AI’s Single Point of Failure Rob Toews TED (1)

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S… Speaker 1 (AI’s Single Point of Failure Rob Toews TED (1))

The following statement is utterly ludicrous.

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S… Speaker 1 (AI’s Single Point of Failure Rob Toews TED (1))

It is also true.

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S… Speaker 1 (AI’s Single Point of Failure Rob Toews TED (1))

The world's most important advanced technology is

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S… Speaker 1 (AI’s Single Point of Failure Rob Toews TED (1))

nearly all produced in a single facility.

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S… Speaker 1 (AI’s Single Point of Failure Rob Toews TED (1))

What's more,

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that facility is located in one of the most geopolitically fraught areas

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S… Speaker 1 (AI’s Single Point of Failure Rob Toews TED (1))

on Earth, an area in which many analysts believe that war is

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S… Speaker 1 (AI’s Single Point of Failure Rob Toews TED (1))

inevitable within the decade.

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S… Speaker 1 (AI’s Single Point of Failure Rob Toews TED (1))

The future of artificial intelligence hangs in the balance.

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S… Speaker 1 (AI’s Single Point of Failure Rob Toews TED (1))

The Taiwan Semiconductor Manufacturing Company,

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S… Speaker 1 (AI’s Single Point of Failure Rob Toews TED (1))

or TSMC,

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S… Speaker 1 (AI’s Single Point of Failure Rob Toews TED (1))

makes all of the world's most advanced AI chips.

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This includes NVIDIA's GPUs,

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Google's TPUs,

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AMD's GPUs,

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the AI chips from Microsoft,

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Amazon,

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Tesla,

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Cerebris,

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SambaNova,

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and every other credible competitor.

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S… Speaker 1 (AI’s Single Point of Failure Rob Toews TED (1))

Modern artificial intelligence simply would

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S… Speaker 1 (AI’s Single Point of Failure Rob Toews TED (1))

not be possible without these highly specialized chips.

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S… Speaker 1 (AI’s Single Point of Failure Rob Toews TED (1))

Little wonder then that Time Magazine recently described TSMC

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S… Speaker 1 (AI’s Single Point of Failure Rob Toews TED (1))

as, quote,

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S… Speaker 1 (AI’s Single Point of Failure Rob Toews TED (1))

the world's most important company that you've probably never heard of.

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S… Speaker 1 (AI’s Single Point of Failure Rob Toews TED (1))

NVIDIA CEO Jensen Huang put it more colorfully,

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S… Speaker 1 (AI’s Single Point of Failure Rob Toews TED (1))

saying, quote,

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basically there is air and TSMC.

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S… Speaker 2 (AI’s Single Point of Failure Rob Toews TED (1))

TSMC's chip

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S… Speaker 1 (AI’s Single Point of Failure Rob Toews TED (1))

fabrication facilities,

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S… Speaker 1 (AI’s Single Point of Failure Rob Toews TED (1))

or fabs,

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S… Speaker 1 (AI’s Single Point of Failure Rob Toews TED (1))

the buildings where chips are physically built,

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S… Speaker 1 (AI’s Single Point of Failure Rob Toews TED (1))

is located on the western coast of Taiwan,

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a mere 110 miles from mainland China.

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S… Speaker 1 (AI’s Single Point of Failure Rob Toews TED (1))

In this map,

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S… Speaker 1 (AI’s Single Point of Failure Rob Toews TED (1))

Taiwan is shown in orange and China is shown in green.

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S… Speaker 2 (AI’s Single Point of Failure Rob Toews TED (1))

Today,

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S… Speaker 1 (AI’s Single Point of Failure Rob Toews TED (1))

China and Taiwan are nearer to the brink of war than they

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have been in decades.

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Many policymakers in Washington predict that China

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will invade Taiwan within the next five years.

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S… Speaker 1 (AI’s Single Point of Failure Rob Toews TED (1))

A China -Taiwan conflict would be devastating for

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S… Speaker 1 (AI’s Single Point of Failure Rob Toews TED (1))

many reasons.

