SiliconExpert Podcast Episode 11 with Patrick Wilson Mediatek Part 2 - Transcription
Host: Eric Singer
Producer/Director: George Karalias
[00:00:00] Patrick: A brand new green field auto plant in a new place, like what Intel is doing in Ohio. Think about how excited everybody in the political class, everybody in America would be like, oh my God, we want to brand new auto plant. That's about $4.5 billion or 25% of what Intel just announced. So it's like getting four or five of those in one place that the capital intensity is just staggering.
[00:00:26] And it's actually so hard to explain to people the scale of what we're talking about, where one machine costs a hundred million dollars. It's just a lot.
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[00:01:10] Welcome to part two of our conversation with Patrick Wilson. In this episode, we'll focus on the history, the current status and his outlook on the prospects of the CHIPS for America act, as it makes its way through the U S legislative system. CHIPS in this case stands for creating helpful incentives to produce semiconductors for America act.
[00:01:32] The bill establishes investments and incentives to support U.S. Semiconductor, manufacturing, research, and development and supply chain security. Patrick where we left off the conversation last time we were talking about the recent interest and awareness of this, thanks to a few well-timed crises and, uh, you know, decades of work from people like you shouting into the void, uh, about the need for something like this on a federal level.
[00:02:02] Patrick: Sure. And again, you teed that up really well. So because of this incredible focus on the semiconductor industry and full disclosure, when I was at the commerce department for two years, I was a senior advisor to secretary Wilbur Ross and the office of the secretary. And obviously having the semiconductor background, we really early on, along with our other colleagues. We raised the issue that we have to do something to get in the game because all our states are competing with these jurisdictions around the world to win semiconductor investments. And right now the us has no parallel federal incentive. So if a company like MediaTek is like, should I invest in Ireland or in Singapore or in India or in Taiwan?
[00:02:42] All those other jurisdictions say, Hey, come, we'll give you this. We'll make concessions on water and sewer and real estate taxes and other things. And you're talking to one entity. The federal government of that country is making those incentives. But unfortunately our governors and mayors, when they want to attract a semiconductor investment, they have to do it all themselves with no support from the federal government. And that disparity is how we explained to the senior leaders, like you're not going to win any of these fab investments if you don't get in the game because everybody else has a much more attractive package. And so the CHIPS act was born of a desire to create a new federal incentive for people to choose us, to choose the United States as a place to invest.
[00:03:30] And so what the CHIPS act would do, it's really three pieces. It would create a new federal grant program administered by the department of commerce that would provide a cash incentive to companies, semiconductor companies who want to build new manufacturing plants, like the ones announced by TSMC, Samsung, and Intel, and that would drive down the cost of building in the U.S. versus almost anywhere else in the world, which is still much, much cheaper. The second thing it would do is it make a huge commitment to research and development. So it's a big cash infusion to America's research enterprise around semiconductor manufacturing, and design to do two things, one to solve material science problems and other thorny issues about what's next for Moore's Law.
[00:04:14] But it would also do a lot to stimulate more students to pursue degrees, double E's. And beyond that really drive the innovation ecosystem in the United States. You've got to have that. And the last part of the equation is also as related to the CHIPS act. And that's the third part, which is that incentive part, a thing called the fabs act, which you may find it odd that a guy from a fabless company is talking about a tax incentive for fabs.
[00:04:40] That is a third part of the whole overall package, right? To make this an attractive place to invest the tax delta in the U S for these companies is just really high. And it's just, it's a, it's a flipping the switch a bit because you have to get any members of Congress or senators, or even cabinet secretaries who have never been a governor or a mayor.
[00:05:02] They've never had to compete globally for investment. And so they don't think of that. Hey, you're on the sell side. A lot of these politicians think, oh, I'm big, fancy America on the buy-side we buy stuff and we're big, you buy things. And it's very uncomfortable to explain to them that actually sir, maam, you are on the sell side.
