2018-11-30

Silicon valley, the heartland of America’stechnology industry, takes its name from the chemical element that is the mostimportant ingredient in microchips. Most of the attention it now attracts isdirected at companies such as Facebook, Google and Apple, which are betterknown for their software and nifty devices rather than the chips that make themwork. But it was in the Valley in the 1950s and 1960s where inventions like thetransistor and the integrated circuit were refined, helping to transformcomputers from unreliable machines the size of a room into dependable devicesthat fit neatly into pockets. That in turn enabled the technology titans oftoday to prosper.

Modern microchips are now embedded intoeverything from cars and washing machines to fighter planes. WorldSemiconductor Trade Statistics, a data provider, reckons that the market forchips was worth $412bn in 2017, a rise of 21.6% on the year before. Ifanything, these raw numbers understate the importance of chipmaking. The globale-commerce industry, for instance, is reckoned to have revenues of over $2trn ayear. If data are the new oil, chips are the internal-combustion engines thatturn them into something useful.

The ubiquity of chips has led to the growthof a vast global industry. Modern microchips have billions of components andare made in ultra-advanced factories that cost tens of billions of dollars tobuild. Indeed, that such devices can be built at all is a testament to thepower of specialisation and trade.

These hugely complicated products havespawned an equally complex supply chain involving thousands of specialisedcompanies all around the world. The Semiconductor Industry Association, anAmerican trade body, reckons that one of its members has more than 16,000suppliers, of which more than 8,500 are outside the United States. The rawmaterials and the parts that are the components of a chip cross and recross theworld before eventually ending up as the brains of a smartphone, a car’santi-lock braking system or thousands of other products besides.

Two forces are now thrusting thesemiconductor industry firmly into the spotlight. The first is geopolitics.Chips are caught up in an increasingly bad-tempered rivalry between America,the incumbent techno-superpower, and China, the aspiring one. The second isphysics. This brewing technological struggle comes at a historic moment. For 50years progress has been driven by Moore’s law, which states that the number ofcomponents that can be crammed onto a chip doubles every two years and thus,roughly, so does its computational power. But the law is breaking down, leavingthe future of the industry looking messier and less certain than at any time inthe past