Chip War - Chris Miller

[Saluki]

Someone mentioned this book on the China post and I'm listening to the audiobook.  About 20 years ago when I first started investing, I did what Peter Lynch said not to do and invested in something that I didn't know much about, a company called Photronics that made photomasks, which are like jigs for lasers that are used to make computer chips.  I didn't lose much but I gained an understanding that tech businesses in general and computer chips in particular are terrible for investors who aren't in the business.  When Buffett invested a bunch in Taiwan Semiconductor, I reacted the same way that I do when someone mentions Micron or Skyworks.  I listen politely and ignore it. 

 

However, this is a really understandable book and it starts at the very beginning: vacuum tubes to transistors, to integrated circuits, to computer chips and you will meet all the players along the way and find out how they got distributed onto the chessboard in the four corners of the earth. Even if you are not interested in these companies as an investment, they are important to know about because of their place in the world economy and politically.  Computer chips are the oil that really runs the world economy.  

 

And weirdly enough one of the early backers of Micron was Simplot, the potato king.  When memory chips became nothing more than commodity, then whether it's a potato chip or a computer chip, you can make money on it by doing commodity type business with it. 

[jfan]

Just listening to it now as well. I'm quite enjoying it as well. There were a few of interesting author observations that I took away that were useful.

 

1) In fast moving industries were products iterate and change rapidly, there needs to be a critical mass of secular trends to tilt the probability towards success, these include (but not comprehensive):

 

- free market competition with a profit motive and entrepreneurial spirit

- general low cost of capital in the manufacturing region (hint of this: high savings rates, business friendly environment, governmental backing, skilled workforce and quality educational funnel)

- ability to take advantage of Wright's law to gain tacit process knowledge in production

- friction-free flow of IP 

- recognition of success to maintain the talent funnel

- large capital providers (ie governments (DARPA, Japanese govt, subsidies, conglomerates (like Samsung), venture capital)

 

2) The interplay between geopolitical needs (eg defense) and application of these technologies to larger consumer markets. Military budgets stimulate products but government bureaucracy stifles innovation, where as consumer markets stimulate innovation but have difficult funding cutting edge technology.

 

3) When nationalistic sentiment rises, it seems to forecast an economic downfall.

 

4) Beware of Clay Christenson's low cost producer with low margin customers in these industries in the right setting, can scale up and innovate quickly to be a competitive threat.

 

Also thanks for the recommendation on Bionomics. I thoroughly enjoyed it. Picked up Shorting the Grid as well. Looking forward to getting through it.

 

[Luca]

Great book, read it with huge interest.