“There is going to be a lot of pain for the semiconductor industry before it normalizes,” says Dan Hutcheson.
“It’s a mess, and it’s going to get a lot worse before it gets better,” says David French.
“If we aren’t going to sell them chips, it is not going to take them long [to catch up to us]; it is going to hurt us,” says Mar Hershenson.
French, Hutcheson, and Hershenson, along with Ann Kim and Pete Rodriguez, were discussing the U.S.-China trade war that escalated last month when the United States placed communications behemoth Huawei on a trade blacklist. All five are semiconductor industry veterans and investors: French is currently chairman of Silicon Power Technology; Hutcheson is CEO of VLSI Research; Hershenson is managing partner of Pear Ventures, Kim is managing director of Silicon Valley Bank’s Frontier Technology Group, and Rodriguez is CEO of startup incubator Silicon Catalyst. The five took the stage at Silicon Catalyst’s second industry forum, held in Santa Clara, Calif., last week to discuss several aspects of the trade war:
- Effects on China
- IP theft
- Immigration policy
- A call for a national strategy
- Missing investment dollars
Effects on China
Tight trade policies, these semiconductor industry veterans expect, will hurt the U.S. industry more than China. “The consumption of semiconductors in China is 40 to 50 percent” of the world supply, said French. “And that number is going to go up whether we sell to them or not.”
Can China’s tech industry really do just fine without U.S. chips? The panelists debated the question.
“I think China is going to struggle with memory,” Hutcheson said. “In memory, the costs are in the equipment and the efficiencies of running the fab; only 5 percent of the cost is labor. That is going to be difficult for them, to have to get materials and equipment from around world.”
French disagreed. “If we take a policy of not selling the best stuff to China,” he said, “if they are forced to use their own [technology], they will, even if it’s a little bit worse.”
“Maybe they can be competitive in China where they are protected,” Hutcheson countered, “but they won’t be able to sell outside China.”
That won’t matter, Kim indicated. “If you are the dominant player in China, you are already doing good.”
On IP theft
But what about all that theft of intellectual property, Rodriguez asked the group. Shouldn’t China be punished?
“IP theft is a big emotional issue, and there is legitimacy to the issue,” French said. “But I don’t think China has cornered the market on IP theft. I don’t think they are the best at it or the most prolific.”
“If there were people from 19th century Britain,” he mused, “they would say the same thing about Americans.”
In any case, it’s a short-term problem. When China’s home-grown intellectual property “gets to a significant level—and it will—China will become more about the protection of IP than acquisition,” French said, reminding the audience that Japanese tech companies followed a similar path.
Hutcheson pointed further back in history. “Europeans today are competitive even though we stole all their tech in the 19th century,” he said. “We all love German cars, we buy European products.”
On immigration policy
Restrictive immigration policies are also hurting the semiconductor industry, the panelists indicated, particularly in an era in which U.S. students are tending to ignore electrical engineering and other hardware-oriented fields in favor of computer science programs.
“The immigration problem is real,” said Hershenson. “When I did my graduate research, 70 percent of the students in my group were from Iran; for the last couple of years, Iranians can’t even come to the country.”
Hutcheson agreed: “That’s the American strength, bringing those people in. The diversity of our industry makes us strong, brings new ideas, [and] radical thinking.”
A member of the audience of about 150 asked for a show of hands from those attendees who weren’t born in the United States. The vast majority of people raised a hand.
A call for a national strategy
So what should the United States do, besides back down on restrictions on trade with China and be more open to skilled immigrants?
“I believe we should have a national strategy on semiconductors,” said French. “And I believe we should invest as a country, through the government, in advanced technology for manufacturing semiconductors.”
“If we focus as a country on being number one in semiconductor manufacturing,” he continued, “we could do that for a small percentage of our military defense budget. I truly believe that we need to continue to be a leader in semiconductors if we want to be the leading economy in the world.”
Rodriguez pointed out that a set of government policy recommendations released in April by the Semiconductor Industry Association talked about 5G, AI, and quantum computing, but not about a national strategy to support semiconductor manufacturing. That, he indicated, was a significant oversight.
Some audience members countered that various arms of the U.S. government do invest in semiconductor companies, but others pointed out that these initiatives, for the most part, come out of defense-related entities. Said one, “That’s all well and good, but the defense department has a different economic model than commercial industry.”
The missing investment dollars
Building semiconductor foundries is not cheap, several attendees pointed out. “Companies can’t do it because payback analysis fails,” French said. “And you can’t do it with venture capital.”
While the venture capital model doesn’t make sense for semiconductor foundries, Hershenson pointed out that a lot of semiconductor innovation on other fronts has been funded by startups and venture capital.
“But,” she said, “there’s been a drought of it in the last 15 years. It used to be, you went to any Sand Hill [venture] firm and they had someone who knew something about semiconductors; now, most megafirms don’t. So, how do we support innovation?”
“I can start a software company at Starbucks,” she said. “I can’t do a custom microprocessor without money.”
Maybe, the panelists suggested, the industry needs to do better at marketing itself, making itself as cool as it was back in the days of the space race. Just how to do that, however, is not clear—nor will it be easy.
There’s such a bias against hardware these days, Kim pointed out, that “hardware companies have started avoiding using the word hardware. They are just saying it’s a form factor that collects data.”