than elsewhere. Industry reports estimate that a $50 billion investment by the US government would enable the construction of 19 new factories in the United States over the next ten years, more than doubling domestic chip manufacturing capacity.

As shortages continue, similar investments are being made around the world. Industry association SEMI projects that 72 new factories or major expansions will come online by 2024, ten of them located in North and South America. I have heard more investment announcements in the last two or three years than in my entire life. Korea will invest 450 billion dollars in the next ten years. The EU has announced approximately $150 billion in investments and based on that, we believe that by the end of next year we should start to see some relief in the chip shortage. But until then, as demand continues to rise, TSMC is raising chip prices by up to 20%, a cost that could impact the price of consumer electronics.

TSMC has always been able to charge a premium if necessary and most of its customers recognize that if there is a good reason, they are willing to pay it. In the meantime, TSMC will certainly continue to invest in increasing production capacity, including in the US, where the 1,100-acre Arizona site certainly has room for a second phase and more. So we have a lot of land and we have the ability to do more there. It will take time, but it's not just about the chip in the foundries. It will be the entire supply chain. Then it's the packaging companies.

It is the companies that produce the necessary chemicals and gases involved in the manufacturing process. So I see this as a complete change in the semiconductor sector in the United States. As you can see, we can get into a lot of trouble when everything is in one area. So I think it would actually be a huge victory to see the United States reverse the declines that we've had over the last few decades. Intel was once synonymous with the world's most advanced chips. He is responsible for inventing the building blocks of modern computing, from memory chips to microprocessors.

The business models that have emerged, the Internet being one of them, are the result of this vision that began 50 years ago with bringing the digital world to a chip and that the pace of technological innovation is unstoppable. In fact, chip technology is advancing at roughly the same relentless pace predicted in 1965 by Intel co-founder Gordon Moore, doubling every two years. But Intel hasn't been able to keep up. Chips made inside Intel's massive manufacturing plants are no longer cutting edge. Intel was Moore's Law firm and the undisputed leader, and something that was supposed to take them two years instead took them more than five.

And today they are still fighting to return to Moore's Law. Now, just two companies in Asia, Taiwan Semiconductor Manufacturing Company and Samsung, make all of the smallest, most advanced chips that power next-generation iPhones, supercomputers and automotive artificial intelligence. The newly released Alder Lake CPUs are packed with competitive features, but their chip technology falls behind the most advanced chips made by TSMC and Samsung. They got fat, dumb and happy and stopped looking at the ball. Once you fall off the treadmill, it's very, very difficult to get back on it. It is a very dynamic and fast-moving industry.

But Intel's new CEO has a bold plan to catch up and help alleviate the global chip shortage. I think I have more concrete trucks working for me today than any other human being on the planet. They have sites in Oregon, New Mexico, Arizona, Ireland and Israel and we hope to plant our next major factories in the United States and Europe before the end of this year. CNBC took an exclusive tour of Intel's massive factory outside Portland, Oregon, where it is building a massive new factory set to open early next year. So what's in here and what are we about to see?

So what's inside this truck here and what was just unloaded at our dock is one of our next generation tools. It will be installed in our D1X-Mod3 factory. And it is spending another $20 billion on two new factories in Arizona, where it will make not only its own chips, but also those designed by Amazon, Qualcomm and others. And it also begins to build that base within the United States so that the United States can become more self-sufficient. We asked Intel's top semiconductor executives and analysts how Intel fell behind and whether its aggressive plans for more U.S. manufacturing could catapult it back to the front.of the group by 2025.

The story of Intel's founding is also the story of how Silicon Valley got its name. William Shockley, the inventor of the transistor, the most basic component of computing, moved to Mountain View to start Shockley Semiconductor Labs in 1956. A year later, the so-called traitor eight resigned to found Fairchild Semiconductor, which quickly became the semiconductor manufacturer in the world. premiere chip company. A decade later, two of these founding fathers of Silicon Valley, Bob Noyce and Gordon Moore, left to found their own company. They first called him N.M. Electronics, then quickly changed to the name Intel for Integrated Electronics.

