At the end of the day, chipmaking (and most modern industries) is about human capital: The people, their accumulated knowledge and skills, the processes they have developed and continue to optimize, and the IP they embed into complex machines and software.
It's also about looking forward. It does not matter if you are at the bleeding-edge or in catch-up mode. What matters is that you are looking forward.
China is in catch-up mode. But the human capital it is developing while catching up is the same as that needed to push forward once they reach the bleeding edge. @hsu_steve and I talked about this concept at the 31:21 mark in our recent podcast youtube.com/watch?v=HAqrEn…
There I talked about how in the mid/late-2000s we invested in a softswitch company in Texas and during board meetings we started to notice this "little company out in China" called Huawei.
Huawei had a decently sized research facility located just down the road in Plano, Texas. Back then, there was already a palpable national security concern about Huawei (given the sensitivity of telecom).
There also seemed to be a general sense that as Huawei "could only copy". It had settled a lawsuit with Cisco in 2003 (first time I heard about the company, I still remember reading that headline on the Bloomberg terminal) after it was found to have copied software code.
But as I discuss with Steve, while Huawei (and China) was late to 3G (which was being rolled out at that time), it had more or less caught up with 4G and started leading with 5G. I wrote about this in 2018 and it is still one of my favorite essays: readwriteinvest.com/p/how-will-the…
And China (more broadly) have now also done it with HSR, electric vehicles, batteries, wind turbines, solar ... ... all endeavors driven by applied sciences and engineering. Why should it be any different with chipmaking? Or commercial airlines for the domestic market?
We live in a world where economic development and wealth are increasingly dominated by intangible assets (human capital, IP, processes, software) that are invariably the product of some form of engineering. Engineering depends on collaboration and forward-thinking.
This is quite different from the 20th century, when economic development and wealth were underpinned by access to scarce commodities like petroleum. This reality lent itself to much more zero-sum thinking. A barrel of oil could only be controlled by one actor.
Indeed, the clean energy transition alone provides a glimpse into a far less zero-sum future, when it is engineering and applied science — not geopolitical control over scarce, concentrated commodities — that can unlock abundant energy for all nations and peoples.
Sometimes it feels like we as Americans have not quite grasped the full implications of this shift to the new world. Ant this shows up both in the discussion about national security (defense) and economic strategy which are increasingly intertwined.