Gulf enters chip wars

Chip War by Chris Miller is an account of the most competitive, most brutal industry in the world – more competitive and brutal than the oil business, which is saying something.

Miller reckons that US supremacy in the manufacture and design of semi-conductors was a major contributor to victory in the Cold War. More advanced chips contributed to greater missile accuracy. A Soviet general admitted to an American journalist as early as 1983 that “the Cold War is over and you have won”. The Soviet Union was always decades behind.

The Arabian Gulf has more than a walk-on part in Chip War via Mubadala’s investment in New York-based GlobalFoundries.

At one point GlobalFoundries aspired to take on Taiwan Semiconductor Manufacturing (TSMC), the largest contract chip maker in the world. There was also talk of opening a factory – or fab – in the UAE. But those ambitions were frustrated by the eye-watering amounts needed to build the New York fab and compete in the 9-nanometre segment. A nanometre is 1 billionth of a metre.

Since then, as AGBI has reported, the UAE has been buying up quantities of microchips from companies such as Nvidia, the current darling of investors around the world, and investing in data centres and AI.

TSMC and Samsung Electronics, another massive chip maker, are reported to be exploring the possibility of opening manufacturing facilities in the UAE. They will doubtless be looking for sizeable subsidy to do so.

And last year, Saudi Arabia launched a National Semiconductor Hub to promote the kingdom as a relocation country for semiconductor design companies.

The chip industry was one of the first great globalisers. Intel, for example, was quick to subcontract manufacturing from its base in California to factories in Hong Kong, Japan, then to Taiwan. TSMC was set up by the way by an alumnus of Texas Instruments.

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Everyone, it seems, wants in because everyone understands that to have no hand in chips means that you take what you are given.

Miller recounts the fretting of Andy Grove, a former Intel chairman, at the fickleness and transience of tech dominance.

Once-storied names such as Intel are now in trouble – seemingly because of a single bet-the-company decision that went wrong. Others such as Arm Holdings, a designer that licenses its chips to be made by the likes of TSMC, have emerged because its founders identified tiny advantages. Arm’s lower-energy chips work better in mobile phones.

Access to technology is going to be one of the subjects on the table during President Trump’s forthcoming visit to the Gulf – and doubtless the subject of intense lobbying.

Under the latest chip restriction rules, introduced in January but due to be enforced next month, the US has given the UAE and other countries a “second-tier” designation, limiting exports to 50,000 advanced processors.

The Chip Act of the Biden administration and now the Trump tariffs are designed to ensure that the US retains significant chip manufacturing capability onshore.

In March, TSMC, for example, said it would invest $100 billion in the US in addition to $65 billion previously announced.

US universities and companies – first Fairchild Semiconductor, Texas Instruments and Intel and now Nvidia – have never stopped innovating.

The US capital markets have provided a deep pool of funds to reward industry winners with the massive amounts needed for R&D and incentivise risk taking. But they are being challenged by rivals mainly in East Asia.

Can the likes of the UAE and Saudi Arabia join in? They have the ambition to do so. But it is a brutal business.