At the time of Intel's founding in 1968, short-term memory or RAM did not exist. Neither did microprocessors or CPUs, the current brains of all computers. Both are Intel innovations. These transistors offer more advanced computing capabilities, something never thought possible, and have also enabled the ecosystem around us. Just three years after raising a seed funding round of just 2.5 million, Intel went public with a market capitalization of 58 million. Making chips with memory capacity was big business. So much so that well-established Japanese electronics companies such as Hitachi and Fujitsu wanted to participate. A dozen years later, its huge factories, which had been operating more than 30 years longer than Intel's, were making memory chips much faster and more affordable than Intel.

In 1974, Intel's global market share in the memory business was almost 83%. But by 1984, it had dropped to just 1.3%. So in 1985, Moore and then-president Andy Grove said goodbye, walked out the door, then came back and made a dramatic pivot away from memory chips and toward microprocessors. This was just a year after the first Mac computer came out. They kind of made a decision, it was huge, to get out of that business and bet the company effectively on this new market. Remember, back then there was no PC industry, there was no personal computer industry. Last year, Intel announced it would sell most of what remains of its memory business to South Korean rival SK Hynix for $9 billion.

In 1971, Intel released the 4004, the world's first central processing unit or CPU. For the first time, engineers were able to purchase these basic components for use in all types of electronic devices. Intel processors were in the world's first personal computer in 1974, and its innovative x86 architecture processors were in IBM's first personal computers in 1981. It revolutionized transistor density and speed with the first 32-bit processor in 1985. It took six years for competitor AMD to reverse engineer a similar product. Suddenly, personal computers had to have an Intel processor to be competitive. Andy Grove replaced Moore as CEO in 1987, and Time magazine named him Man of the Year in 1997.

The personal computer market continued to grow throughout the first decade of the 2000s, and Intel reigned supreme in manufacturing the chips that powered them. . In 2011, global smartphone shipments began to shift to PCs. And that was around the same time that Intel rejected an initial offer from Apple to make crucial chips for its first iPhones. And that was a big mistake because what they really missed, and that was the beginning, was the whole switch from PC to mobile. The chip world was also in the midst of another trend. When Intel first launched its revolutionary processors, chip companies prided themselves on designing and manufacturing their own chips. "Real men have fabulous ones" was a common saying at the time.

But as Moore's Law proved true, decade after decade, chips became so complex that making them became an enormous task. Building a factory today requires at least two years and $10 billion. That's why big companies like Apple, Qualcomm and Nvidia decided not to build factories, but to outsource the expensive and highly specialized manufacturing process to companies like TSMC, which focuses solely on its foundry business, making chips for others. And this allowed TSMC to not only catch up, but, in my opinion, surpass Intel to become the largest manufacturing technology on the planet. Despite the great success of companies that decided to focus on designing chips, like Apple, or just making chips, like TSMC, Intel still does it all.

That makes it an integrated device manufacturer or IDM. Keyvan Esfarjani joined Intel in 1996. He now heads manufacturing and supply chain operations. Advanced equipment capabilities are becoming more expensive. You have to do it right, otherwise it could be very, very expensive. Since Andy Grove retired in 1998, Intel has seen a series of CEOs who have gone back and forth over how much the company should focus on the expensive manufacturing part of the chip business. The most recent change came in February, when Bob Swan was replaced by Pat Gelsinger, who started at Intel in the 1970s at age 18. 30 years in the company.

I mean, you know, I joke, I went through puberty and started at Intel so young. At age 25, Gelsinger led the 486 processor architecture and then rose to chief technology officer in 2001. He left in 2009 and, after leading VMware as CEO for nearly nine years, returned to lead Intel this year. We needed a technology leader to help reestablish the technology company, this company that essentially put Silicon in Silicon Valley. Gelsinger has made some big moves since he took the helm, most notably the decision to double down on manufacturing. For decades, markets have rewarded giants like Apple and Qualcomm for not being great.

