Monopoly supplier of critical Pentagon semiconductors shuts down its production

https://mattstoller.substack.com/p/monopolies-slowly-destroying-the

183 98 5 years ago

mattstoller.substack.com

black_13• 5 years ago

IBM and their shitty software sold to DOD. The stopped improving and having decent training RHAPSODY a hundred years ago.

setpatchaddress• 5 years ago

What happened to the requirement to second-source semiconductors?

mpyne• 5 years ago

Same thing that happened to the requirement to code DoD software only in Ada: the requirement was scrapped when it became obvious the marketplace had shifted so much that the DoD would have to choose between second-sourcing obsolete gear or staying current with technology the market was postured to deliver.

bsvgywer• 5 years ago

There is absolutely no legal reason that the DoD can't take Intel/AMD/Whomever's designs to alternative manufacturers. Unfortunately in the name of making the richest among us richer, our leadership hardly exercises the DoD's blanket license of all things patented. Along the same lines, we no longer break up companies that dominate their industry, giving us fewer choices for alternative manufacturers.

a9h74j3• 5 years ago

ADA

IIRC (from the days of Electronics magazine) VHDL was also defined for the purpose of allowing US DOD to be manufacturer-independent.

moring• 5 years ago

What parts of a modern system can even be second-sourced?

2OEH8eoCRo0• 5 years ago

Death by 1000 greedy cuts.

atonse• 5 years ago

Can’t they use the defense production act or something to take over the company or the factory?

wildrhythms• 5 years ago

I don't think that works when the companies aren't in the U.S.

the Pentagon relied on one production line for key chips, and that production line, owned by Abu Dhabi-controlled Global Foundries, just sold it off to a firm that will shut it down.

mrtnmcc2• 5 years ago

Globalism, why war is obsolete.

atlasunshrugged2• 5 years ago

Yes, I don't think it works for foreign owned entities although I guess they could basically use the DPA as more of a carrot for an Intel or someone to have a guaranteed purchase order for X# years at a certain price for these chips at a level that would be profitable for them

pm90• 5 years ago

If the company is not in the US, they can use coercion through diplomatic channels. This appears to be a lack of willingness or incompetence to react to this event.

Considering that the factory itself is in the US, it seems pretty absurd that it wasn’t taken over. Like do we ground all our B2s if we run out of spare parts and nobody is around to make them? Insane.

legutierr• 5 years ago

It is very doubtful that the factory itself is foreign-owned. It's more likely directly owned by a US corporate entity, and Global Foundries held ownership in that entity.

In any event, the Defense Production Act does not have an exception if the business is foreign-owned. The President's powers are very broad. The scenario described in TFA is exactly why the Defense Production Act exists, and I am also curious to know why it wouldn't be invoked in this case.

whatshisface• 5 years ago

State monopolies are not that good of an alternative to private monopolies.

baybal24• 5 years ago

Absolutely, people matter. And in case of USA government taking over the ON Semi through DPA, you will have essentially the same creed of people being appointed to run it.

This comes from an obvious fact that the prime majority of public companies in USA have boards stuffed with bankers, and asset managers, because a big portion of there are owned by bankers, and asset managers.

Most people in government service administering companies also come from exactly the same banker/asset manager background for simple lack of any others.

lostlogin• 5 years ago

It depends though doesn’t it?

For police, army and things like water supply, they are good. Many (including me) argue that far more services work better when state owned, eg health, education, power, infrastructure (eg roading) and public transport.

It becomes a political argument rather fast.

Teever• 5 years ago

Is that true?

I was under the impression that state monopolies are a fundamental part of modern arms procurement in some instances.

sofixa2• 5 years ago

Yes, they are. Are you serious?

A state monopoly's problems are complacency and applying government policy ( e.g. in a racist segregated country, they will apply that).

A private monopoly will absolutely bleed their customers dry out of any money they can take off them, they'll usually stagnate and become complacent ( just like a state monopoly).

Many things are natural monopolies ( infrastructure, education, healthcare) and are best left to state monopolies, even with the downsides.

iamshs• 5 years ago

Intel chief: Too many chips made in Asia, 7 months ago. https://news.ycombinator.com/item?id=26573236

ecf2• 5 years ago

Nobody cares what the CEO of Intel thinks. They can’t come in and start spewing nationalist ideology after they were a primary factor in the outsourcing of a chip manufacturing to begin with. Out of 10 of their fabs, only 4 are in the US. [1] 1. https://www.intel.com/content/www/us/en/support/articles/000...

