From Silicon to Systems: Redefining Competitive Advantage-Part 2

In today's episode, Advantest's Dong Ong sits down with Salah Nasri, CEO & Co-Founder of ISIG  (International Semiconductor Industry Group), to discuss how the semiconductor industry is redefining competitive advantage. ‪@SemiconductorLeadershipPodcast‬

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Transcript

From Efficiency To Resilience

SPEAKER_00 0:00

So, Sala, the semiconductor industry has historically optimized for efficiency and specialization. Do you think the industry is now entering an era where resilience becomes equally important? Without a doubt. Yeah. Without a doubt. I think if you if you this is my uh shameless uh input that I'm gonna put in here, Don, if you read my book, The Game of Chips, um, it's a get it's a poker game, right? Um these are the times where uh people are either gonna raise, they're gonna double down, or they might end up folding, right? And if you look at it from that type of standpoint of view, you will realize that resilience is defined from a national sovereign point of view based on who holds the best cards, right? And you know, some countries, the country that, yeah, the countries that have the royal flush per se, the best of cards, and that basically covers all the areas, whether you talk about EDA, whether you talk about equipment, whether you talk about foundry, fab, you know, design, at the end of the day, even end user, they'll have the best negotiation uh spots on a geopolitical standpoint of view, without a doubt, because that is the forte of semiconductor manufacturing. Um, you know, uh, you mentioned that the semiconductor industry is often described as uh highly interdependent, right? Um I think this is without a doubt a perspective whereby any nation that wants to have strength on the negotiation table, if you have a solid semiconductor ecosystem, your negotiation perspective is much more powerful than someone who doesn't have an ecosystem in place. You know, if we look at just just look at what happened in the COVID time, right? Not that long a long time ago, right? You know, thing if things went standstill at one point, right? Um and um that just shows you the immense requirement or the immense need for semiconductor manufacturing, no matter where it is. Um, so this is fundamental without a doubt.

Self-Sufficiency Versus Smart Exposure

SPEAKER_00 2:35

And to that, we're alluding to uh no self-sufficiency is uh is a common term that comes up quite a lot. Uh so do you think self-sufficiency in semiconductor is realistically achievable for any country or any region today? Depends on how you frame it, you know. Uh yeah uh I mean, Don, look at the end of it as a vulnerability, uh you know, self-sufficiency in a lot of industry conversations that come into play. And I, you know, it's very obvious for anybody to understand why. You know, that the last few years have been pretty instructive on the front, but I think that framing it in certain ways misses something important. And the truth is that self-sufficiency is also the source of enormous collective capability. No single country or company could produce a leading edge chip alone. The knowledge, like I said, the equipment, the materials, the talent are generally distributed across the globe, period. And that's not a uh uh a bug in the system, Done. In many ways, it's what you know makes the system so capable. So the strategic question isn't how to eliminate interdependence. Um, that's probably not achievable, and the cost of trying is ridiculous as well. So the real question is how to manage your exposure within it. You know, that means understanding which dependencies are acceptable, which represent critical risks, and where do you need either redundancy or deeper partnership to protect continuity? That is the strategic outlook that needs to be done. You know, as we talk about interdependency, the need to work together, and we'll also talk about the challenges, uncertainty right now. Um,

How Disruptions Reprice Risk

SPEAKER_00 4:40

so as uncertainty increases globally, uh how are semiconductor companies changing the way they think about investments, expansion, and ecosystem positioning? Do you do you see anything from there? Oh, we will mean without a doubt. I mean, you know, uh the the last few the last few years is the best example one needs done. You know, the last few years have been a masterclass in this tension. You know, the the semiconductor supply chain was, as you mentioned, optimized over decades for efficiency. What does that mean? You know, lean inventory, geographic concentration, even logistics, just in time delivery plays a massive role. And it worked beautiful in stable conditions. Um, what one needs to consider the the equation to that is that it generated real sustained cost advantages. You know, what it couldn't survive at the end of the day was distress associated. So if we consider what happened in uh what was it, 2020, early 2024, I think Q Q1 or Q2 2024, when an earthquake in Taiwan forced TSMC to halt production for up to 15 hours. 15 hours, and manufacturing a single advanced chip involves over 1,000 processing steps, and that's across a 70 to 90 day cycle. So, and then ad on top of that, with specialized knowledge concentrated amongst fewer than 50,000 engineers globally, any disruption will mess up the game, period. So the recalibration happening now is essentially the industry repricing resilience. You know, companies are accepting higher costs, dual sourcing, buffer inventory, geographic diversification. We're seeing this happen. And in this is in exchange, Done, for reduced exposure to single points of failure, right? The the uh if I look at from a government standpoint, I mean, you can we pick we can let's pick the US, for example, the Chipsack, $52 billion investment. Yeah, this was essentially a government-level version of that same calculation. But the challenge is that resilience is expensive and its value is largely invisible until something goes wrong. We dive a lot about resilience, you know, and I like to take a different step at it. So, as you know, we we tip we keep talking about resilience, we talk about it's interconnected, so you need partnerships and alliances.