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S… Speaker 1 (AI’s Single Point of Failure Rob Toews TED (1))

Aside from the heavy human toll,

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S… Speaker 1 (AI’s Single Point of Failure Rob Toews TED (1))

one underappreciated consequence is that it would paralyze

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S… Speaker 1 (AI’s Single Point of Failure Rob Toews TED (1))

the global AI ecosystem.

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S… Speaker 1 (AI’s Single Point of Failure Rob Toews TED (1))

Put simply,

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the entire field of artificial intelligence faces

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S… Speaker 1 (AI’s Single Point of Failure Rob Toews TED (1))

an astonishingly precarious single point of failure in

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Taiwan.

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S… Speaker 1 (AI’s Single Point of Failure Rob Toews TED (1))

Amid all of the fervor around AI today,

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S… Speaker 1 (AI’s Single Point of Failure Rob Toews TED (1))

this fact is not widely enough appreciated.

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If you are working on or are interested in AI,

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S… Speaker 1 (AI’s Single Point of Failure Rob Toews TED (1))

you need to be paying attention.

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How did we get here,

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and what can we do about it?

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Let's start with a brief whirlwind overview of the chip

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industry.

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Semiconductors,

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or chips,

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are the most complex object in the world that humanity knows

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how to mass produce.

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Making semiconductors requires the world's purest metals,

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the world's most expensive machinery,

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S… Speaker 1 (AI’s Single Point of Failure Rob Toews TED (1))

legions of highly specialized engineers,

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and atom -level manufacturing precision.

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S… Speaker 1 (AI’s Single Point of Failure Rob Toews TED (1))

It is important to distinguish between two different types of chip companies.

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First,

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fabless chip makers,

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which design but do not manufacture their own chips.

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S… Speaker 2 (AI’s Single Point of Failure Rob Toews TED (1))

And second,

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foundries,

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which manufacture chips designed by other companies.

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Almost every well -known chip company today is fabulous,

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from NVIDIA to AMD to Qualcomm.

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These companies do not produce their own chips.

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S… Speaker 2 (AI’s Single Point of Failure Rob Toews TED (1))

Instead,

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they design chips,

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and then they rely on foundries like TSMC to actually manufacture those chips

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for them.

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There are only three companies in the world today that are capable of manufacturing

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chips anywhere near the leading edge of semiconductor technology.

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TSMC,

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S… Speaker 2 (AI’s Single Point of Failure Rob Toews TED (1))

Samsung,

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and Intel.

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Of those three,

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only one can reliably produce the world's most advanced

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AI chips,

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including chips like Nvidia's H100 GPUs.

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That one company is TSMC.

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As of this morning,

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TSMC's market capitalization was $470 billion,

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making it the 13th largest company in the world,

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larger than ExxonMobil,

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JPMorgan Chase,

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or Walmart.

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How has TSMC become such a dominant force?

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The short answer is that powerful economies of scale

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S… Speaker 1 (AI’s Single Point of Failure Rob Toews TED (1))

exist in the world of chip fabrication,

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leading inexorably to winner -take -all dynamics.

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Making advanced semiconductors requires tremendous upfront and

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ongoing capital expenditure.

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In 2021,

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S… Speaker 1 (AI’s Single Point of Failure Rob Toews TED (1))

TSMC announced that it would invest $100 billion over

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the next three years to continue expanding its fabrication capabilities.

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No other company in the world can justify that

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level of investment.

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TSMC can because of the sheer volume of chips that it produces,

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far more than any other company in the world.

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A related dynamic that helps explain TSMC's unassailable

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position is what has come to be known as the TSMC

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Grand Alliance.

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TSMC has invested heavily over decades to

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develop deep partnerships with dozens of companies across the semiconductor supply

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chain, from software providers like Cadence,

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S… Speaker 1 (AI’s Single Point of Failure Rob Toews TED (1))

to equipment manufacturers like ASML,

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to chip designers like NVIDIA.

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In turn,

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these companies have developed their own products in accordance with TSMC's

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roadmap, leading to powerful lock -in.

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S… Speaker 2 (AI’s Single Point of Failure Rob Toews TED (1))

In summary,

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S… Speaker 1 (AI’s Single Point of Failure Rob Toews TED (1))

a combination of economies of scale,

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network effects,

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and unrivaled specialization have made TSMC

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irreplaceable and have made the entire world deeply precariously

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dependent upon it.

