Nov. 19, 2021 12:12 AM ET
Summary
- In commentary provided to the U.S. Department of Commerce, Infineon suggested that the semiconductor industry should create a platform for anonymous sharing of demand data.
- This is, of course, something Palantir specializes in. Palantir has already built robust capabilities for both the handling of complex supply chain data and the sharing of sensitive data.
- This suggestion matches a broader U.S. Government objective to drive greater collaboration in the semiconductor industry. Such a platform could be an important first step.
- We are going to jump in at an intermediate level here.
A crash course on Palantir (NYSE:PLTR) or the semiconductor industry can be found in previous articles here and here.
Introduction: The Chip Shortage
It’s no secret at this point that a shortage of semiconductors, chips that make up the central nervous system of the modern economy, has created a minor crisis. In the auto industry alone, the effects of this shortage have ranged from BMW pulling features from cars to Ford halting production on certain models. Any gaming enthusiast who has tried to purchase a graphics card from Nvidia (NVDA) in the last year understands their pain.
This crisis has been exacerbated by the fact that Intel (INTC), which once unequivocally dominated the industry with the help of Microsoft (MSFT), has fallen significantly behind TSMC (TSM) and Samsung (OTC:SSNLF) in semiconductor manufacturing technology. This has created a new competitive dynamic where Intel’s competitors are able to leverage this manufacturing technology, leveling the industry playing fall.
The result has been a disaster for Intel, but a windfall for TSMC and customers such as Nvidia, Apple (AAPL), and AMD (AMD). Taiwan’s TSMC is now the world’s 8th most valuable publicly traded company, trailing just behind Nvidia. Apple is #1. As this symbiotic relationship between manufacturer and designer strengthens, the resulting more powerful chips increase demand as new capabilities become within reach, further compounding the problems.
The cold war has ended, but a more intense economic war has begun. In this new war, a country’s firepower will be determined by the level of its technology.
-Lee Kun-hee, Samsung Chairman, ‘1993 ‘Frankfurt Declaration‘
This has prompted calls for government intervention. If ‘data is the new oil’, then semiconductors are the refineries. This crisis stretches into a geopolitical dimension, as the U.S. and China compete technologically. Should China invade Taiwan, a strategic priority for the CCP, they would take control of TSMC and capture the world’s most advanced manufacturing technology in the process.
Government Intervention
Behind the headlines, an important development has taken place. In response to the crisis, the U.S. Department of Commerce requested that industry firms voluntarily submit data that would give the DoC deep insight into the industry supply chain. This request not only solicited data from U.S. firms, but TSMC and Samsung as well, the world’s largest fabs. TSMC was heavily pressured by the CCP not to comply.
DoC head Gina Raimondo threatened to invoke the Defense Production Act if industry firms did not respond.
While most of this data will be kept in confidence by the Department of Commerce, some commentary was aptly made public. Intel, which has begged the government for a bailout while raising its dividend (and then threatening to open up a new facility in China), received scathing criticism:
Among the SIA corporate signatories of a letter to President Biden in February 2021, the five largest stock repurchasers—Intel, IBM, Qualcomm, Texas Instruments, and Broadcom—did a combined $249 billion in buybacks over the decade 2011-2020, equal to 71 percent of their profits and almost five times the subsidies over the next decade for which the SIA is lobbying. In addition, among the members of the Semiconductors in America Coalition (SIAC), formed specifically in May 2021 to lobby Congress for the passage of the CHIPS for America Act, are Apple, Microsoft, Cisco, and Google. These firms spent a combined $633 billion on buybacks during 2011-2020. That is about 12 times the government subsidies provided under the CHIPS for America Act to support semiconductor fabrication in the United States in the upcoming decade.
…
On June 8, 2021, the Senate approved $52 billion for the CHIPS for America Act, dedicated to supporting the U.S. semiconductor industry over the next decade. But this request for major new public funds is paradoxical, almost self-defeating from a public interest standpoint. As we document in this Working Paper, most of the SIA corporate members now lobbying for the CHIPS for America Act have squandered the support that the U.S. semiconductor industry has received from the U.S. government for decades by using their corporate cash to do buybacks for the purpose of boosting their own companies’ stock prices.
–Institute for New Economic Thinking (working paper here)
It’s worth noting that TSMC’s founder Morris Chang recently described Intel’s new CEO Pat Gelsinger as ‘very discourteous‘ and furthermore that U.S. efforts to rebuild domestic semiconductor manufacturing won’t succeed.