Partnerships And Government Pressure

SPEAKER_00 7:30

So, and that's more important than ever. And in your view, in what separates strategic partnerships that create long-term value from those that are merely transactional? What you're seeing today is a genuine um divergence in strategy. And anybody that's on the sideline, they're finding it fascinating to watch this in real time. So, what you're seeing is that some companies are doubling down on specialization, they're becoming the absolute best in one layer of the value chain, and then building an ecosystem leverage from that position. Um, others out there are pursuing selective vertical integration, particularly around capabilities they view as kind of strategically sensitive, or where they've identified dependencies they need to own. And then, as I mentioned early on, is an area that we cannot take for granted, especially in this semiconductor world that we're in, Don, is that there's the geopolitical dimension, and this is genuinely new. So governments are, you know, Don, at the end of the day, look, governments are essentially becoming active participants in the supply chain strategy. We can see this where you are right now in Singapore, for example, through incentives, for example. Um, in the US, for example, export controls and industrial policy as well. Um, I mean, I have to always pick up the big elephant in the room is TSMC, for instance. You know, they've had to establish advanced fabs across 12 countries, you know, and at the end of the day, they're absorbing significant cost and timeline pressures, and that's precisely because the geopolitical calculus has changed. So companies today have to factor all of that into the long horizon investment decisions that they do, and that's uh uh a genuinely a different kind of complexity from what the industry was navigating just five years ago, don't we differ?

How Regions Choose Their Entry Point

SPEAKER_00 9:56

Yeah, dude, different world today. Uh the interesting thing would be because you know you interact with the the executive leaders and uh that operates in so many different regions, different countries. And we have specialized players that like you just mentioned, TSMC open up 12 fabs in different countries, different regions. So across all these regions, are you seeing different regions approaching resilience and strategic positioning differently? Because we do have the same players that try to do things in in different regions. So, but I are the different regions, the country players, the strategy, when they look at resilience, is that different? This is a very good uh great question, Don. Um, I think every country has its uh that's you know, once some presence is um definitely got this in their roadmap. Um, what's interesting, and you know, this is making me uh giggle a little bit, is the ones who messed up. So the ones who messed up in the semiconductor ecosystem and were too late in the game, they're all jumping on quantum computing or quantum. You know, so so so the ones that that mess up, the ones who have had the head start, for example, um have everything in place. If we pick up you know any of the countries, Taiwan, China, America, Europe, for example, you know, they have their essence in place. Um, in the Middle East, you're seeing a lot of design houses coming into this region because you know it's too capex heavy to you know build a fab at the end of the day. Um, so it's a challenge on this side of the world, for example. Um, other countries around the world are trying to find the easiest entry uh point, which is for them will be the design perspective, right? Um, so they're going into that side of things. Um, from uh a fabrication ecosystem point of view, well, we're talking about equipment, material, and and and the fabs. Um I think any country that hasn't had a fundamental presence in semiconductor manufacturing is too late for them to get in. So the ones that have this presence in place, it only makes sense to double down. Um it only makes sense to double down. Because the moat, I mean it you in, I mean, I wouldn't say the most the wrong word to use in this or wrong phrase, but the the entry, the entry point is uh very pricey, right? And it's not only money at the end of the day, Don, it's also talent, you know, to find the best talent, to get the right talent in place. I mean, this is decades of uh implementation in place, you know. This is uh uh uh uh uh uh an educational front, an educational fortress that needs to be put into place, right? Um, and from that, that fulfills the rest of uh the ecosystem to come after. So um, you know, that the it's from from my perspective, any country that wants to get into the semiconductor ecosystem, they want to get into the manufacturing ecosystem side, and I'm referring to equipment to fab side of things, too late in the game. Way too late. Um, so for them it makes sense to focus on either design or from an end application point of view where they can use those chips in-house. As we approach the end of episode two, I have to ask this question. So we just talk about different regions are different, uh, there's challenges, uh, and then different countries have to figure out how to survive initially. This play in different roles and different specializations. So, but the interdependence is too, it still has to happen.

Trust Building In A Fragmented World

SPEAKER_00 14:02

So, how can companies persevere collaboration and innovation while navigating a very or increasingly fragmented world today? Trust, trust partnership. This is uh the semiconductor community is um just like the ecosystem itself, is not an easy industry to break into, right? It is um yeah, I call it the mafia, right? Only select people are allowed inside this community. Um, and uh relationships matter. Relationships matter, you know. This is a a people's game, the semiconductor ecosystem, right? You know, why? I mean, look, for example, here in the GCC, they have enough cash, man, right? They have enough cash to make things happen, right? But semiconductors is in a plug-and-play system. You need the right talent, and you need the the talent that's been there that has mastered for decades to be into play, right? Um I like to use the the the analogy of the the engineer in the subfab, for example, right? There's a special person in there who has 30 years of experience who can do a certain notch on a HVAC tool, for example. Nobody else can do that, except for that person, because they're specializing it. It's multiple years, you know, he has a special technique, tactic to do, right? Um, I think from that standpoint of view, even if it's uh uh you know, our industry is fragmented in different areas, as you mentioned, but um the relationships are much more dearer, longer, and deeper. And they need to be solidified by regular meetups. You know, that's why we're in the business, that's why we survive as a business at the end of the day, because that's what we push for. That's our mission, is to bring leaders to share ideas in a trusted network, and we build that trusted network over time. It's not something that happens over one meetup, it's a consistent meetup on a global basis. Um, so without a doubt, it's one word. Well, one word with a hyphen in the middle trust building. I like that. I like that a lot. Trust is important. So we the ecosystem can continue to work, especially in an interdependence world. Correct. Yep.