[00:05:23] You need to attract capital here. I often use the analogy for telling, because army officers think like this, right? What is your tam for success. What is your goal? And the goal is how much capital has the semiconductor industry, uh, created through profits right in the last year or five years or whatever number you want to look at and say, you know of that, let's say over the last three years, the total industry has generated three hundred billion dollars. They've already said, they're going to give most of that, like 40% of it to their shareholders. They'll give another 25% to their employees in bonuses and incentives who sometimes are also shareholders, but the remainder is all this capital that's being accumulated. That's going to be invested somewhere and that's the global jump ball.
[00:06:06] That we're in the middle of right now on the big global risk board of where to put your money, where to place your bets on the semiconductor table. What we want to do is drive some of that capital more than our fair share, but at least our fair share into the U S market. And that is what a lot of politicians have to figure out is that you need to figure out how do you get that capital that's obviously being accumulated. How do you get that deployed here? What's your share of that? Cause the Singaporeans want it and the Taiwanese want it, and the Chinese want it and the Europeans want it and the Japanese want it. Correct. So what's your play and when you put it to them that way, they're like, oh wow.
[00:06:45] Okay. Gosh. Yeah. I see what you mean. Like that capital isn't mythical. It exists. It is in the bank. It is very real. And so that's why these announcements are so huge. Like the one from Intel, right? To say, not only are we gonna invest in the U S we're going to do it in a greenfield state that we've never been in before.
[00:07:05] Just the significance of a decision like that is just unbelievable. And likewise TSMC, our close partner and ally doing the same thing in Arizona saying, hey, this $20 billion investment could be 60 over five or 10 years. It's just, it's a staggering number, but it has real global consequences too, because it could go somewhere else.
[00:07:25] So if we win a few of those and just between Samsung, TSMC and Intel together, you're looking at 65 or $70 billion. And again, going back to my whiteboard analogy, if you look at the amount of money that's left, based on what I said, and you're looking at a hundred, 125, $130 billion in profits over the last three years, we just got about 70 billion of it by leveraged the U.S.
[00:07:47] Eric: A hundred billion here a hundred billion there pretty soon. You're talking about real money.
[00:07:51] Patrick: Yeah, exactly. And to your listeners again, who haven't thought of it this way, remember how going back to your, an auto analogy, a brand new greenfield auto plant, right? In a new place. Like what Intel's doing in Ohio. Think about how excited everybody in the political class, everybody in America would be like, oh my God, we want to brand new auto plant.
[00:08:09] That's about $4.5 billion. Or 25% of what Intel just announced. So it's like getting four or five of those in one place. The capital intensity is just staggering and it's actually so hard to explain to people the scale of what we're talking about, where one machine costs a hundred million dollars.
[00:08:30] It's just a lot.
[00:08:31] Eric: What's your outlook for the fabs act in terms of when we'll see real consideration of it. And when you think it might actually hit the streets, if it does indeed pass,
[00:08:42] Patrick: oh gosh, you've called my bluff. Now. You're like, well, you sound great, but this is actually going to happen.
[00:08:47] Eric: I assure you if anyone's bluffing here, it's me.
[00:08:51] Patrick: I mean, I think the answer is our system is really broken right now. It's very hard to find a consensus, even though I'd say. Everybody agrees that passing the CHIPS act and passing the fabs act are really important to America's national security for its economic leadership. But our system is just really broken, right?
[00:09:11] The Senate is paralyzed in a deadlock of 49 to 49. The house is equally as a tiny majority, but it's very partisan. These two wings of both parties are very aggressive and there's very little political support for compromise. Everybody's like a compromise means I get 90% of what I want. In reality, that doesn't exist.
[00:09:29] If you've been on a PTA board, or if you've been on like the community board of any kind, your condo board or something like you don't get 90% of what you want, that doesn't exist. But unfortunately, our fake politics where we are right now, people are like, gosh, you had settled for only 80%. You're a squish or you're a sellout.
[00:09:47] You're a loser. Yeah, exactly. You're like, well, actually 55% in my business experience is a huge win. It's a huge win, but you know where our politics is right now. We, we don't get that. And that's something that, unfortunately the compelling case for the CHIPS act and the fabs act is not enough to overcome that tremendous brokenness.
