The myth of chip resilience and a homesick Alibaba

admin 28 July 2022 Technology & Digitalization 0

Hello everyone! This is Cheng Ting-Fang from Taipei.

While the US moves closer to making the $52bn Chips Act a reality, Lauly Li and I have just wrapped up a months-long project that questions the very premise of the bill: Is bringing chip production onshore really possible?

The project was born out of conversations with friends in the chip industry who told me: “You know what? We are having huge trouble with shortages in valves, tubes, and pumps made of special plastics. Without those components, the chipmaking equipment could not be shipped.”

Such bottlenecks could delay the expansion plans of major chipmakers like TSMC and Micron.

I was stunned to learn how shortages of such small and little-known components could disrupt the whole chip supply chain. It is no wonder that Entegris CEO Bertrand Loy described the current situation as “the most unprecedented supply chain crisis” in the semiconductor industry.

Tiny parts, big problems

How can the shortage of something as mundane as a valve disrupt the global chip industry? And what does that mean for the great rush to onshore chip production? Nikkei Asia’s Cheng Ting-Fang and Lauly Li answer those questions in this deeply reported look at the long, complex — and surprisingly fragile — chip supply chain.

Chip production relies on a huge network of suppliers providing hundreds of specialised chemicals, gasses and pieces of equipment, as well as thousands of precision components. And some of these components — or the basic materials used to make them — are only available from a tiny handful of suppliers.

This complexity is bad news for politicians and policymakers attempting to bring chip production to their shores. The US, for example, is wooing the likes of TSMC and Samsung to build chip plants on its soil, but the long and complex supply networks needed to support their operations cannot be built in a day.

Most chip industry executives say they are sympathetic to governments wanting to onshore chip supply chains and increase their self-resilience in this vital technology. But at the end of the day, some policies are easier to champion than to achieve.

Home sweet home?

Alibaba was once the darling of Wall Street, with grand ambitions to conquer the US market. But this week, China’s ecommerce behemoth showed signs that it is longing for home, writes the Financial Times’ Hudson Lockett.

The Hangzhou-based group says it will pursue a dual-primary listing in Hong Kong, to go along with its current primary listing in New York. The move would grant mainland Chinese investors broader access to its shares — and help minimise disruption if US regulators force Chinese groups to delist over a dispute about access to audit papers.

The announcement comes as Alibaba’s global expansion plans have also faltered. It failed to meet its targets to bring US businesses on to its ecommerce platform, due largely to intense competition from domestic players, and there have been mass staff departures from its New York offices.

The two developments show how far Alibaba’s global ambitions have changed since the heady days of its $25bn IPO in New York in 2014, which at the time was the largest in history. Now the ecommerce giant is likely calculating that shifting toward Hong Kong and closer to the purview of Chinese authorities will actually end up reducing scrutiny of its operations from domestic regulators. Investors meanwhile will be wondering how many more Chinese tech companies will follow in its footsteps.

A policy by any other name

Major recipients of Chinese government subsidies

Unveiled in 2015, “Made in China 2025” was once loudly trumpeted as the Chinese government’s strategy of upgrading its industries within a decade. These days, however, the name has all but disappeared from public discourse since the Washington-Beijing tech war of 2019 and Washington’s ensuing clampdown on Beijing-backed tech champions such as Huawei.

But that does not mean that “Made in China 2025” is dead, writes Nikkei Asia’s Kenji Kawase. Chinese government subsidies to domestic-listed companies have remained high, nearing or exceeding 200bn yuan ($29.6bn) in each of the three years since 2019.

The recipients of these subsidies are national champions in areas China sees as critical to ensuring tech supremacy, including automobiles and semiconductors. Whatever Beijing may call — or not call — the policy, it is clear that the government’s industrial ambitions are alive and well.

Apple gets moving

Foxconn founder Terry Gou once referred to electric vehicles as “an iPhone with four wheels.”

Whether Apple would agree with that assessment, the US tech titan appears to be betting big on cars and has been developing automotive technologies for two decades, Nikkei’s Kotaro Fukuoka and Naoshige Shimzu write.

The company has filed nearly 250 patents related to automotive tech since 2000, according to a joint investigation by Nikkei and Tokyo-based analytic company Intellectual Property Landscape.

Apple’s initial efforts centred on navigation, paving the way for the 2014 launch of Apple CarPlay, which allows some vehicle functions to be controlled with an iPhone. Its filings gathered steam from around 2016, with patents in areas including next generation autonomous driving technologies.

A large chunk of recent patent filings involve so-called vehicle-to-everything (V2X) technology, which allows cars to communicate with each other and connect to the Internet of Things. Some see this as a sign that the company that “reinvented the phone” is looking to do the same with the car.

The myth of chip resilience and a homesick Alibaba