Viewpoint: With coffee and semiconductors, you get what you pay for
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In September 2021, I went to California for three months after interviewing from a conference room in the Norman Public Library East for a job trading corporate and municipal bonds at the Voleon Group. I would arrive at the office about 5:30 a.m., slide open the heavy steel gate at the entryway, switch on the fluorescent lights, and — most importantly — make a beeline for coffee before logging into my workstation and beginning the day’s transactions.
Voleon is a multi-billion-dollar hedge fund whose major competitive advantage is the use of machine learning techniques. Their culture reflects a focus on artificial intelligence, right down to the $5,499 autonomous coffeemaker in the kitchen. This Swiss machine automatically grinds beans to the proper consistency for a coffee of the user’s choosing, heats water instantaneously, makes espresso and a variety of other things, and cleans itself. Once in a while, it politely requests a cleansing tablet, or asks the user to empty grounds in the waste compartment. Despite having an impressive machine, Voleon stocked its pantry with some of the cheapest dark-roast beans on the market, resulting in perfectly mediocre coffee. As employee complaints go, this is an inconsequential gripe but also an interesting metaphor: advanced technology without the right resources tends to fall short of its lofty potential.
Something similar is happening in the semiconductor industry. Only three companies in the world use the most advanced chipmaking nanotechnology: TSMC in Taiwan, Samsung in South Korea, and Intel in the United States. Demand for server chips and other key ingredients of the post-pandemic way of life hovers at an all-time high, but the United States government throws bones to Intel and other American chipmakers while Taiwan and South Korea pamper TSMC and Samsung.
Our country is exposed to great risk because essential components of our economic infrastructure come from an island territory near China’s shores. The problem is not an absence of semiconductor fabrication plants in the United States. Rather, it is a concentration of manufacturing facilities within Taiwan, a friend to the United States under constant threat of invasion by mainland China. Seemingly aware of this problem, TSMC is building a 12-billion-dollar plant in Arizona. At least one other country in the Americas with cheap energy and strong relations with Taiwan has also sought a Taiwanese chip fabrication plant within its borders. Still, the push for TSMC to build more infrastructure anywhere in the Americas is limited by labor shortages.
Semiconductor infrastructure is a critical component of our national defense and economic prosperity, and it promptly requires an adequate investment. Even if China were to announce one year’s advance notice of an attack on Taiwan, American companies would be powerless to find an alternative to Taiwan’s chipmaking. It takes multiple years and billions of dollars to build and start operating a leading-edge chip fabrication facility, and the lion’s share of the “pure play” contract chip manufacturing business belongs to Taiwan. The United States government cannot relieve this economic pressure point with piecemeal tax credits.
I have some knowledge of this topic. After graduating from Norman High School, I studied computer science and engineering at MIT. Subsequently, I went to Wall Street where I traded options on semiconductor companies for Morgan Stanley. The present moment requires focused attention on the technological tools that underpin our way of life. Furthermore, an energy-producing state like Oklahoma should encourage far greater spending to support energy-intensive advanced manufacturing. The CHIPS Act and FABS Act are a good start, but the overall price tag for a solution to the semiconductor predicament likely exceeds 200 billion dollars. The sooner we acknowledge the problem and accept its costs, the sooner we can construct a solution.
Arya Azma is a securities trader who lives in Norman.
This article originally appeared on Oklahoman: Viewpoint: Semiconductor infrastructure is key to economic prosperity