[00:10:08] And so I would say I'm cautiously optimistic that at some point between now and maybe Memorial Day. We have a real shot at a once in a generation fundamental rewrite of the story of America's technology leadership. It is teed up a bill that contains these two. These two important provisions has passed both the house and the Senate an extraordinary moment.
[00:10:32] All we need to do is conference it. Find something majority in both houses can live with and get it to the president's desk. It sounds simple. If are following at home from your con your, how a bill becomes a law, it theoretically is easy. And the very small number of bills that pass both chambers is incredibly small and rare, but we still have to get it done.
[00:10:53] And so our goal of people like me and. Business executives and people who really care about America's chip leadership, you really have to hope, right? That we find a way to find a compromise that can get it done and not lose all this momentum.
[00:11:07] Eric: It feels like there, there couldn't be something that was less partisan than this.
[00:11:14] I can't imagine that the challenges here are based on a political divide in terms of the actual issues at hand here.
[00:11:23] Patrick: Well, yes and no. I would say. Because of the unique nature of the national security challenges around chip manufacturing. A lot of this has been caught up in a U S China competition, right?
[00:11:35] In fact, the bill that passed the Senate, which was originally called endless frontiers, but then later was renamed again to the U S innovation and competitiveness act. You seek that debate to get Republicans and Democrats to agree to pass with that big majority, it really became a, we have to do this to combat.
[00:11:52] And it took on a very national security focus. So that was good, but obviously anything involving China and bilateral relations and trade, those are third rails really of politics right now. Everybody has a position. It is, and it's, there is actually a lot of consensus about the threat from China. But the challenge though, is there's so much reality, right?
[00:12:14] China's a really important and critical trade partner of the United States. They're not only a huge supplier of goods and services to the U S but they're a huge market for ours as well. And the semiconductor industry is a great example, right? We that's the leading buyer of semiconductors in the world too.
[00:12:28] And so these complexities don't fit very well into the kind of reactionary politics, China bad, which is the very simplified view of these topics. And the public, they're accustomed to bright lines, right? And a lot of this us China relationship is actually gray and doesn't lend itself very well to good politics.
[00:12:49] And unfortunately I think the house because of the nature of the house and had the democratic majority of the speaker tried really hard to get a bill. That would pass the house with the full support of her caucus, but did not make any serious effort to do a bi-partisan bill in the house, unfortunately.
[00:13:07] And that's just a style difference. She decided to do it all democratic bill and the Senate, of course, by its nature made a very bipartisan bill. And that's what we're left with is trying to combine a very highly partisan house version with a much more bipartisan Senate version. And that's a lot of work.
[00:13:24] All of these conversations, every little place where the language is different, that requires the conference and a lot of mutual conversations with different stakeholders about how to resolve the differences. And so people are looking at it in the saying, when we see the overlap between the two bills, that's the good part. The Chips Act part, which is not controversial, which you already pointed out, but there's a whole bunch of other stuff that are very controversial that will have to be resolved.
[00:13:50] Eric: And do many of those things come down to just how exactly we're going to spend this money where we're going to invest, how big the tax credits are, that sort of thing, or is it,
[00:14:00] Patrick: I wish it was, as you already said, those are the things people seem to agree about.
[00:14:05] Republicans and Democrats are like, Yes. Let's talk about research for chips and lots of funding and attracting foreign direct investment. And all that's very popular. Some of the other issues are much more contentious, right? About how we deal with China, how we treat export controls, economic relationship issues. That's the ironic thing is the one thing that has been consistent through the whole process is the official Chinese government position is they hate the house bill and they hate the Senate bill.
[00:14:31] So I would have thought that would have created consensus, but unfortunately it did not, but for different reasons, but there are most of the things that are contained in the house bill that were objectionable to Republicans and other things, most of those could have been cured, I think. And you'll forgive me from making a overtly political criticism.
