Chip War: The Fight for the World's Most Critical Technology

by Chris Miller

De Gaulle was formalistic and ceremonious, a tradition-minded military man who saw himself as the incarnation of French grandeur. Ikeda, by contrast, thought his country’s voters were straightforwardly materialistic, and promised to double their incomes within a decade. Japan was nothing but an “economic power,” de Gaulle declared, huffing to an aide after the meeting that Ikeda behaved like a “transistor salesman.” But it wouldn’t be long before all the world was looking enviously at Japan, because the country’s success selling semiconductors would make it far wealthier and more powerful than de Gaulle ever imagined. Integrated circuits didn’t only connect electronic components in innovative ways, they also knit together nations in a network, with the United States at its center. The Soviets inadvertently made themselves part of this network by copying Silicon Valley’s products. Japan, by contrast, was deliberately integrated into America’s semiconductor industry, a process supported by Japanese business elites and the U.S. government. When World War II ended, some Americans had envisioned stripping Japan of its high-tech industries as punishment for starting a brutal war. Yet within a couple years of Japan’s surrender, defense officials in Washington adopted an official policy that “a strong Japan is a better risk than a weak Japan.” Apart from a short-lived effort to shut down Japan’s research into nuclear physics, the U.S. government supported Japan’s rebirth as a tech...

Makoto Kikuchi was a young physicist in the Japanese government’s Electrotechnical Laboratory in Tokyo, which employed some of the country’s most advanced scientists. One day his boss called him into his office with interesting news: American scientists, Kikuchi’s boss explained, had attached two metal needles to a crystal and were able to amplify a current. Kikuchi knew an extraordinary device had been discovered. In bombed-out Tokyo, it was easy to feel isolated from the world’s leading physicists, but U.S. occupation headquarters in Tokyo provided Japan’s scientists access to journals like Bell System Technical Journal, Journal of Applied Physics, and Physical Review, which published the papers of Bardeen, Brattain, and Shockley. These journals were otherwise impossible to obtain in postwar Japan. “I’d flick through the contents and whenever I saw the word ‘semiconductor’ or ‘transistor,’ ” Kikuchi recounted, “my heart would start to pound.” Several years later, in 1953, Kikuchi met John Bardeen when the American scientist traveled to Tokyo during a hot and humid September for a meeting of the International Union of Pure and Applied Physics. Bardeen was treated like a celebrity and was shocked by the number of people wanting to take his photo. “I’ve never seen so many flashbulbs in my life,” he wrote his wife.

Morita’s father had wanted his son to become the sixteenth Morita to manage the sake business, but Akio Morita’s childhood love of tinkering with electronics and a university degree in physics pointed in a different direction.

April 1946, with the country still in ruins, Morita partnered with a former colleague named Masaru Ibuka to build an electronics business, which they soon named Sony, from the Latin sonus (sound) and the American nickname “sonny.”

Upon landing in the United States in 1953, Morita was shocked by the country’s vast distances, open spaces, and extraordinary consumer wealth, especially compared to the deprivation of postwar Tokyo. This country seems to have everything, Morita thought. In New York, he met AT&T executives who agreed to issue him a license to produce the transistor. They told him to expect to manufacture nothing more useful than a hearing aid. Morita understood what Charles de Gaulle did not: electronics were the future of the world economy, and transistors, soon embedded in silicon chips, would make possible unimaginable new devices.

Nevertheless, U.S. chip firms like Fairchild continued to dominate the cutting edge of chip production, such as its business related to corporate mainframe computers. Throughout the 1960s, Japanese firms paid sizeable licensing fees on intellectual property, handing over 4.5 percent of all chip sales to Fairchild, 3.5 percent to Texas Instruments, and 2 percent to Western Electric. U.S. chipmakers were happy to transfer their technology because Japanese firms appeared to be years behind. Sony’s expertise wasn’t in designing chips but devising consumer products and customizing the electronics they needed.

The semiconductor symbiosis that emerged between America and Japan involved a complex balancing act.

Interdependence wasn’t always easy. In 1959, the Electronics Industries Association appealed to the U.S. government for help lest Japanese imports undermine “national security”—and their own bottom line. But letting Japan build an electronics industry was part of U.S. Cold War strategy, so, during the 1960s, Washington never put much pressure on Tokyo over the issue.

