Fabricated Knowledge
Fabricated Knowledge
An Interview with Dan Kim and Hassan Khan of the CHIPS Program Office
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An Interview with Dan Kim and Hassan Khan of the CHIPS Program Office

How the CHIPS Program office plans to divert the future of Semiconductors back to America
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I had the opportunity to talk about the CHIPS Act’s progress with two people at the program office. I really think this is a great step in the right direction, and we talk about some of the misconceptions of the CHIPS program, and more.

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Doug O’Laughlin: Well, today will be a pretty special interview podcast, and I have Dan Kim and Hassan Khan from the CHIPS program. I’m Doug O’Laughlin, Fabricated Knowledge; I'm sure you know who I am. But today, I thought I would have this very special opportunity to talk to some of the people behind the CHIPS Program kind of the motivations give you just a summary of what they're doing. What's the progress on things? I have a few other questions. So thanks for coming on the show. Dan and Hassan.

First, let's just ask for a simplified overview of the CHIPS Act. I'm sure many people have heard of the CHIPS Act, and in your words, as people who are working on it and doing it, what is the CHIPS Act? How did it kind of change from its origination and ideation to today?

Dan Kim: Well, President Biden signed the bipartisan CHIPS and Science Act in 2022. And I want to emphasize the bipartisan portion of that because having a bipartisan agreement is a rare thing these days. And so the law essentially tasked the Department of Commerce to set up two programs.

Hassan Khan: Jumping onto what Dan said. The CHIPS and Science Act, the way I think about it, had a few key components. I think the centerpiece that gets all the attention is the $39 billion for manufacturing incentives.

Dan and I work on that. We are part of the CHIPS program office within NIST and the Department of Commerce, and we are responsible for administering those $39 billion.

There's also an $11 billion set aside within the Department of Commerce for R&D. So the National Semiconductor Technology Center and the National Advanced Packaging Manufacturing Program, which folks may have heard of, they're part of that $11 billion fund. There's an additional $2 billion R&D fund that goes to the DoD Microelectronics Commons, which is sort of like a DOD-focused R&D effort. And then it's separate.

So that's just within the semiconductor space, and then there's a separate science part of the bill that was focused on NSF and some additional funding. But pockets of funding for science-based initiatives. I think that part also gets short shrift like it doesn't get talked about a lot. And actually, I think it's unfortunate that Congress is kind of chipping away at the science funding. But from where we sit, we are heavily focused on the CHIPS portion of the bill. And in particular, the manufacturing incentives.

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DO: Perfect, great explanation. That sounds like a handful, quite frankly. And yeah, you're right. I haven't thought about the NSF portion of that. I would like to ask a few questions about that. Because there are some tradeoffs in your logic behind a lot of this. Maybe in the beginning, I would think it would be a little bit automotive-focused during the automotive shortage, specifically, which was felt the hardest during the pandemic.

But more recently, it seems like the United States government, and people have kind of come to realize the importance of advanced manufacturing. And a lot of the big announcements were from advanced manufacturing customers. How do you even stack rank your priorities given the fact that you have this giant budget, and everyone in the world probably wants a piece of it?

DK: Yeah, let me let me take a stab at that. So there are two parts to your question. One is how we prioritize funding among a variety of different segments within the industry. And then the second part is how we reconcile the context of the supply chain disruptions that we were facing when the law was passed and was being considered and passed at the time. And most people could envision, you know, parking lots full of cars that couldn't be finished because of certain five, five-cent, ten-cent pieces of semiconductors. And now that we have the funds, how do we prioritize them?

So let me take the first one. $39 billion does sound like a lot of money, and it is. But the industry spends about $150 billion on capex per year. And we have 39 for the next few years to change direction for this industry in terms of US manufacturing. So yes, it is a lot of money, but at the same time, it won't succeed without crowding in private capital investment. So, we have to pick our targets.

The second thing I would say to that is within, say, about $150 billion a year that the industry spends on capex. If you look at the leading-edge logic and leading-edge DRAM producers, there are about five; you can name them you could say it's Intel, TSMC, Samsung, Micron, and SK Hynix. If you add up their capital investments, it's well more than 50% of that total industry capex. So, it's a very top-heavy industry when it comes to spending decisions that will drive capacity.