NonEUCitizen• 5 years ago

I believe Intel owns (did not outsource) its overseas fabs. Like everyone else, they probably outsource some parts of the manufacturing process (e.g. packaging).

dade_• 5 years ago

Massive consolidation is happening in every industry, IT distribution to cabinet parts to industrial equipent. I think it is from cheap debt allowing private equity to buy up a bunch of companies, smash them together, cut the duplication and lower margin parts of the business, hiking margins as they eliminated competition, and then spinning them off. Debt has been so cheap, they don't even need to have up front capital, just borrow and profit off the deal.

However, it is eliminating useful and valuable products & tools, disrupting lives, and making it very difficult to run a business that relies on those parts.

This is one of the many ways endless years of emergency low interest rates are destroying the economy and the livelihood of many people.

spaetzleesser2• 5 years ago

That’s just the natural way of capitalism if you allow companies to get bigger and bigger. They can buy up any upcoming competition for good money so most startups are being built to be bought and not as standalone businesses. You see that and also in medical devices where I work. Seems most industries will evolve into a state where you have 2-4 competitors that suppress all competition by building up regulatory hurdles and by their ability to buy small companies.

I would be in favor of massively progressive taxation of large companies. I just don’t see the value of them beyond a certain size but I see a lot of danger accumulating so much power in their hands.

LogonType103• 5 years ago

I would be in favor of massively progressive taxation of large companies

Say goodbye to electric cars.

AnthonyMouse4• 5 years ago

Seems most industries will evolve into a state where you have 2-4 competitors that suppress all competition by building up regulatory hurdles and by their ability to buy small companies.

This isn't a natural law, it's the point at which antitrust stops letting them buy each other. If it wasn't for that they would merge to monopoly. And that few competitors is enough for them to implicitly or explicitly collude instead of actually competing.

But it only works if barriers to entry are high. Otherwise investors would see profit in going into competition with the cartel. Which is why they lobby for regulatory barriers to prevent that from happening.

I would be in favor of massively progressive taxation of large companies. I just don’t see the value of them beyond a certain size but I see a lot of danger accumulating so much power in their hands.

What causes this is really the opposite, and what you're suggesting would make it worse.

Corporate expansion is a tax deduction to corporations because corporate income tax is a tax on profit and building new factories etc. to expand vertical integration is a cost. So they'd have more incentive to reinvest all their revenues instead of paying the tax. That's how you get Amazon.

The real problem there is that we double tax corporations. So Ian invests in Apple and his share of Apple's profits are $1000. If Apple pays the money to Ian so he can go invest it in a company that makes electric cars, he has to pay tax on it right away, and then he has less to invest. If he leaves the money inside of Apple and Apple expands into making electric cars, he doesn't have to pay the tax until he sells his shares and gets to earn returns on the money in the meantime.

So then investors have a preference for share price appreciation over dividends, which is equivalent to preferring conglomeration over returning profits to the investor to invest in independent companies. Then we get more and ever-expanding huge conglomerates and less independent companies that do one thing and do it well.

The solution is to make dividends a tax deduction to the corporation. Then corporations with money they don't know what to do with will do that for the tax deduction.

DSingularity• 5 years ago

Makes you wonder what the conclusion will be.

not-elite• 5 years ago

This is one of the many ways endless years of emergency low interest rates are destroying the economy and the livelihood of many people.

Japan has held rates near the zero lower bound since the late 1990s. If rates were the only factor, you'd expect to see the same situation there.

TheJoeMan• 5 years ago

I’m not sure which country you’re from, but Japan lost their dominant position in US tech consumer goods around late 1990’s

speeder• 5 years ago

You mean the country of the Zaibatsu? Where the economy is stagnant for the past several years? That has several global conglomerates like Sony and Toyota?

dmingod6663• 5 years ago

The time you refer to in Japan is also known as the 'lost decade'.

baybal24• 5 years ago

I am actually very glad that those investment wizards almost completely nuked whole sectors of the semiconductor market.

It cleared a lot of long standing nasty monopolies, which self destructed since their LBO schemes collapsed, or... successfully went through, and they were sold to unwitting asset manager/banker types for $$$$$, just to be chopped up after they found what a load of lemons they bought.

convolvatron• 5 years ago

certainly agree that there should be some kind of garbage collection process that pushes established companies to reinvent themselves at least a little to keep up.

but i really dont want to give any credit to those guys - they certainly aren't discriminating - they'll eat, digest, extract any salable capital and just shit out whatever is left.

i suppose you can argue that they exert an evolutionary pressure to develop an immune system (?)

gumby• 5 years ago

Matt stoller has written extensively on this topic, if it interests you.

silexia• 5 years ago

Another huge reason is government overregulation. It takes many years and millions of dollars of capital to start a bank or a medical business or many other types of companies.