“A people with their history won’t be content to make transistor radios,” President Richard Nixon later observed. They had to be allowed, even encouraged, to develop more advanced technology. Japanese executives were no less committed to making this semiconductor symbiosis work. When Texas Instruments sought to become the first foreign chipmaker to open a plant in Japan, the company faced a thicket of regulatory barriers. Sony’s Morita, who happened to be a friend of Haggerty, offered to help in exchange for a share of the profits.

With Morita’s help, and after much red tape and green tea, Japan’s bureaucrats finally approved TI’s permits to open a semiconductor plant in Japan. For Morita, it was another coup, helping to make him one of the most famous Japanese businessmen on either side of the Pacific. For foreign policy strategists in Washington, more trade and investment links between the two countries tied Tokyo ever more tightly into a U.S.-led system. It was a victory for Japanese leaders like Prime Minister Ikeda, too. His goal of doubling Japanese incomes was achieved two years ahead of schedule. Japan won a new seat on the world stage thanks to intrepid electronics entrepreneurs like Morita. Transistor salesman was a position of far more influence than Charles de Gaulle could ever have imagined.

In an industry full of brilliant scientists and technological visionaries, Sporck’s expertise was in wringing productivity out of workers and machines alike. It was only thanks to tough managers like him that the cost of computing fell in line with the schedule Gordon Moore had predicted.

But in Silicon Valley, unions were weak, and Sporck was committed to keeping it that way. He and his colleagues at Fairchild were “dead set” against unions, he declared. A practical, down-to-earth engineer, Sporck wasn’t a stereotypical union buster. He kept his offices so austere that they were compared to an army barracks. Sporck was proud of giving most employees stock options, a practice that was virtually unknown in the old East Coast electronics firms. But he’d ruthlessly insist, in exchange, that these same employees commit to maximizing their productivity. Unlike East Coast electronics firms whose workforces tended to be male-dominated, most of the new chip startups south of San Francisco staffed their assembly lines with women.

Chip firms hired women because they could be paid lower wages and were less likely than men to demand better working conditions. Production managers also believed women’s smaller hands made them better at assembling and testing finished semiconductors.

The semiconductor industry was globalizing decades before anyone had heard of the word, laying the grounds for the Asia-centric supply chains we know today.

Foreign policy strategists in Washington saw ethnic Chinese workers in cities like Hong Kong, Singapore, and Penang as ripe for Mao Zedong’s Communist subversion. Sporck saw them as a capitalist’s dream. “We had union problems in Silicon Valley,” Sporck noted. “We never had any union problems in the Orient.”

TI’s staff across Asia were focused on making chips, not on the war. Many of their colleagues in Texas, however, thought about nothing else.

The military’s biggest challenge in Vietnam, however, was striking ground targets. At the start of the Vietnam War, bombs fell on average within 420 feet of their target, according to Air Force data. Attacking a vehicle with a bomb was therefore basically impossible. Weldon Word, a thirty-four-year-old project engineer at TI, wanted to change this.

As early as the mid-1960s, Word was already envisioning using microelectronics to transform the military’s kill chain. Advanced sensors on satellites and in airplanes would acquire targets, track them, guide missiles toward them, and confirm they were destroyed. It sounded like science fiction. But TI already produced the necessary components in its research labs.

Word understood that the best weapons were “cheap and familiar,” one of his colleagues explained, guaranteeing that they could be used often in training and on the battlefield. The microelectronics had to be designed with as little complexity as possible. Every connection that had to be soldered increased the risks to reliability. The simpler the electronics, the more reliable and more power-efficient a system would be.

Texas Instruments knew nothing about designing bombs, so Word started with a standard-issue bomb—the 750-pound M-117, 638 of which already had been dropped unsuccessfully around the Thanh Hoa Bridge. He added a small set of wings that could direct the bomb’s flight as it fell from the sky. Finally, he installed a simple laser-guidance system that would control the wings. A small silicon wafer was divided into four quadrants and placed behind a lens. The laser reflecting off the target would shine through the lens onto the silicon. If the bomb veered off course, one quadrant would receive more of the laser’s energy than the others, and circuitry would move the wings to reorient the bomb’s trajectory so that the laser was shining straight through the lens.

