Just Vulnerable to Technology

Diego Madeo

Written by Diego Madeo, Chief Executive Officer at Garnet Technology.

Understanding the issue of microchip shortages is not easy; all kinds of factors are adding to the conflict that affects not only the electronic security industry but also the rest of the industries, which do not seem to stop their demand for “electronic gold” due to the technological transformation they are undergoing. The semiconductor war is just beginning and nobody knows when it will end.

At the beginning of 2020, some problems began to arise, e-mails coming and going from the factory with suppliers and price increase announcements in supplies, plus new requirements in orders and requests with 12-month purchase forecasts. A serious problem was looming with semiconductors.

Soon, the increase in the price of other raw materials such as ferrous and non-ferrous metals, polymeric materials or chemicals is one of the additional threats to semiconductors, and to top it all off, as an old salesman used to say, let’s add to the combo the lack of containers, “yes, you heard right.” There are not enough containers to ship goods by sea! So far a good horror movie and I must confess, I don’t like them, they make me nervous, why don’t we move on to a good science fiction movie? They are my favorites.

When I started to look deeply into the issue of the microchip shortage, I clearly felt that I was living first hand that science fiction movie, maybe Terminator? where the future was among us with machines and technologies far superior to those we know today, some scenes came to my mind, and projecting the problem forward and taking in more and more information, I could feel that I was really in the future for a few moments, but it is already a reality, it is happening and it is the present, because technology has overtaken us and today everything, absolutely everything depends on the microchip industry that are manufactured by fully automated machines, difficult to understand from a functional point of view, they are installed in large fully robotized places, in environments clean of particles, some say 100 times more than an operating room, and with technologies that go beyond what an ordinary human being can know and understand with the naked eye. They are truly equipment worthy of filming scenes for an upcoming science fiction movie.

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These famous components have become the neuralgic axis of new trends, without neglecting the fact that security technology is evolving with new products and demands, undoubtedly, large quantities of semiconductors.

It all seems to have started with the pandemic that affects every corner of our planet worldwide, causing major production problems as a result of the significant increase in the demand for mass consumer electronics, a growing market for semiconductors for the automotive industry, a booming Internet of Things (IoT) market, large investments in the development of new products, where electronic security is no stranger, and many other reasons have emerged to justify the shortage and the increase in costs. But the most curious aspect lies in the conflict of geopolitical and economic interests that the great powers are disputing in order to dominate the supply of this precious commodity.

Leading companies in the microchip market.

To understand little by little this large “mixed salad”, there are three major groups of players in the market.

1) Those that design and manufacture their own semiconductors such as Intel, Samsung, SK Hynix, among others. Most of these companies are looking for vertical strategies, in order to get a competitive advantage over other companies.

2) Those that design, but do not manufacture, i.e. they send their own developments to third party manufacturers, such as Qualcomm, Broadcom and Nvidia, among other companies.

3) Finally, there are the famous “contract manufacturers”, which are those companies that manufacture what others design. And this is where a large part of the production occurs, as in the case of TSMC, Samsung and Global Foundries.

So far we understood the three categories of companies and their role in the market, but we must also know that the largest supplier is (TSMC) Taiwan Semiconductor Company, with a large market share and who is based in Taiwan, the main ally of the United States, is responsible for manufacturing microchips for Apple, Qualcomm, NVIDIA, Broadcom and AMD. But after new U.S. penalties, pushed by President Donald Trump to Huawei, TSMC stopped manufacturing microchips to that company. In addition, TSMC has yielded to U.S. pressure and plans to invest US$ 12 billion to open a factory in Arizona, capable of producing 5 nanometer microchips and is planned to start operations in 2024.

Note: We are currently in the 7 nanometer generation in the size of semiconductors, but it is expected that this year we will see 5 nanometer microchips, with the reduction in size increases energy efficiency, the smaller the number, the lower the power consumption and the better the performance.

