| The Battle of the Global Semiconductor Suppliers If all our factories and trucks and planes and hospital ventilators are going to be linked in a 5G “internet of things,” it is obvious that they will have to be secured. In Life After Google, I presented the argument for a blockchain of public and private keys as providing a new security architecture for the internet. China has now adopted this approach as a “core technology.” The US could benefit from such a course as well. Somehow it is supposed that the US will deploy Huawei 5G equipment and not vet or secure it. If that should happen, it would not be China’s fault; it would be ours. But rather than figure out how to test and secure telecom devices, the administration’s answer is to destroy Huawei’s high-tech supply chains focusing on microchips. Well, how is it going? Maybe not so well. Recently published were the top ten rankings of global semiconductor suppliers by revenues. With nearly $20 billion in total during the most recent quarter, Intel remained in number one position with its global design teams and nearly leading-edge wafer fabs. But Intel’s sales shrank by around 2% during those three months and it has been buffeted by an Apple decision to spurn its processors for future iPhones. Meanwhile, in the fourth quarter of 2019, Huawei’s semiconductor company, HiSilicon remained far behind, as the number 16 global supplier of chips, with about $2 billion in quarterly sales, roughly 10% of Intel’s. It was during that quarter, though, that the US government targeted Huawei. In the following first quarter of 2020, there was little movement in most of the top 10. A memory boom for cloud computing servers pushed Toshiba’s venerable memory chip operation, now spun out as KIOXIA, ahead of SONY semiconductor in tenth place. Qualcomm retained its number six ranking with a 14.6% jump in revenues for its panoply of 5G chips, heavily sold into China. The big new development was the leapfrogging of Huawei’s HiSilicon from 16th place to 8th, with a huge 40% surge in revenues and a portfolio of formidable designs. Notable are its Kirin smartphone applications processors, its Balong smartphone modems, its Kumpeng fifth generation server processors, and its artificial intelligence DaVinci line and Ascend inference processor for machine learning. Set to be barred from the some $11 billion worth of chips the company annually purchases from such US suppliers as Intel, Broadcom, Qualcomm and Qorvo — Huawei microchips are clearly ascendant. The company is on course to complement its global telecom equipment and smartphone leadership with a major business in semiconductors. Nonetheless, like Broadcom, Nvidia, and Qualcomm, HiSilicon is what is called a “fabless” chip supplier. It is mostly dependent on specialized chip foundries actually to fabricate its devices. By far the world’s leading foundry is TSMC, which makes the most advanced application processors and other devices for both Huawei and Apple, Qualcomm, Nvidia, and Broadcom. Now the US is moving to undermine the Taiwanese giant (actually an early spinoff from Texas Instruments that is now planning a new plant in Arizona) by depriving TSMC of its most lucrative mainland markets. Fabricating only about 10% of US chips in the US, US companies are nearly as dependent as China’s on Taiwanese leading-edge foundries. The US move against Huawei thus jeopardizes the entire US semiconductor industry by plunging it into a politicized maelstrom of national conflicts. Judging from the ascent of HiSilicon following the ban on US chips, we can expect any ban of foundry services from Taiwan to be followed by an upsurge of new capabilities on the mainland. The leading mainland foundry SMIC is already fabricating many of Huawei’s lower end devices. But the Chinese government is channeling multibillion-dollar investments into mainland foundries and chip making gear. Today’s Prophecy The obvious real victim of the US policy will be American semiconductor capital equipment, which will now be stigmatized as under the capricious control of the US government. Buying US chip gear — or chips — will render your output unsalable to any company that hopes to sell chips or equipment into the world’s fastest growing chip market. No one denies that China’s present government is increasingly adversarial. It is reversing many of the open policies that made Huawei’s ascent possible. This is a depressing and challenging and unexpected new development. But contrary to the AEI experts in NR, US companies were huge beneficiaries of the previous Communist regimes of Deng Xiaopeng, Jiang Zemin, and Zhu Rongji. US high technology companies manufacturing in China took five of the top seven places in global market cap. China and the US both benefited lavishly. What happened once can happen again, if the US does not make it impossible by favoring the most reactionary autarkic forces in the CCP. What no one in Washington is ready to recognize is that the entanglement between China and the US in high technology is so deep and global that it cannot be ended without destroying the US technology lead. With a massive population advantage, a huge lead in engineers, an intense national obsession with high tech, and an increasing edge on many technical frontiers, China is arguably a lot less dependent on the US than the US is dependent on China. That is a recognition that even the learned team from AEI has failed to grasp. But US policy and US investors will not succeed by denying unwelcomed facts of life. Regards, 
George Gilder
Editor, Gilder's Daily Prophecy P.S. I’m sure you’ve been hearing a lot about 5G lately, but before you even invest a nickel in 5G stocks, “America’s #1 Futurist,” i'm saying you should “forget 5G” and start piling up a stake in what he is calling “15G” instead. Learn more about “15G” when you click this link. | 
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