Semiconductors: when the state sees itself as a strategic strategist


There is a shortage in the semiconductor sector … which allows States to come to our “rescue” in defiance of economic logic – and quite conveniently forgetting that they themselves are at the origin of a crisis. part of the shortage!

“You should never waste a good crisis. “
– Winston Churchill

The Covid-19 epidemic was an opportunity for States to consolidate their hold on civil society.

For autocratic regimes, the pandemic has reminded citizens in need of individual freedoms how effective a centralized authority is in times of crisis. In democratic nations, the executives have taken advantage of the health emergency to suspend, more or less temporarily, fundamental aspects of the rule of law and the freedoms of their citizens.

What will be the next “growth driver” for state power? The next crisis, of course. And this one is all found: it will be technologico-economic.

The new danger to our economies has been on everyone’s lips for weeks: it is the shortage of semiconductors. Deprived of this elementary brick of technology, our industry would be on the verge of suffocation.

Auto manufacturers were the first to sound the alarm bells. Due to supply difficulties, for some they expect sluggish profits over the next financial year, for others a sudden and lasting decrease in activity. GM, an icon of the Western auto industry, even closed three of its factories in March.

The result was predictable …

It did not take more for governments to take the bit to the teeth and in turn announce stimulus plans to promote their semiconductor industry. Curiously, each economic bloc hopes that its plan will transform it into a leader in the sector… and none seems to take into account the reality of this less homogeneous market than it seems.

Dumpers of billions for an industry that did not ask for so much

To say that every great power wants to secure its place in the sun at all costs would not be an exaggeration.

Joe Biden, taking advantage of the momentum of his start in office, passed by decree an ambitious envelope of $ 37 billion (or about € 30 billion) to “promote the construction of chips on the territory of the USA”. Taking advantage of the National Defense Authorization Act, the new president intends to make the United States more and more independent of Asia in a vision centered on North America that his predecessor would not have denied.

Behind this measure is, of course, the economic war that is brewing between Washington and Beijing. The Middle Empire is already the subject of an increasingly heavy technological embargo. After banning many Chinese companies from purchasing technology products made in USA, Washington now prevents the production of equivalent components based on Western technologies.

Some micro-processor founders, however based in Asia like TSMC, have even bowed to Washington’s blackmail and have stopped offering their services to Chinese blacklisted companies.

Technologically strangled by these retaliatory measures, the Middle Kingdom therefore cracked its own emergency plan. It is commensurate with the economic stakes since an envelope of $ 155 billion (€ 127 billion) was announced by Xi Jinping to allow the country to catch up in this responsible sector on its own, each year, moreover of $ 300 billion in imports for China.

And Europe, you will tell me?

It is, of course, no slouch when it comes to making vows of interventionism. Spurred on by Thierry Breton, the former head of Thomson, France Telecom, Atos and now European Commissioner in charge of the Internal Market and Digital Technology, the Old Continent is in turn rolling mechanics.

Noting that “advanced electronic chips are increasingly important for Europe’s digital sovereignty and its industrial strategy”, our national corporate rectifier has announced a major plan of 11 European countries to “establish advanced European capabilities in chip design and production”. It should have an envelope of up to € 145 billion.

France cannot, of course, miss an opportunity to speak louder than Europe. At the beginning of March, Bruno Le Maire spoke publicly to be moved by the European “vulnerability” and to call for the creation of a “European electronic components industry”.

All these well-intentioned leaders claim to settle, with tens or even hundreds of billions of euros, the hiccups of a sector that would do without it. The reason is that they ignore or pretend to ignore the way the global semiconductor industry operates.

When states mend what ain’t broke

All of these grand plans are justified by the state’s misguided diagnoses of the global electronics industry.

The first element curiously absent from the speeches is that the processor market is not homogeneous. The electronic chips are not identical and there is nothing to do between the micro-controller which manages the fuel injection of a car engine, a photo sensor, and the processor of a state-of-the-art smartphone.

In the same way that oil and natural gas, both carbon energies, are not equivalent and each obey their own supply / demand balance, semiconductors are not fungible.

If there is a recurring shortage of high-end chips, it is because microelectronics is in constant innovation and the production of the most advanced products is, at all times, severely limited by the performance of stammering technologies.

The selection is made by the solvency of customers, and mid-range manufacturers are constantly waiting for the democratization of previous generations before being able to obtain supplies at a good price.

Automakers are not pampered customers of chip makers for the same reasons. Negotiating prices at a discount, using mature (not to say obsolete) technologies that do not justify new R&D efforts, their orders are naturally not given priority during periods of tension.

In addition, if the loss of earnings for the automotive industry is colossal when the production lines stop, the activity offered to founders by these orders remains limited. A modern car costs around $ 300 worth of semiconductors, and up to $ 1,000 for a state-of-the-art electric vehicle.

With less than 65 million cars sold last year on the planet, the contribution to the results of chip producers remains very relative.

The reality is that manufacturers have made the double bet of ordering their components just in time to limit their need for working capital, and of pulling the rope on the price level. This bet turns out to be winning 90% of the time and losing in times of high tension like today.

Capitalism, thanks to profit and loss regulation, has feedback that is perfectly suited to this kind of situation. Companies that have made winning choices come out of periods of crisis enhanced, those that have taken reckless risks pay dearly, and shareholders draw the consequences.

Want to create ex nihilo a European production chain to spare car manufacturers a few months of discomfort will be counterproductive in the long term. Our brilliant strategists seem to have forgotten the failure of the Computing Plan of 1966, and that of the Component Plan of 1978. The same causes producing the same effects, let us expect yet another waste of public money.

The other supposedly liberal great powers are not free from inconsistency either.

Washington publicly bemoans the global processor shortage – but conveniently forgets that it has been moving heaven and earth since 2019 to prevent China from producing its own semiconductors. If it had not prevented the Middle Kingdom from creating a foundry industry, there is no doubt that Western companies – including American ones – could today easily source mid-range components.

Joe Biden, who shows no inclination to remove these distortions in international trade, has a nice game to claim to save with his billions of industries of which he contributes to stifle the potential suppliers.

In the end, it does not matter that the problems of the industry are either transitory, or even created by the very hands of the governments which claim to solve them. Isn’t the important thing to be able to trumpet that once again, the State is coming to the aid of its citizens?

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