A simple laser sensor and a couple of transistors had turned a weapon with a zero-for-638 hit ratio into a tool of precision destruction.

After initially accusing Mark Shepherd of being an imperialist, Minister Li quickly changed his tune. He realized a relationship with Texas Instruments could transform Taiwan’s economy, building industry and transferring technological know-how. Electronics assembly, meanwhile, would catalyze other investments, helping Taiwan produce more higher-value goods. As Americans grew skeptical of military commitments in Asia, Taiwan desperately needed to diversify its connections with the United States. Americans who weren’t interested in defending Taiwan might be willing to defend Texas Instruments. The more semiconductor plants on the island, and the more economic ties with the United States, the safer Taiwan would be. In July 1968, having smoothed over relations with the Taiwanese government, TI’s board of directors approved construction of the new facility in Taiwan. By August 1969, this plant was assembling its first devices. By 1980, it had shipped its billionth unit.

Taiwan wasn’t alone in thinking that semiconductor supply chains could provide economic growth and bolster political stability. In 1973, Singapore’s leader Lee Kuan Yew told U.S. president Richard Nixon he was counting on exports to “sop up unemployment” in Singapore. With the Singapore government’s support, TI and National Semiconductors built assembly facilities in the city-state. Many other chipmakers followed. By the end of the 1970s, American semiconductor firms employed tens of thousands of workers internationally, mostly in Korea, Taiwan, and Southeast Asia. A new international alliance emerged between Texan and Californian chipmakers, Asian autocrats, and the often ethnic-Chinese workers who staffed many of Asia’s semiconductor assembly facilities.

In 1977, Mark Shepherd returned to Taiwan and met again with K. T. Li, nearly a decade after their first meeting. Taiwan still faced a risk of Chinese invasion, but Shepherd told Li, “We consider this risk to be more than offset by the strength and dynamism of Taiwan’s economy. TI will stay and continue to grow in Taiwan,” he promised. The company still has facilities on the island today. Taiwan, meanwhile, has made itself an irreplaceable partner to Silicon Valley.

Noyce and Moore abandoned Fairchild as quickly as they’d left Shockley’s startup a decade earlier, and founded Intel, which stood for Integrated Electronics. In their vision, transistors would become the cheapest product ever produced, but the world would consume trillions and trillions of them. Humans would be empowered by semiconductors while becoming fundamentally dependent on them. Even as the world was being wired to the United States, America’s internal circuitry was changing. The industrial era was ending. Expertise in etching transistors into silicon would now shape the world’s economy.

Two years after its founding, Intel launched its first product, a chip called a dynamic random access memory, or DRAM. Before the 1970s, computers generally “remembered” data using not silicon chips but a device called a magnetic core, a matrix of tiny metal rings strung together by a grid of wires. When a ring was magnetized, it stored a 1 for the computer; a non-magnetized ring was a 0.

The demand for remembering 1s and 0s was exploding, however, and wires and rings could only shrink so far. If the components got any smaller, the assemblers who weaved them together by hand would find them impossible to produce. As demand for computer memory exploded, magnetic cores couldn’t keep up.

He proposed coupling a tiny transistor with a capacitor, a miniature storage device that is either charged (1) or not (0). Capacitors leak over time, so Dennard envisioned repeatedly charging the capacitor via the transistor. The chip would be called a dynamic (due to the repeated charging) random access memory, or DRAM. These chips form the core of computer memory up to the present day. A DRAM chip worked like the old magnetic core memories, storing 1s and 0s with the help of electric currents. But rather than relying on wires and rings, DRAM circuits were carved into silicon. They didn’t need to be weaved by hand, so they malfunctioned less often and could be made far smaller.

A calculator worked differently than a missile’s guidance computer, for example, so until the 1970s, they used different types of logic chips. This specialization drove up cost, so Intel decided to focus on memory chips, where mass production would produce economies of scale.