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This has caused problems for Huawei, which, due to the rapid advancement of new microchip technologies, is unable to find another supplier with the same characteristics in the short term. Even so, Huawei has found a replacement for its Taiwanese supplier. A Chinese semiconductor company, but this company is working with 14nm microchips. And so I could continue to write hundreds of stories between powers that want to lead this technological race that will not stop, and as self-sufficiency takes time, it will not be an easy road.

But the interests of the United States do not disappear, decades ago it dominated the semiconductor production market and today it is only relegated to a very low percentage, 22% compared to the dominance of Asia, which accounts for 70%. We are now in a position to understand a little more about this famous salad and the interests of the major powers in dominating the “electronic gold”.

But who develops the manufacturing technology?

Just when you think the story ends, more and more data comes in from other companies that are in the middle of the crossfire, such as Veldhoven-based ASML Holding, a once unknown company whose market value today exceeds $285 billion. Formed in 1984 by electronics giant Philips and another toolmaker, Advanced Semiconductor Materials International (ASML) became an independent company and the largest supplier of equipment for manufacturing microchips using a process called lithography that repeatedly projects different patterns onto silicon wafers.

In 1997, ASML began studying a shift towards the use of extreme ultraviolet light, this light has ultra-small wavelengths that can create much smaller circuits than is possible with conventional lithography. The development process quickly went global. ASML now assembles the advanced machines using mirrors from Germany and hardware developed in San Diego. Today, with this technology, 100 million transistors are manufactured in 1 square millimeter.

For its manufacture, everything is housed in a gigantic clean room with a super-controlled environment to avoid any minimum contamination, even in the absence of people. It is definitely the most complex machine ever built in the history of humanity.

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Returning to the heart of the problem, who appears on the scene again? The Trump administration which successfully pushed the Dutch government to block shipments of such a machine to China in 2019, and the Biden administration has shown no signs of reversing that stance. Manufacturers cannot produce cutting-edge microchips without this technology, however, they rely on the Dutch firm ASML. China would need at least a decade to build its own similar equipment. “From China’s perspective, that’s somewhat frustrating.”

In addition, the U.S. has taken steps to block local companies that use U.S. know-how to do so, on the grounds that they also supply information to the Chinese military. Any action is valid with the aim of slowing down its rival’s progress. The current crisis will not only give China’s leaders reason to redouble their efforts but also expose the possibility of achieving another of their ambitions: unification with Taiwan.

China has a mixed economy system, where they apply communist planning with elements of the private economy, this model is clearly seen in the video systems companies Dahua and Hikvision, and this type of operation seeks its business model in agile, cheap, sustainable and constantly evolving technologies. Of course, on the other side of the bridge this may mean “breaking” their competitors, whose supplies and labor costs are much higher.


It will be difficult for Latin America to enter the semiconductor production industry in the short term. Even the great powers, as we saw earlier, have not resolved their future and the chess pieces continue to move at a dizzying pace. It is difficult to predict a certain future, but the reality is that our vulnerability is great and we could be left at the mercy of political conditioning and instability.

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The security industry has grown steadily every year, but in the last 10 years the use of micro-threaded electronics in the different products that have been launched on the market has increased the orders for semiconductors by manufacturers, while the price of these components for many years remained unchanged, the situation has changed and today is gradually moving to an increase in price to the final product that reaches the consumer.

The industry will also continue to face a number of new challenges this year that will make it difficult for semiconductor manufacturers to grow at the same pace as in the last two years. Challenges related to inventory management and increasing pressure to improve device architectures and reduce costs will slow the growth of companies that make products using semiconductors. In fact, it is already happening.

Somehow the future is among us, I just wonder, before we start watching Terminator again, is it reasonable for developing countries to try to jump on the microchip business bandwagon without government help, or can any Latin American country excel in the business based on private initiatives alone? Meanwhile, the companies that manufacture microchips, such as Garnet Technology, continue to grow, researching and developing technology to strengthen the security industry, seeking to provide solutions to the ever-increasing demands.

Diego Madeo. CEO at Garnet Technology.