The third I would say is what is leading edge today, in terms of the capacity you build, unless you update that capacity will become more mature nodes later in future years. So, the same fab in East Asia that would have made leading-edge microprocessors, as well as processes for data servers, say 10, 15 years ago, are likely now churning out more mature note products that would go into automotive mature functions and radiofrequency and others. So, there is a lifecycle to the fabs. And so, we recognize that as well.

So, we wanted to, Hassan and I, as well as the rest of the team that we have in the CHIPS ACT team and the CPO, want to make sure that every dollar we're spending maximizes national and economic security value for the long term. So, it is not an easy job. We also don't get everything we want, meaning we can't just conjure up applications that we think are ideal, the companies have to come to us and propose something, and then we have to evaluate them on their merits, we do have a chance to shape them, meaning we work closely with the companies to make sure they understand what our strategic goals are, and their will and how they can meet it.

But it's a give and take. Right. It's a merit-based system, we have more demands on our dollars than we have available. And so, we're having to say, and the Secretary has stated very clearly, we're having to say, no, you're not gonna get the amount that you're looking for. Right? But hoping and aiming at the same time to make a real impact a generation opportunity that we have to make a real impact. And I feel like we're on our way to do that.

HK: Doug, the question that you asked kind of lays out one of the core sort of difficulties, I think with the CHIPS Act, which is everyone now recognizes that semiconductors are fundamental to operation in the modern economy. But the way in which they are part of the modern economy is very different across different sectors. Right. So, we talked, you know, exactly as you mentioned, they became salient because of the shortage of, I don't know, an MCU that might have cost a quarter or very simple logic chip that was used, you know, in some cases to control the windshield wiper on a car, or simple function in a dishwasher. And at the other end, you have, you know, NVIDIA GPUs that are costing $50,000 a pop for the most advanced generative AI models, and sort of our charge is to increase the national and economic security across all of the places in which semiconductors play a role.

And, you know, as Dan laid out, we have a merit-based system, but I think one of the difficult things that we struggle with and you know, actively talk about a lot is how you compare apples to oranges within the sector because we have you know, I think we're happy with how much demand there is for projects, but at the end of the day, it means we're working with a fixed sum of money. And we have to make decisions on hey, do we give more money to, say a leading-edge project that goes into building NVIDIA GPUs or Apple CPUs?

Or for more advanced or more mature node production for auto MCUs or other products, suitable? And those don't grab as much headlines or mindshare. But exactly as you said, they're there. I think we can confidently say that they're kind of the reason that the CHIPS act exists, I don't think there was as much salience for the industry. Absent the shortages. Right. We talked about regaining technological leadership. But, you know, quite frankly, Intel had lost the leadership prior to the pandemic, right. TSMC had shipped, I think, its seven-nanometer node prior to the onset of the pandemic.

I do think it was beneficial to us to strengthen overall manufacturing capabilities in the US that, which brought the industry to salience. And it allowed us to sort of take the actions that we did. But I think that tension that you raised is something that we struggle with a lot internally in decision making, like how do we evaluate which projects are more deserving of funding? Because we have a fixed pot of money and, we have more demand than we can address.

DO: Yeah, I think that's a great point. I really liked the fact that you're thinking about ecosystem investments. There has to be a thought process for the future, right, making smaller and smaller chips, meaning that it actually comes here for the long term. And we're not just leasing a little bit of leading-edge capacity quickly.

And then, on the other hand, you're right, it takes a fabric of semiconductors to make any electronic device; you know, the PMIC in your phone can be just as much of a shortage as the Apple SOC. Because, on one hand, you have to deal with lagging edge and the economics there and the players and then the leading edge, totally different game, right?

So, in a lot of ways, you have to put on a lot of hats to figure out, hey, you know, what, what ecosystem investments would screw up one or another? That's a tough calculus. My question is what were some of those hard questions or decisions and that you kind of when you first came into this, maybe you were surprised by as you, you're like, oh, actually, as the program continued, you know, our focus became a lot more on X, Y, or Z, because we realized that makes a lot more sense.