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This brings us to the present delicate geopolitical

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S… Speaker 2 (AI’s Single Point of Failure Rob Toews TED (1))

moment. Last October,

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the Biden administration took the dramatic step of

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banning the export of all high -end AI chips to any entity

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in China.

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The rationale behind these measures was clear.

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to leverage U .S.

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control of the global semiconductor supply chain as a choke point to

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handicap China's AI capabilities.

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The U .S.

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government is currently formulating expansions to this policy.

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At the same time,

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the U .S.

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is taking steps to reduce its reliance on chip fabrication facilities

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located in East Asia.

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In late 2022,

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TSMC announced that it would invest $40 billion to

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build two new state -of -the -art fabs in the United

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States, in Arizona.

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The first of these two fabs is slated to begin production in

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2025.

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Bringing advanced chip production to U .S.

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oil will help mitigate the AI industry's absolute dependence on Taiwan

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-based fabs.

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But the Arizona fabs will not solve everything.

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Their production capacity will be modest,

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representing less than 5 % of TSMC's total global output.

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And the most advanced semiconductor production capabilities

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and technologies will remain in Taiwan.

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S… Speaker 2 (AI’s Single Point of Failure Rob Toews TED (1))

So,

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where might things go from here?

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S… Speaker 1 (AI’s Single Point of Failure Rob Toews TED (1))

Let's briefly consider a few possibilities on this three

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-dimensional chessboard.

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Let's start with the optimistic scenario.

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Taiwan's central role in the global semiconductor industry

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is often referred to as its silicon shield.

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The basic theory is this.

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Because China depends so heavily on Taiwan for the chips

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that it needs to keep its own economy running,

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China will stop short of invading Taiwan and putting TSMC's

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production at risk.

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And because the rest of the world is likewise so dependent

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on TSMC,

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the United States and other powers will go to great lengths to protect

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the island and defend its sovereignty.

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Under this theory,

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while China may continue to build out its military and engage in cross -strait

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saber -rattling,

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it will stop short of kinetic action against Taiwan.

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But the Silicon Shield is just a theory,

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not a guarantee.

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What would happen if China were to move decisively

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to retake Taiwan?

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TSMC's fabs would almost certainly

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be rendered inoperative.

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It is conceivable that the Taiwanese,

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or even the US military,

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would preemptively destroy the fabs in order to prevent the CCP from

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taking control of this valuable strategic resource.

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Even if the physical buildings were to remain undamaged after a Chinese

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invasion, it is unrealistic that the CCP would be able to continue

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operating the fabs to produce cutting -edge chips.

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Keeping leading -edge fabs running

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requires ongoing deep partnership with organizations

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across the global semiconductor ecosystem,

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as well as a steady inflow of materials,

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equipment,

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and services.

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These would be denied to an invading power.

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Let me say this one more time.

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If or when China invades Taiwan,

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TSMC's fabs will,

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in all likelihood,

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go offline.

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This will mean that no more NVIDIA H100s or any other

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cutting -edge AI chips will be able to be produced anywhere in the world.

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What would this mean for the world of AI?

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After TSMC,

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the company best positioned to step up and produce cutting -edge AI

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chips is Samsung.

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Samsung is currently the only company in the world other than TSMC

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that is capable of producing 3 nanometer chips,

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today's cutting -edge technology.

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But Samsung's production capabilities are far inferior to TSMC's

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today. In a best -case scenario,

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it would take Samsung years to scale up to TSMC's current

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AI chip yields and volumes.

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S… Speaker 1 (AI’s Single Point of Failure Rob Toews TED (1))

This brings us to America's former chip champion,

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S… Speaker 1 (AI’s Single Point of Failure Rob Toews TED (1))

Intel.

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S… Speaker 1 (AI’s Single Point of Failure Rob Toews TED (1))

It was hardly a decade ago that Intel's chip manufacturing

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S… Speaker 1 (AI’s Single Point of Failure Rob Toews TED (1))

capabilities were the envy of the world.

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S… Speaker 1 (AI’s Single Point of Failure Rob Toews TED (1))

But in recent years,

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S… Speaker 1 (AI’s Single Point of Failure Rob Toews TED (1))

Intel has fallen behind.