But the chip shortage has made chip manufacturing a more attractive business, allowing TSMC, for example, to increase chip prices by up to 20%. It takes time to build this infrastructure, but the good news is that the world is coming together to create additional capacity. Intel is adding capacity by building a huge new factory on its massive campus outside Portland, Oregon. D1X-Mod3 is approximately 250,000 square feet per building level. We got an exclusive first look inside the expansion called D1X-Mod3. And what exactly are you manufacturing? We are manufacturing the next generation of microprocessors for Intel and working to enable Intel's accelerated process for IDM 2.0.

At the company's Intel Accelerated event in July, Gelsinger laid out an aggressive IDM 2.0 roadmap for how it plans to increase capacity and catch up with major advances in processing technologies. By 2025, Intel says it will surpass the chip manufacturing capabilities of both TSMC and Samsung. We are on a march toward annual innovation, setting a pace for ourselves and the industry to not only get back but to get ahead again. Why should anyone trust Intel again? And then Intel will have to make a lot of promises, both verbal and financial, at least in my opinion, for anyone to listen.

Intel has 15 factories around the world: China, Israel, Ireland and the United States in Oregon, Arizona, New Mexico and Massachusetts. It has assembly and testing sites in Vietnam, Malaysia, Costa Rica, China and the United States. It says it makes 8,000 products, producing 2 billion units a year for about 2,000 customers. Now it is expanding that production, specifically in the United States and Europe. It has a major expansion underway in Ireland and is reportedly in talks for projects in Italy and Germany. Doubling its capacity requirements to meet the growing needs of its customers around the world is an absolutely important responsibility for Intel to drive.

And in March, Intel announced it will spend $20 billion to build two huge new factories in Chandler, Arizona. It began construction in September this year with plans to produce chips for PCs and data centers by 2024. That's a long time to build the concrete, chemical delivery and electrical systems. All of this must be perfect for a factory to operate that creates lines and dimensions that are 10,000 times smaller than your hair. When we toured the fabulous project in Oregon, trucks were dropping off some of the 1,200 huge tools used to make the chips. All of our tools tend to be worth millions of dollars, tens of millions of dollars.

They weigh between 10,000 and 100,000 pounds. We also got a rare look inside the factories' bustling clean rooms, wearing bunny suits that help keep dust and other particles away from the chips' tiny circuits. We are talking about a clean room that is 10,000 times cleaner than a cardiac surgery room. The amount of space we have here is roughly the equivalent of about 20 American football fields, which is clean room space. It is filled with yellow light to avoid exposing the chips to shorter wavelengths of light than those used by lithography machines to print designs on the chips. We have different chemicals and gases that we use to make our chips here at Intel, and we segregate those exhaust streams into these ducts that you see here and they are subsequently treated so that we are environmentally responsible in providing clean air coming out of our factories.

Making chips also requires a huge amount of water, a resource that is not abundant in the Arizona desert. We are currently at the Ronler Acres water treatment facility, where today we have recovered over 2 billion gallons of water and reused it in our manufacturing systems and processes. We use approximately 9 million gallons per day and can serve about 95% of that. The chips made here are ten nanometers and are used in PCs and data centers. Currently, only TSMC and Samsung can manufacture five-nanometer chips, the most advanced node on the market. In fact, Intel relies on TSMC to manufacture a good number of its chips.

We are one of their key clients and that collaboration continues. To understand why Intel has chips made by one of its competitors that it is trying to catch, let's talk about the different types of chips and the supply chain. Chips of different sizes are found in different types of electronic products. Intel makes a large number of ten- and 14-nanometer server chips that function as computer brains, CPUs, and powerful chips used in data centers, GPUs. Less advanced chips, 28 to 40 nanometers, are used primarily in the automotive industry in components such as anti-lock brakes and air bags. Larger chips are also used in household appliances such as coffee makers or electric toothbrushes.

Five-nanometer chips, the most advanced chips made today, are highly sought after for data management and artificial intelligence processing, and are used in cutting-edge technologies such as the latest iPhones, NASA rovers, and airplanes. F-35 fighter. Making five-nanometer chips requires an extreme ultraviolet lithography machine that uses very small rays of light to etch the smallest designs onto the chips. Only one company, ASML, makes these EUV machines and they cost over $180 million. Costs are going to skyrocket. But if you can't do the process without it, you have no other option. Intel didn't buy EUV machines until a couple of years after TSMC, which explains why TSMC was able to reach five nanometers for the first time.