And maybe on a follow-up of, like, thinking of how you feel about things from an ecosystem perspective because I'm, I've heard some exciting things you guys considered definitely behind the scenes, but I would love to listen to some of your thinking in public.

DK: Yeah, so I was actually in the industry. In the private sector, when CHIPS Act was passed, I was invited to the signing ceremony at the White House. And I watched it happen. And I was on the White House lawn when, when that was being signed by President Biden, and one of the folks at the Commerce Department approached me and said, “You know, hey, now we have the hard work of implementing this thing. Would you be interested in coming to work for us?”

And I thought, well, I worked in government before. And, you know, I was starting a family, and so you know, it's not a great time to be taking a pay cut to, you know, to begin to start a family. But I could sense that there was something serious in this effort, meaning I don't think the industry quite understood how seriously the government was taking the importance of semiconductors in its supply chain resiliency and its implication for national security. Right?

The intelligent CEOs understood, but I would say a lot of them did not. And so I saw it as a once-in-a-lifetime opportunity to come into the space and try to shape it. And so, you know, I was looking around to see if other folks who had been thinking about the broader ecosystem needs, meaning: there are a lot of industry experts that know a lot about their segment, right? You could talk to folks that know really a lot about, say, logic semiconductor and the foundry business. But if you ask them to think about how to prioritize across all segments, they would have a tough time doing it.

And so I was looking for people that I could see the whole chessboard, if you will, right? And understand that if you make this move, then it has this implication there. And that's when I got introduced to Hassan here. As soon as I had a conversation with him, I thought it was in California at a little cafe. I got, I thought, here's a, here's a person that's actually been thinking about it. And from both academics and in a real industry way that can understand how to translate theory and practice in a public service way.

And so I think the point that I'm trying to make here is I think the whole thing depended on the kind of team that you're, you could recruit to think broadly but also think very tactically, but also be able to execute when the date when there's a deal to be made. I think we have that team in place, which is what drives the success and outcome of this CHIPS Act implementation.

HK: So don't you know, it's funny, Dan, reached out and wanted to like, I think we grabbed a coffee in Santa Clara at one of the Silicon Valley's most nondescript business parks, which is always funny to me having grown up in the Bay Area that like, the, you know, the future is kind of invented here, and you drive around Silicon Valley, and it's like, really not that exciting, right? It's like, office parks with like coffee shops across the street, and just like seems kind of bland, and then you like walk inside, and it's literally, that's where NVIDIA GPUs are being designed.

And, you know, I think to your question earlier, I think one of the most fun parts of this job, honestly, is learning about the breadth and depth of the semiconductor industry, because we are so hyper-focused on when is Nvidia launching its following GPU, what is the next Apple SOC going to be capable of? And then you actually start, you know, I think what we're, honestly the privilege of getting hundreds of applications is you learn about technologies that are really maybe sometimes niche, but critical to their use cases, and how difficult it is to scale those.

And I think it's, it's, it's like a great, it's honestly a great learning exercise to kind of go and say, like, wow, I didn't really know a lot about XYZ, and, you know, exotic compound semiconductor, for example, that is critical for future applications, and RF for power. And we get to learn a lot about those very quickly. And we're in coordination with our like investment colleagues, like make decisions on hey is this something that we should support? So that's one, which has been a lot of fun.

And, and for me coming from like, also coming from the private sector, it's, it's one where, again, I think, our office is unique in government in that I do think because most people come from the private sector, we have a very like, hey, let's, let's get to a good decision that we feel good about, like, I don't think we take, you know, people asking me sometimes, and Dan, you can probably speak to this more than I can like, what's it like working for the government?

And I always kind of find I don't really work for the government, I work for the CHIPS Program Office, which is like its own separate thing, right? We don't…We never had any routines, like, I think sometimes people forget this is when we make these announcements, like the first time we've done anything. So, there was, there wasn't a playbook for us on how to do this. You know, we were told, like, you know, indeed the lawyers have specific rules on how we have to follow and evaluate every application. And we do that, like, we spent a lot of time if you apply, every application gets its fair share of time in the office, even the ones that we think at face value are not probably very good.

