Professor Ming’s Strategy Insights Ep 49: Without Taiwan...can the U.S. military still win a war?

Good morning, ladies and gentlemen. Welcome to Professor Ming's strategic insights. In the past few weeks, we talked about topics like uh trade relations between Taiwan and the United States and the importance of Taiwan semiconductor industry to the United States and why Taiwan does not steal the United States semiconductor industry and questions like that. Today, we're going to continue the topic of semiconductor, but only focus on a narrow question. How important is Taiwan's semiconductor industry or Taiwan's high-end chips to the United States military or to be specific to the United States weapon systems? On May the 8th, 2024 last year, uh former Secretary of Commerce Gina Rando appeared on a congressional hearing and she admitted the United States gets 90% of its high-end chips from Taiwan and from one company only. And she even said that uh uh perhaps a little bit higher than 90% uh to be exact 92% and she admitted that it constitute a national security problem. Her words were clear and important so that deserves further elaboration. The definition of high-end chips vary from time to time but now we're talking about the chips of seven nanometers or 5 nanometers or even lower like 3 nanometers. actually that there are only two companies in the world that produce high-end chips. First one is a Samsung electronics from South Korea. They could produce uh 7 nanometer chips uh starting in 2018, late 2018 and five nanometer ones in late 2020 and three nanometer in late 2022. The second one, you've guessed it, TSMC, Taiwan Semiconductor Manufacturing Company, the most advanced FAP in the world. They could produce seven nanometer chips in 2018 and 5 nanometer ones in 2020 and three nanometer ones in 2022, roughly the same time as the Samsung. And actually, there was a third country, the Intel from the United States, but it dropped out of the race few years ago. Now they have a new CEO and see how they work out on that. In order to produce high-end chips, they need a uh a new equipment called EUV scanner and the ASML company is the only company that could produce this kind of equipment. Although both the uh Samsung and the TSMC can produce high-end chips, but there are big differences between these two companies. The first one is the volume of output. The second one is the e rate, the good yield rate. There are big differences between the two companies. First, Samsung. Samsung can produce seven nanometer chips about 25,000 per month. And with a 5 nanometer ones, roughly 5,000 to 10,000 pieces per month. It could have doubled by now, but still it's far from those of the TSMC's. And as for the E rate, it is claimed that Samsung could reach as high as 30 to 40% top, but still that falls far behind those of the TSMC's. Let's now look at the figures of the TSMC's. Uh for the 7 nanometer process, by the year of 2020, they could already produce 140,000 pieces per month. By 2021, they could produce about 150,000 pieces per month. And for the five nanometer ones in 2022, they could produce roughly somewhere between 60,000 to 70,000 pieces per month. By late 2021, they expanded to 120,000 pieces per month. And by 2022, it was reported they could reach as high as 150 pieces per month. And they could still maintain that volume up to today. As for the three nanometer ones, the volume has never been disclosed, but overall the TSMC chips have a good yield rate as high as 90%. Sometimes it's claimed even higher. So these figures show the differences between the two companies between the TSMC and the the Sensum. in terms of the the volume the output volume uh TSMC is about 7 to 10 times to that of the uh the samson and in terms of the good rate the good year rate uh TSMC is about two to three times to that of the Samsungs. So matter in time and cost and reliability the TSMC is far more superior to Samsung. And another way to look at the question is to examine TSMC's annual revenue from US customers. It is estimated in between 2023 and 2024 um roughly 65 to 70% of the total revenue total revenue of TSMC's came from US customers and roughly 60% of the wafer revenue from high-end AI chips or HPC chips high performance computing chips. It is estimated roughly 42% of TSMC's total revenue came from US high-end chips. So high-end chips alone, we are looking at a a total revenue of 30 to 40 billion US dollars for the TSMC. So naturally, you may wonder where do all these high-end chips go to in terms of the weapon systems because these informations are all highly classified and highly sensitive. So we can only try to gather information from all over from around the world and here and there little by little and try to piece them together. So some of them are only educated guesses. Let's begin by the army branch. First is the main battle tank the Abraham series. These chips are used for the entire vehicles electronic system and the fire control system. All of chips are designed by the American companies like AMD or Calink but manufactured by TSMC. And for the army, they're also weapons like PRSM or LRPF. They stand for precision strike missile or long range precision fires. The chips do things like um calculation, calculation of navigation route and target acquisition. And these higherend chips are also used in for communication among army units, electronic war and reconnaissance drones such as RQ7B. Those are for the army. And now let's talk about the the Navy. First one is the Egypt combat system. The chips are used in the system like radar, fire control, missile guidance and command system. They're also used in the submarines, nuclear submarines like Virginia class and the strategic submarine like Columbia class. And the chips are used for a sonar, navigation, communication and fire control. And the Navy also uses these chips for USVS and UUVs where USV stands for unmanned surface vehicles and UUV stands for unmanned underwater vehicles. The chips are used for autonomous navigation. Navy's early warning planes such as E2D advanced Hawkeye used them for image identification, data chain and radar control. For the Air Force, there are three prominent cases. The first one is the famous F-35 Lightning 2 stealth fighters. The chips are used on their radars and also on their electronic war fighting systems. The second case is the MQ9 Reaper drone. The third one is a B-21 bombers, the most up-to-date bombers. The fourth branch is a guided missile and air defense systems. For instance, PC 3 air defense missile systems. The chips they use are designed by Rathon and Lucky Martin and manufactured by the TSMC. And the second case in this category is a flat high alitude air defense missile systems. The fifth category is the satellite and the space technology. For instance, the GPS3 satellites and the military communication satellites or uses high-end chips from the TSMC. And it's also said that the US the newly established US space force also use high-end chips from the TSMC for their data processing platforms. And lastly, the uh supercomputer used by the by the army by different branches of the US armies and the command control systems all use high-end chips from the TSMC. For instance, there are high performance computing center and their commanding system for the car wars. For instance, the JADC2 system. They all use TSMC's high-end chips. Well, very impressive, right? I note that uh our information is still incomplete because of the nature of the topic and because of nature of the the material. They're highly sensitive and they're classified. Most of them are classified. So that's um that's a footnote to uh former Secretary of Commerce Gina Rando's testimony to the US Congress. But that also tells you how important Taiwan's high-end chips are to United States weapon systems and to United States national security. That pretty much concludes our discussion today. I hope you like today's program and uh you haven't subscribed it, please do so and share it with your friends and please remember to click the icon bell so that you can get a simultaneous notification. And that's all for today. We'll see you next time.