And now TSMC will be the first to make five-nanometer chips in the United States, building a $12 billion factory right next to Intel's new factories in Arizona. So where does all this leave Intel? It is currently in high-volume production of ten-nanometer chips after years of delays. In 2015 ten were supposed to be here. We still don't even know the reasons. The reason ten failed was that they simply tried to do too much. In July, Intel changed its name to avoid the nanometer-based nomenclature used by other chip giants. Its seven-nanometer chip, which it now calls Intel 4 or Meteor Lake, has been delayed by about a year.

This recent delay, the first setback under Gelsinger, leaves seven nanometers in production by the second half of 2022, around the same time that TSMC and Samsung have committed to starting production of their three-nanometer nodes. They have been having problems with the processes for ten years. It was delayed by 14 nanometers, it was delayed by 10 nanometers, it was delayed by seven nanometers, it's not like it's new. I still don't understand how you can let something slip away from you as much as they do. It is shocking. We had some mistakes. The strategy had become a little confusing as to what role we are going to play in long-term manufacturing.

And now we return to it clearly, with clear urgency. The competition between the chip giants and the subsequent rise inproduction is positive for the chip shortage, which has affected all types of chips. Apple is cutting its 2021 production targets for the iPhone 13. Automakers such as GM and Toyota have halted production at some plants. When the personal computer market exploded during the pandemic, it reduced the supply of CPUs and GPUs. Intel attributed this component shortage to its PC chip business shrinking 2% in the third quarter of 2021, causing shares to fall more than 10% after its earnings were announced in October.

Intel stands out as the only US-based company that designs and manufactures advanced chips at scale. Traditionally it only makes its own designs. But now, in the face of shortages, that is changing. Not only will you manufacture our own wafers, but you will also use those manufacturing facilities to produce wafers for customers who want us to use their design. It's totally a right turn. We have always had a lot of debate about it. Intel calls the new standalone business Intel Foundry Services. We already have our first income with the Amazon packaging agreement. Our next big customers like Qualcomm and the US government.

Foundry has been a huge success for the other two leaders, Samsung and TSMC, but analysts aren't sure it will work for Intel. Amazon will presumably be part of the data center. There will be so many units, right? Small, right? It's like five years away. And if Intel turns out to be a viable founding partner, great. But if they aren't, they don't care. The only benefit I would see in using Intel is if you wanted something created in the United States. And the government is greasing the rails with the Chip Act, a proposed $52 billion in subsidies for chip companies committed to manufacturing them in the United States.

This is infrastructure. In 1990, 37% of the world's semiconductors were made in the United States, but last year that number dropped to just 12%. A moonshot bet would be for the United States to reach 30% of its manufacturing output about a decade into the future. And I think the Chip Act, as it is structured today, is a big step to begin to change that in a positive direction. As I like to joke, God decided where the oil reserves are. We could decide where the factories are. But analysts say much more is needed to help the United States recover. If the goal of that money is to bring significantly more capacity ashore, it is not enough.

They need ten times that amount. Because 92% of the world's five-nanometer chips are currently manufactured in Taiwan, the entire global chip supply is vulnerable to natural disasters common there, such as earthquakes and its ongoing drought and escalating geopolitical tensions between China and Taiwan. , and later trade between the United States and China. war. Every aspect of defense, intelligence and government operations is becoming more digital, and do we want to rely on foreign technology for those critical aspects of our defense and national security? I do not think. It is vitally important not only to the global supply chain, but also to national security that we must maintain this journey.

However, it will be necessary for Intel to put its manual into practice. The next steps in this manual include a chip so efficient that Intel didn't name it with nanometers, but with an even smaller unit of measurement, the angstrom. Intel says the 18A, which is in development for 2025, will accelerate it beyond its competitors. In the long term we will be the largest integrated designer and manufacturer of silicon in the world. It's a difficult task and I don't expect him to succeed. But if they could meet that schedule, in my opinion, it would put them back on par with TSM head-to-head.