And don't forget the gigantic scam that is intellectual property. Creating one small pebble of an idea that could only be created because of the titanic mountain of human knowledge underneath it, and then block competition and progress for decades is horrifying.

dillondoyle• 5 years ago

I think those are potentially the two worst examples to pick to argue for deregulation given the huge impacts on people's lives and potential of killing people (healthcare). Banks too though the risks are more from lessons learned from giant banks which you can't become overnight. But consumer protection is a big one, even if deposits are protected, predatory behavior is a big problem and profit center of small banks.

I can definitely buy into less regulation for most other businesses or small businesses though.

ItsMonkk• 5 years ago

This is the conclusion that I am coming to as well. You need to pick the correct tool for the job.

What's the correct tool? The simplest tool that can get the job done, the Principle of Least Power[0]. We often hear "Favor Composition over Inheritence", but never "These are the instances where Composition does not work, and Inheritence needs to be used instead."[1] Rich Hickey's "Simple Made Easy" shows many more examples, but this principle is very wide reaching. Prefer expressions over code blocks. Prefer for over while. Prefer map over for. Prefer data over functions. Prefer functions over macros. Prefer monoliths over micro-services. Prefer companies over governments. Prefer bikes over cars. Prefer smaller teams over bigger teams.

It's that last one that is intriguing me. You need to ensure that all of the skills that you need to be in the company are there, you can leave a bit of a buffer like Kelly-sizing, and then you want to optimize for that and cut as much as you can. Vertical integration is just another instance of tight coupling. The less people in the company, the less you need to communicate, the more it can get done. You want the skills Venn diagram of the team to look like the Olympic rings.

Social media runs into this same trap where communities grow far to large. The economies of scale within the space grows and even with the worsening of communication the entity gets stronger with each member according to a network effect. Both need some sort of dampening effect or forced splitting, but I don't know yet what that is.

[0] https://blog.codinghorror.com/the-principle-of-least-power/

r3trohack3r2• 5 years ago

This has been occupying my mind space lately.

I used to describe this situation as “late stage capitalism” and lay the blame at capitalism’s feet. I’ve recently done a 180 on that.

The tangling of Copyright, Trademark, and Patent law into the mega-legal structure of “intellectual property” law has had devastating effects IMO.

The government creates and protects monopolies, and then allows those monopolies to be bought and sold like playing cards. It’s not surprising that pools of money result in the concentration of these government created monopolies.

This is most evident to me in healthcare. The pattern in the late 2000s and 2010s was to purchase up drug companies for their IP, gut the R&D, and jack up drug prices since the government would enforce their monopoly - and consumers had no choice since they needed the drugs. Yes this is GREED, but this isn’t capitalism. Capitalism would _solve_ this - but government actively stands in the way of letting market pressures fix that market.

somewhereoutth• 5 years ago

Governments create markets by creating and enforcing laws. Without government, without law, there would be no market.

Capitalism allocates resources according to the decision making of holders of capital (assets, whether land, machinery, cash etc) - motivated by the desire to generate returns on that capital. This works pretty well, however it has a tendency to concentrate wealth in the hands of the few and away from the many.

By enforcing patents etc, another asset class is constructed, ready for exploitation for revenue generation. Capitalism is thus extended - imagine if the government regulated fresh air, and allowed it to be bought and sold.

Government is not the problem, and (more) capitalism is not the solution - it is bad government enabling the worst aspects of capitalism that is the problem, and it is good government harnessing capitalism for the benefit for everyone which is the solution.

WarChortle• 5 years ago

Capitalism would _solve_ this - but government actively stands in the way of letting market pressures fix that market.

No it wouldn't, Capitalism caused the issue. Its called Regulatory Capture.

I don't understand how people can look at Capitalism and all of its failings and say more Capitalism is the solution. Maybe in theory, more Capitalism would solve it, but in theory Communism _should_ be a much fairer form of government and we all know how the USSR worked out.

To say that Capitalism didn't cause this in the first place is laughable. Its gotten to the point that corporations or special interest groups are just writing some of the laws and having lawmakers champion them as if its their own bill. its called Model Legislation.

