US will take decades for supply chain independence in chips: Nvidia CEO

Supply chain independence is going to be challenging for the US and could take decades, Nvidia CEO Jensen Huang said on Wednesday.

“We are somewhere between a decade and two decades away from supply chain independence,” Huang said during a chat at New York Times’ DealBook summit on Wednesday. “We should absolutely go down the journey of it, [but it’s] not a really practical thing for a decade or two.”

A recent Congressional Research Service report on the CHIPS Act – the bill that would provide funding for US foundries to break ground – noted that 90% of chip production is based in Taiwan, which is something that Huang also emphasized in his speech.

“Supply chain independence is going to be really challenging,” he said, pointing out that Nvidia’s latest AI servers have 35,000 parts, from all over the world, including Taiwan.

Taiwan Semiconductor’s (TSMC) facilities in Arizona will only produce around 50,000 wafers per month when they hit full capacity, according to reports, which is only about half of the capacity of one of the company’s Gigafabs in Taiwan – which it has four of. 

“The TSMC Arizona fab is effectively a paperweight in any geopolitical tension or war [with China over Taiwan] due to the fact that it still requires sending the chips back to Taiwan for packaging,” Dylan Patel, chief analyst at SemiAnalysis, told The Information in a recent interview.

A globally connected supply chain

Despite consistent efforts, “no government has been able to achieve true self-sufficiency in semiconductor manufacturing to date,” noted a recent report from the Center for Strategic and International Studies.

Even though Taiwan is the epicenter of all things chip manufacturing, it’s still reliant on China as a supply chain partner as the country is a major manufacturer of complementary components to its chips or for services like packaging and testing.

Taiwanese government data shows China is Taiwan’s largest export market, and largest source of imports, though, like the US, it’s also trying to rid itself of reliance on the country.     

“It’s the very first time in 2022 that Taiwanese investment in Southeast Asia and South Asia actually outpaced [that going to] China,” Taiwan’s minister of economic affairs Wang Mei-hua recently told Nikkei Asia. “We think the trend will only continue because of the push from the US-China trade tensions.”

Wang also emphasized that Taiwan closely adheres to US export controls and rules, using the US Entity List as a guideline for its tech sector, particularly semiconductors, with US experts assisting in understanding these rules, amid tightened US restrictions on AI chip sales and semiconductor equipment exports to certain countries.

Nvidia remains bullish on China

Nvidia’s Huang is quite familiar with the US restrictions on chip exports to China, with the company’s high-margin AI-focused GPUs being at the center of recent export bans – which also had the side effect of including certain consumer-grade GPUs in the criteria leading to skewed prices worldwide.

On stage at the summit, Huang said that his company continues to work on chips that would be regulatory compliant.

“We have to come up with new chips that comply with the regulation, and once we comply with the regulation, we’ll go back to China,” he said on stage. “We try to do business with everybody we can. On the other hand, our national security matters. Our national competitiveness matters.” 

Huang also noted that US restrictions on China have meant that there are dozens of well-funded domestic companies trying to build their own GPUs to compete with Nvidia.

Beijing has long made it a priority to achieve semiconductor independence with alternatives to Intel’s x86, though it also remains a long way from doing this entirely, because of both physical supply chains and reliance on Western software libraries.

“There are also other options coming down the pipe, like RISC-V, but they still all have the software gap,” said Ian Cutress, chief analyst of More Than Moore. “In order for China to match the US, it has to do everything an order of magnitude bigger – 10x more effort, 10x more chips, 10x-100x more power.”

“But China’s shown they’re prepared to go down that route,” he said.