Noyce asked Ted Hoff, a soft-spoken engineer who’d arrived at Intel after an academic career studying neural networks, to handle Busicom’s request. Unlike most Intel employees, who were physicists or chemists focused on the electrons zipping across chips, Hoff’s background in computer architectures let him see semiconductors from the perspective of the systems they powered. Busicom told Hoff they’d need twelve different chips with twenty-four thousand transistors, all arranged in a bespoke design. He thought this sounded impossibly complicated for a small startup like Intel. As he considered Busicom’s calculator, Hoff realized computers face a tradeoff between customized logic circuits and customized software. Because chipmaking was a custom business, delivering specialized circuits for each device, customers didn’t think hard about software. However, Intel’s progress with memory chips—and the prospect they would become exponentially more powerful over time—meant computers would soon have the memory capacity needed to handle complex software. Hoff bet it would soon be cheaper to design a standardized logic chip that, coupled with a powerful memory chip programmed with different types of software, could compute many different things.

The person who best understood how mass-produced computing power would revolutionize society was a Caltech professor named Carver Mead.

Moore soon hired Mead as a consultant, and for many years, the Caltech visionary spent each Wednesday at Intel’s facilities in Silicon Valley. Though Gordon Moore had first graphed the exponential increase in transistor density in his famous 1965 article, Mead coined the term “Moore’s Law” to describe it. “In the next ten years,” Mead predicted in 1972, “every facet of our society will be automated to some degree.” He envisioned “a tiny computer deep down inside of our telephone, or our washing machine, or our car” as these silicon chips became pervasive and inexpensive.

Guided missiles would not only “offset” the USSR’s quantitative advantage, he reasoned. They’d force the Soviets to undertake a ruinously expensive anti-missile effort in response. Perry calculated Moscow would need five to ten years and $30 to $50 billion to defend against the three thousand American cruise missiles that the Pentagon planned to field—and even then, the Soviets could only destroy half the incoming missiles if they were all fired at the USSR. This was exactly the type of technology that Andrew Marshall had been looking for. Working with Jimmy Carter’s secretary of defense, Harold Brown, Perry and Marshall pushed the Pentagon to invest heavily in new technologies: a new generation of guided missiles that used integrated circuits, not vacuum tubes; a constellation of satellites that could beam location coordinates to any point on earth; and—most important—a new program to jump-start the next generation of chips, to ensure that the U.S. kept its technological edge. Led by Perry, the Pentagon poured money into new weapons systems that capitalized on America’s advantage in microelectronics.

In 1979, just months before Anderson’s presentation about quality problems in American chips, Sony introduced the Walkman, a portable music player that revolutionized the music industry, incorporating five of the company’s cutting-edge integrated circuits in each device. Now teenagers the world over could carry their favorite music in their pockets, powered by integrated circuits that had been pioneered in Silicon Valley but developed in Japan. Sony sold 385 million units worldwide, making the Walkman one of the most popular consumer devices in history. This was innovation at its purest, and it had been made in Japan. The U.S. had supported Japan’s postwar transformation into a transistor salesman.

The aim of turning Japan into a country of democratic capitalists had worked. Now some Americans were asking whether it had worked too well. The strategy of empowering Japanese businesses seemed to be undermining America’s economic and technological edge.

With pride, patents, and millions of dollars at stake, the brawls between U.S. chipmakers often got personal, but there was still plenty of growth to go around. Japanese competition seemed different, however. If Hitachi, Fujitsu, Toshiba, and NEC succeeded, Sporck thought, they’d move the whole industry across the Pacific.

“We’re at war with Japan,” Sporck insisted. “Not with guns and ammunition, but an economic war with technology, productivity, and quality.” Sporck saw Silicon Valley’s internal battles as fair fights, but thought Japan’s DRAM firms benefitted from intellectual property theft, protected markets, government subsidies, and cheap capital. Sporck had a point about the spies.

At an industry conference in the late 1970s, where GCA was advertising its systems for chipmakers, Texas Instruments’ Morris Chang walked up to the GCA booth, started looking at the company’s equipment, and inquired whether, rather than scanning light across the length of a wafer, the firm’s equipment could move step-by-step, exposing each chip on the silicon wafer. Such a “stepper” would be far more accurate than the existing scanners. Though a stepper had never been devised, GCA’s engineers believed they could create one, providing higher-resolution imaging and thus smaller transistors. Several years later, in 1978, GCA introduced its first stepper. Sales orders began rolling in. Before the stepper, GCA had never made more than $50 million a year in revenue on its military contracts, but now it had a monopoly on an extraordinarily valuable machine. Revenue soon hit $300 million and the company’s stock price surged. As Japan’s chip industry rose, however, GCA began to lose its edge.