Make no mistake this is full blown Late Stage Capitalism.

lamontcg• 5 years ago

It is rent-seeking behavior, which is the natural result of capitalism.

The problem with idealistically pure capitalism is that then it concentrates wealth, then people apply that wealth to control government and establish rents for themselves. Then it is no longer idealistically pure.

The ideal of capitalism where this would not happen and it would stay idealistically pure is a myth like a drug-free society.

intricatedetail• 5 years ago

I wonder why is this still not treated as a loophole in capitalism and it is not illegal. Perhaps because they have so much money they can stop any politicians raising the idea or shutting down any media for running the topic...

i_am_proteus2• 5 years ago

The fab was sold to ON Semiconductor, a US concern. The US government could invoke the defense production act.

More likely, the fab can more-profitably produce some other product, and the United States would have to offer a higher price to restart production.

strstr2• 5 years ago

Slightly off-topic, but I think you mistranslated the word for corporation. I suspect you translated “Konzern” from german to english’s “concern”. But I’m honestly unsure. In context the word concern could almost work.

Amezarak2• 5 years ago

It is less common nowadays, but that is one of the definitions of “concern” in English: a company or a corporation. So it’s entirely correct as is.

i_am_proteus2• 5 years ago

Curious indeed! Merriam-Webster tells me that one definition of "concern," as a noun, is `an organization or establishment for business or manufacture.`

But perhaps this is not in common use amongst native English speakers!

TomAbel• 5 years ago

The Asianometry newsletter wrote a really insightful newsletter about the US Government's Semiconductor Chip Buying Problem[1] (He also has Youtube video[2] you can watch on the same newsletter)

In the newsletter and video he talks about the US's Trusted Foundry Program and the different pitfalls and challenges that came with the program.

[1]https://asianometry.substack.com/p/the-government-semiconduc...

[2]The US Military's Semiconductor Buying Problem https://www.youtube.com/watch?v=oSNhk4TflKA

dmingod6663• 5 years ago

Very smart and in-depth content, people here would love it.

a9h74j3• 5 years ago

And so thoroughly researched, every episode.

andromeduck• 5 years ago

I think the USG could definitely do at least the design side of a M1 like series of chips that cover 80-90% of their needs but yeah idk how we could make the US industry competitive again when Intel has dropped the ball so hard.

dmingod6663• 5 years ago

So Huawei was a national threat but Abu Dhabi owned company supplied chips on GPSs are business as usual. Its think it's probable (may not be the case) the whole 'security risk' think was a ploy to get them ousted at the behest of thier competition..

winternett• 5 years ago

Non Technical (IT & Infrastructure) people making technical decisions is what may destroy the pentagon if you ask me.

Fraud and waste is always a concern in Government operations, but if you take a real look at who is leading decision making, people in those positions (including in private companies) are often completely unaware of the impacts of their decisions, while their advisory staff is often a team of people from a private (shareholder owned) company focused on billing their clients advantageously at every opportunity they get, and providing advice that maintains a "constant stream of revenue".

It's not technology we need to fix first, it's the lack of integrity and the focus on opportunistic profit applied to the vary basis of the organization. The method in which contracts are managed, administered, and regulated needs a major overhaul to address the changing landscape of business.

Many mission-critical manufacturing and information service operations that the military runs simply should not ever rely (in any way) on privately owned and profit/shareholder-driven companies because it breaks integrity and accountability.

ecf2• 5 years ago

Non Technical (IT and Infrastructure) people making technical decisions is what may destroy the pentagon.

Care to elaborate on what you mean? Surely you don’t consider all IT and Infrastructure employees to be “non-technical”.

3232• 5 years ago

Pentagon should just order it's chips from China.

It should also move vehicle assembly there, it's much cheaper.

In fact, they should outsource everything outside it's core competency - strategy.

MeinBlutIstBlau• 5 years ago

Don't worry, the USA will soon have TM at the top of it with an "Owned by China" so we won't even need to do it. We'll just be forced to!

rvba• 5 years ago

Death by PowerPoint?

Shadonototra• 5 years ago

But Mr Spencer is now billionaire, who cares!

mealkh• 5 years ago

This is very interesting in the context of increasing US-China tensions over Taiwan. https://www.news.com.au/technology/innovation/military/red-l... I wonder just how much more important Taiwan will be getting to the West if we lose even more of our SC capabilities.

Monopoly supplier of critical Pentagon semiconductors shuts down its production

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