The elephants in the room at Computex

This year's Computex, the first since Taiwan eased pandemic-related travel restrictions, was a celebration of the world's computing and chip industries. But amid the exhibitions, speeches and product announcements, like Jensen Huang's packed Nvidia keynote (just a day before the company hit a trillion dollar valuation), several topics were barely hinted at, at least publicly. The fact of the matter is, that amid issues like geopolitical tensions and AI-induced chip shortages, the semiconductor industry is in a lot of turmoil. Here are some of the things left mostly unsaid at Computex.

1. Geopolitics making life more complicated for chipmakers

As relationships between the U.S. and Chinese governments continue to get frostier, things are getting messy in the semiconductor industry. The two countries' ongoing war over the chip industry will have an increasing impact on how semiconductor supply chains are managed, especially for superchips required in generative AI and other high-powered computing tasks.

Last October, the U.S. passed new exports laws requiring U.S. chip makers to get a license from the Commerce Department before exporting advanced chips, including ones used in AI, and chip-making equipment to China. The U.S., Japan and the Netherlands also reached an agreement to stop exports of chip manufacturing tools to China. Companies caught up in the new restrictions included Nvidia, which was restricted from selling A100 and H100 GPUs to China, costing it up to $400 million. Both chips are used for training large language models like OpenAI's GPT-4. In response, Nvidia made a slower chip for sale to China.

In its turn, China opened a probe into American memory chip maker Micron over cybersecurity concerns before banning sales of some chips. The ban could have benefited Micron competitors in China like Samsung Electronics and SK Hynix, but the U.S. reportedly asked South Korea not to fill China's market gap if Micron got banned. That's all happened over the past half year, and it's not over-the-top to expect the U.S.-China tit-for-tat will have a dramatic, worldwide impact on the semiconductor industry in the coming months.

The world's biggest chipmaker with 59% global market share, TSMC, is based in Taiwan and while it might not have to contend with the same sanctions that American companies do, many of its biggest customers are in China. As a result, TSMC has reportedly been hedging its bets. According to a Bloomberg report published shortly after the U.S. issued its sanctions, TSMC suspended production of advanced chips for Chinese startup Biren to make sure it complies with U.S. regulations.

TSMC, like all other Taiwanese semiconductor companies, are also dealing with Taiwan-China relations. TSMC has built foundries in the U.S. and Japan, but most of its production is still in Taiwan, which leaves open questions about what will happen to its chips, which much of the world's tech companies rely on, if Taiwan-China relations continue to escalate.

2. How TSMC's work culture will translate

TSMC plans to spend $40 billion on its two Arizona fabs, which make advanced chips. TSMC founder Morris Chang has stated that Taiwan's work culture is one of the reasons it boosts the world's top semiconductor companies. As an example, he said TSMC's around-the-clock on-call practices mean if a piece of equipment breaks down at 1AM, it will be fixed within an hour, as opposed to 9AM in the U.S. But the intensity of TSMC's labor practices have come under examination, including in a report earlier this month by the New York Times that found it and other companies with a similar work culture face high turnover, despite the prestige of working for them.

With the opening of TSMC's first foundry in Arizona, it may also be finding its way into a cultural clash. The EE Times interviewed a principal engineer in the U.S. who said, "more or less, the culture needs to changed, but the overall work environment and requirements have been established in Taiwan for a long time. So this will be transplanted to TSMC Arizona. Some small modifications should make it more acceptable, but the American engineers will need to adapt to the work environment and this kind of culture."

3. Talent shortages

Employee attrition and lack of talent in general has the potential to be a big headache for semiconductor companies around the world as the industry's growth is expected to outstrip the increase in skilled workers. In a recent report, Deloitte estimated that more than one million additional workers will be needed globally by 2030, or more than 100,000 annually. In the U.S., there are less than 100,000 graduate students enrolled in electrical engineering and computer science, and the U.S. semiconductor industry could face a shortage of about 70,000 to 90,000 workers soon. Unless something changes, this means the CHIPS Act's attempt to turn the U.S. into a semiconductor powerhouse might simply lack the necessary manpower.

4. AI chip shortages

Human talent isn't the only thing in short supply. Generative AI computing runs on chips, mostly GPUs made by Nvidia, but those are getting increasingly scarce. Microsoft is reportedly facing an internal shortage of the server hardware it needs to run its AI, and according to the WSJ, OpenAI CEO Sam Altman said during a May 16 Congressional hearing that it would be better if less people used ChatGPT because of the processor bottleneck. Some servers manufacturers and direct customers told the WSJ that they are waiting more than 6 months to get Nvidia's latest GPUs. DigiTimes reported earlier this month that Nvidia has placed more orders for chips that need TSMC's chip on wafer on substrate (CoWoS) packaging in a bid to ease the bottleneck. The chip shortage may be causing huge amounts of stress for generative AI companies and startups, but it's one of the reasons Nvidia stock has soared to a trillion dollar valuation.

Meanwhile, startups and large companies like Intel and NTT are working on alternatives like photonic chips. As my colleague Kyle Wiggers reports, photonic chips use light to send signals instead of electricity like conventional processors. In theory, this means higher training performance because light produces less heat than electricity, can travel faster and is less susceptible to changes in temperature and electromagnetic fields. But there are several catches. For one thing, photonic chips are larger and difficult to mass produce, and their architectures still rely on electronic control bottlenecks, which can create bottlenecks. Secondly, they require a lot of power to convert data into a format the chips can work with. And finally, signal regeneration, or the process of regenerating optical signals degraded during transmission through photonic chips, means signals can become distorted over time. As a result, it maybe years before photonic tech becomes mainstream (even with photonic AI startups like Lightmatter getting big chunks of funding), and in the meantime, generative AI companies will continue to hustle for GPUs.

It's important to note, however, that there is talk that the AI bubble may burst at some point, especially if regulators become more cautious and start to take action. The chip industry over-produced during the pandemic in response to shortages, and as a result there is now a surplus of memory chips.

5. The Taiwan drought's impact on chip supplies

With the rainy weather in Taipei this past week, it might be hard for Computex visitors from out of town to believe, but Taiwan is undergoing yet another drought. The previous one in 2021 had a negative impact on the country's semiconductor manufacturing because producing chips takes a huge amount of water. TSMC, for example, uses more than 150,000 tons per day. During the last drought, it relied on truckloads of water to continue making chips.

This time around, TSMC is prepared, not only with rented water tanks but also new wells. It told Nikkei Asia that it "has contingency plans for different water restriction stages and works with the government and private organizations to save water and develop water resources." It has also enacted water conservation measures at its facilities in the Southern Taiwan Science Park, including reducing water consumption and recycling wastewater.