It was Infineon (OTCQX:IFNNY) (OTCQX:IFNNF), the German-based fab that purchased Cypress Semiconductor last year, that offered the most interesting bit of advice. Infineon suggested that the industry should create collaborative platforms to anonymously share sensitive data:
It should be noted that the root cause for the global chip shortage from our view especially for the automotive industry lies in the JIT (Just in Time) system. JIT asks for minimum stocks and often replenishment is steered by reach. Reach = Stock/demand. So if stock remains and demand drops by a factor of two the reach doubles and no replenishment is triggered. This is a system triggered bullwhip effect. We have experienced and simulated that for the pandemic and could validate what happened. So to really overcome the global chip shortage sustainable the JIT system should be replaced by a collaborative platform where demand information is shared anonymously (to keep the competition going) but without the bullwhip bias.
-Infineon’s response to the DoC inquiry, (find it here)
This is of course, exactly the type of work that Palantir specializes in. Astute readers will recall this concept detailed explicitly in previous articles.
A Job for Palantir?
Palantir has steadily tailored its platform with what it refers to as “archetypes”, or sets of solutions for specific industries. Once Palantir has built an archetype for a specific company in a specific industry, it is very easy for others in that industry to deploy the same software. If multiple parties are using Palantir’s Foundry platform, it is possible for them to collaborate and share data while preserving information that they would like to keep confidential.
This was discussed extensively in a recent article about Palantir’s work in the healthcare industry, where Palantir is working with NCATS (a division of NIH) to create a “national data resource” derived from the health records of various institutions.
Infineon is calling for exactly the same thing. Companies need a collaborative platform to share sensitive demand information anonymously, so that fabs can make important decisions about production. This is no small task, as it would require pulling information from various datacenters using many different data architectures and systems, something else Palantir specializes in.
Effective risk management requires a dynamic, end-to-end picture of the supply chain. Government agencies must integrate thousands of siloed data sources spread across classification levels. Palantir Foundry unifies this fractured landscape to create a complete supply chain picture, leveraging AI to surface emerging risks.
Decision makers need visibility into their supply chain vulnerabilities and points of exposure. Foundry integrates an institution’s classified and unclassified information…
-Palantir; Mitigate Supply Chain Threats with Palantir (4/15/2021)
(Image source: Palantir)
This type of collaboration could solve one of the most significant issues in the semiconductor industry. Fabs sit in the middle of the supply chain, purchasing wafers and/or raw materials, responding to demand from companies like Nvidia, which in turn offers products through multiple sales channels. The fabs have little idea what ultimate demand at the end of the supply chain looks like. Nor do the fabs know if customers are over-ordering to ensure supply, orders that could simply evaporate before their scheduled production run.
This information is critical in the semiconductor industry because fabs are constantly trying to balance high capex costs with margins and demand. Fill the fabs is the business model, and for good reason. These are the world’s most advanced manufacturing sites, representing the pinnacle of technology. A fab capable of making the latest chips costs approximately $20B and takes significant time to construct.
Thus, the industry is characterized by a constant supply and demand struggle. When the fabs are full, margins are high, the industry thrives. When the fabs are not full, margins are low, the industry suffers. Because of the symbiotic relationship between the fab and its customers, designing the manufacturing technology that the customer leverages, margins do not simply ‘shift from TSMC to Nvidia’ when there is excess capacity. Both suffer.
Supply chain analysis in Foundry (Image source: Palantir)
Palantir already has significant support for the ‘supply chain archetype’. This solution would only need to combine the same sort of supply chain insight with the collaborative features that Palantir has created for the health sciences. We predicted this would happen in one of the first articles written about Palantir, published when the stock was trading at $10.
Conclusion: But will it actually happen?
This event is interesting because it is the first time we have seen a company (a foreign company, no less) ask the U.S. Government to support the industry-wide creation of a platform for data sharing or the creation of shared data assets. The U.S. is slowly responding to the Chinese doctrine of unrestricted warfare, where economics and technology play key roles. This has created, as Alibaba’s SCMP puts it, a “tech war“. Chips are starting to be seen as a national security issue, and rightfully so.
So while we have not yet seen anything to suggest Palantir will build such a platform, with the company’s deep ties to the DoD, it seems plausible. If nothing else, this article is an illustration of how Palantir’s platform can be leveraged to transform industries.
What we have seen are calls for greater industry collaboration from DARPA. One of DARPA’s objectives is to move the industry towards tighter collaboration. DARPA’s CHIPS program (Common Heterogeneous Integration and IP Reuse Strategies) is an effort to push modularity and interoperability between different process nodes and architectures, such that they can be combined into a single SoC or chiplet. This would advance the field of technology as a whole, with widespread positive implications.
Perhaps industry collaboration on supply chain and demand data could be an attainable first step towards more sophisticated industry collaboration on shared IP. Most semiconductor design work is done in a local data center or hybrid cloud environment at best, something Palantir is uniquely suited to handle.
Source: https://seekingalpha.com/article/4470719-infineon-stock-calls-for-what-palantir-stock-already-has