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S… Speaker 1 (AI’s Single Point of Failure Rob Toews TED (1))

The company struggled mightily in its transition to both 10 -nanometer and 7

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S… Speaker 1 (AI’s Single Point of Failure Rob Toews TED (1))

-nanometer node technologies,

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S… Speaker 1 (AI’s Single Point of Failure Rob Toews TED (1))

even resorting to outsourcing some of its leading -edge production

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S… Speaker 1 (AI’s Single Point of Failure Rob Toews TED (1))

to TSMC.

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S… Speaker 1 (AI’s Single Point of Failure Rob Toews TED (1))

Under CEO Pat Gelsinger,

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S… Speaker 1 (AI’s Single Point of Failure Rob Toews TED (1))

Intel aspires to regain its chip -making supremacy with

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S… Speaker 1 (AI’s Single Point of Failure Rob Toews TED (1))

an ambitious plan to leapfrog TSMC and begin producing 2 -nanometer

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S… Speaker 1 (AI’s Single Point of Failure Rob Toews TED (1))

chips in 2024.

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S… Speaker 1 (AI’s Single Point of Failure Rob Toews TED (1))

Whether this ambitious plan will actually prove achievable,

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S… Speaker 1 (AI’s Single Point of Failure Rob Toews TED (1))

however, remains to be seen.

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S… Speaker 1 (AI’s Single Point of Failure Rob Toews TED (1))

Before we despair too much,

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S… Speaker 1 (AI’s Single Point of Failure Rob Toews TED (1))

let us note a couple encouraging points.

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S… Speaker 2 (AI’s Single Point of Failure Rob Toews TED (1))

First,

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S… Speaker 1 (AI’s Single Point of Failure Rob Toews TED (1))

keep in mind that a considerable stock of AI chips already exists in

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S… Speaker 1 (AI’s Single Point of Failure Rob Toews TED (1))

the world.

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S… Speaker 1 (AI’s Single Point of Failure Rob Toews TED (1))

And even in a worst -case scenario,

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S… Speaker 1 (AI’s Single Point of Failure Rob Toews TED (1))

these chips would remain in use.

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S… Speaker 2 (AI’s Single Point of Failure Rob Toews TED (1))

Second,

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S… Speaker 1 (AI’s Single Point of Failure Rob Toews TED (1))

while the most advanced AI chips,

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S… Speaker 1 (AI’s Single Point of Failure Rob Toews TED (1))

like Google's TPUs or NVIDIA's H100s,

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S… Speaker 1 (AI’s Single Point of Failure Rob Toews TED (1))

can only be manufactured in Taiwan,

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S… Speaker 1 (AI’s Single Point of Failure Rob Toews TED (1))

there are many fabs around the world,

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S… Speaker 1 (AI’s Single Point of Failure Rob Toews TED (1))

from the US to Europe to Israel,

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S… Speaker 1 (AI’s Single Point of Failure Rob Toews TED (1))

that are capable of producing lagging -edge logic chips at scale.

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S… Speaker 1 (AI’s Single Point of Failure Rob Toews TED (1))

Though they are far less powerful than today's leading

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S… Speaker 1 (AI’s Single Point of Failure Rob Toews TED (1))

AI chips,

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S… Speaker 1 (AI’s Single Point of Failure Rob Toews TED (1))

these previous generation chips could be used in a pinch to

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S… Speaker 1 (AI’s Single Point of Failure Rob Toews TED (1))

support some AI computing workloads.

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S… Speaker 1 (AI’s Single Point of Failure Rob Toews TED (1))

Ultimately,

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S… Speaker 1 (AI’s Single Point of Failure Rob Toews TED (1))

though, it would be devastating for humanity to lose its ability to

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S… Speaker 1 (AI’s Single Point of Failure Rob Toews TED (1))

produce the chips that power today's cutting -edge artificial intelligence.

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S… Speaker 1 (AI’s Single Point of Failure Rob Toews TED (1))

Progress in AI would be profoundly disrupted.

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S… Speaker 1 (AI’s Single Point of Failure Rob Toews TED (1))

Let us hope that diplomacy prevails.

AI’s Single Point of Failure Rob Toews TED (1)

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