One of Greenberg’s founding partners admitted that the company was spending money like a “drunken sailor.” The firm’s excesses were poorly timed. The semiconductor industry had always been ferociously cyclical, with the industry skyrocketing upward when demand was strong, and slumping back when it was not. It didn’t take a rocket scientist—and GCA had a handful on staff—to figure out that after the boom of the early 1980s, a downturn would eventually follow. Greenberg chose not to listen.

GCA’s customer service atrophied. The company’s attitude, one analyst recounted, was “buy what we build and don’t bother us.” The company’s own employees admitted that “customers got fed up.” This was the attitude of a monopolist—but GCA was no longer a monopoly. After Greenberg stopped buying Nikon lenses, the Japanese company decided to make its own stepper. It acquired a machine from GCA and reverse engineered it. Soon Nikon had more market share than GCA.

However, most of GCA’s problems were homegrown, driven by unreliable equipment and bad customer service. Academics devised elaborate theories to explain how Japan’s huge conglomerates were better at manufacturing than America’s small startups. But the mundane reality was that GCA didn’t listen to its customers, while Nikon did. Chip firms that interacted with GCA found it “arrogant” and “not responsive.” No one said that about its Japanese rivals.

However, it was impossible to cover up the company’s loss of market share. U.S. firms, with GCA as the leader, controlled 85 percent of the global market for semiconductor lithography equipment in 1978. A decade later this figure had dropped to 50 percent. GCA had no plan to turn things around. Greenberg himself aimed criticism at the company’s employees.

Noyce, Sanders, and Sporck had all started their careers at Fairchild: Noyce the technological visionary; Sanders the marketing showman; Sporck the manufacturing boss barking at his employees to build faster, cheaper, better. A decade later they’d become competitors as CEOs of three of America’s biggest chipmakers. But as Japan’s market share grew, they decided it was time to band together again. At stake was the future of America’s semiconductor industry. Huddled over a table in a private dining room at Ming’s, they devised a new strategy to save it. After a decade of ignoring the government, they were turning to Washington for help.

Sanders, Noyce, and Sporck joined other CEOs to create the Semiconductor Industry Association to lobby Washington to support the industry. When Jerry Sanders described chips as “crude oil,” the Pentagon knew exactly what he meant. In fact, chips were even more strategic than petroleum.

The Defense Department recruited Jack Kilby, Bob Noyce, and other industry luminaries to prepare a report on how to revitalize America’s semiconductor industry.

Kilby had long worked closely with the Defense Department, given Texas Instruments’ role as a major supplier of electronics for weapons systems. IBM and Bell Labs also had deep connections with Washington. But Intel’s leaders had previously portrayed themselves as “Silicon Valley cowboys who didn’t need anybody’s help,” as one defense official put it. The fact that Noyce was willing to spend time at the Defense Department was a sign of how serious a threat the semiconductor industry faced—and how dire the impact on the U.S. military could be.

The Pentagon’s task force summarized the ramifications in four bullet points, underlining the key conclusions: U.S. military forces depend heavily on technological superiority to win. Electronics is the technology that can be leveraged most highly. Semiconductors are the key to leadership in electronics. U.S. defense will soon depend on foreign sources for state-of-the-art technology in semiconductors.

When the U.S. had occupied Japan in the years immediately after World War II, it had written Japan’s constitution to make militarism impossible. But after the two countries had signed a mutual defense pact in 1951, the U.S. began cautiously to encourage Japanese rearmament, seeking military support against the Soviet Union.

However, because Japan didn’t spend heavily on arms, it had more funds to invest elsewhere. The U.S. spent five to ten times more on defense relative to the size of its economy. Japan focused on growing its economy, while America shouldered the burden of defending it. The results were more spectacular than anyone had expected. Once derided as a country of transistor salesmen, Japan was now the world’s second-largest economy. It was challenging American industrial dominance in areas that were crucial to U.S. military power.