[00:14:53] But there was no effort made. It's not like they tried to resolve the differences with Republicans in the house and they like worked out a compromise language to get it. They just didn't try that for what if for whatever reason, you know, we wish that they would have, but it is what it is. And we're out there every day.
[00:15:09] I do about maybe 15 to 20 Hill meetings a week. Zoom calls every day with Hill staff. And members of Congress to explain the benefits of the bill, why it needs to happen. And that's very counterintuitive of folks, because I tell them you're a foreign headquartered chip company and you don't own fabs, why do you care about this?
[00:15:29] And it's really fun to remind them that our whole ecosystem depends on this Foundry capacity. Right now, there is no leading edge Foundry capacity in the U S
[00:15:38] Eric: which is mind blowing and terrifying when. You think about what ground we've lost people talk about. How does, how will the U S keep its lead in the semiconductor industry?
[00:15:52] Keep its lead. How about, how about try to catch up?
[00:15:57] Patrick: Yeah, cause on the fabless side rather than the design side where without peer. United States is the unrivaled leader in chip design. The problem is that our shareholders are different. If you're like, I'm lucky, like we're listed on the Taiwan stock exchange, but I think investors in Taiwan are a little more comfortable with long-term plays, letting things play out over time.
[00:16:17] Our investors are looking at what happens to this quarter, right. And these huge capital outlays. For manufacturing have just never, when somebody else is exclusively focusing on that, which is what TSMC did, which was to build the pure play Foundry model. It made it very hard for these other companies.
[00:16:34] The other very well-known names that you guys, probably your listeners work for. They just decided to focus on design and keep their legacy fabs, and they keep them updated, but they would let the leading edge go somewhere else. And that undoubtedly meant elsewhere where capital deployment, as I already alluded to in this conversation capital deployment just looked like a better bet in these other places
[00:16:56] Eric: We're not incentivized to.
[00:16:58] Patrick: Yeah. And it wasn't so long ago where whenever I raised these issues and I have been talking about this issue since 2005 and usually politicians would just say, the market will sort that out.
[00:17:09] Right. But the capital is just going to go to the place with the best return. And I was like, you're right. Congressmen. I totally agree with you. The bad news is, have you checked the numbers? Because we ain't got a good story on that. We have lots of lawyers we've cared a lot more about this year than we care about engineers.
[00:17:28] Just the truth. We did. We have a lot more lawyers in Congress than engineers, and it turns out that deploying a dollar somewhere else, whether it's Ireland or Singapore or China, it goes a lot farther. All right. Other places. And we're lucky we have a great ideological property system. We have a fabulous university system.
[00:17:45] We have the most brilliant engineers and people, the most brilliant people in the world from all over the world, come here to build their careers. We're so lucky on that, but as a place to deploy capital, we have really fallen behind. And that's why the manufacturing piece has really been lost.
[00:17:59] Eric: So Patrick looking forward, what's your outlook in terms of a timeline for reconciliation on this legislation?
[00:18:10] When do you think we might see some action and hopefully passage of this bill?
[00:18:15] Patrick: As I already alluded to right there, the goal is because this is an election year, right? There's a clear, critical election November. I think that the window to get this done is between now and basically Memorial day for the house and the Senate to get the conference together, to iron out the differences and bring a bill back that again, we'll eventually have to pass both Houses in Congress again before going to the president.
[00:18:37] So my, my, I guess my hope would be check back with me in late may or June, and hopefully all the hard work that has to happen will be resolved and we'll have something to celebrate. We'll have actual language to look at. And we'll have some opportunity to celebrate a really big accomplishment for the industry.
[00:18:57] Eric: How's that for a cliffhanger we're inviting Patrick back for another episode, updating us on the outcome from Capitol hill, whatever it may be. So make sure to sign up for our email list so we can tell you when that episode will air and to receive updates on other upcoming episodes and the opportunity to provide your input on future topics.
[00:19:18] Go to SiliconExpert.com/podcast to sign up, I'd like to thank Patrick again, and also thank MediaTek for sponsoring this episode of the Intelligent Engine podcast, and a special thanks to you, our audience for tuning in. Until next time, keep the data flowing.
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