We spent a lot of time looking at those and making sure that we follow the rubric in the protocol to say, hey, we actually did give this a fair shake. But beyond like the some of the baseline rules that, hey, you have to evaluate every single one of them, we had to come up with that process in real-time, which has been sort of the most humbling part of it is like, we're kind of running around learning how to do this in real-time as we're making some very consequential decisions.

I think I know we won't get 100% of them right, but I think the process by which we've made those decisions is very defensible. And I think, indeed, we will get far more right than we got wrong, given both the strength of the process and the strength of the team, right? We have a bunch of intelligent people across the entire team who can really dig into whether or not these are suitable investments for the US government to be making.

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DO: Yeah, I actually want to spend a hot second on that every single person I've ever worked at, at the CHIPS, the CHIPS office has been pretty impressive and unlike people in government I've interacted with before. I've almost always enjoyed the conversations every single time.

And I think that at one point, there became a lot of impatience, if, on the deployment aspect of it, that I frankly, thought was a little unfair, you know, because I had like a little bit, you know, like relationships with these people, I'm like, okay, you know, you guys are not doing this willy nilly. There's a lot of thought that goes behind all these decisions, right? And so maybe, can we talk about the timing aspect of it. Because I think that that was a big miscommunication from what people thought they were like, oh, this bill done, why aren't the checks rolling?

And I think the structure of how it was going to be deployed was maybe something that not many people are familiar with. So we'd love to hear that just for the public. And then also, you know, have a few questions after that.

HK: Dan, if you're okay, I'll jump in real quick. I think one of the first ones is we needed the firms, to give us the requisite information to be able to make these decisions. And I think there was a learning process between us and the firms on what information was needed.

So, you know, even when we opened the application portal, which, as you can imagine, there's a bunch of background work that this was before I joined that Dan and the rest of the team had to do on like, hey, what are you required to submit for us to be able to evaluate your project and make sure it's a good project for the government to put public dollars into?

You know, there was a ton of work that went into what it takes to submit an application because that infrastructure didn't exist. And then the firms had to actually gather all that information and submit it to us for us to be able to prove to taxpayers down the line that, hey, why did you invest this much money in this project? Well, here's how we came about that decision. And we did it in like an objective fact-based way with a lot of debate amongst experts on the team and amongst, you know, the broader commerce organization on what's the right approach, right.

So, it took a lot of time to even get that requisite information. And then even as we got all that information, the process by which we actually make an award, I think Dan can speak to it. That was a learning process to what are the things that you have to put down on paper that you and the firm have to agree with? To say, “Yes, we're ready to hand over money”, which has been a learning process.

And I think something that you'll start to see is, you know, since late last year, our pace of announcements has increased because we're getting better at writing term sheets, and on communicating to firms what sort of our, like must-haves are and firms understand them, and there's more clarity moving forward with those negotiations. But the last thing I'd say is, you know, what I think has been critical in many of these contexts in communicating with firms is I don't think they ever felt like that, that we were going to walk away from it unfairly.

Right. So the checks may take time actually to reach, you know, their coffers. But we did not hear from firms that like, “Hey, we're gonna walk away from this project, or we're gonna slow down construction on this project”. So the projects continued and, and that's the value to the US that the projects maintained the timelines that they were initially set forth on because firms understood that there was an ongoing, open, and honest conversation between them and us on what funding may look like.

And when they might receive that funding. It's not that they were like, well, we're not going to continue construction on this, or we're delaying the project because of uncertainty over CHIPS Act funding. So, I do think, you know, I think it's, it's a fair question to ask how come it took so long. But I think it's also right to point out that the project continued in the background. Right?

And I think the big one to give the example of is, if you look at TSMC, the announcements they've made about their timeline are in line with some of the initial announcements they had back in 2020. On when that fab would be operational, despite, you know, all of the noise that's been around that project.

DK: I think when the history of the CHIPS Act and the implementation is written, people will look back and ask the opposite question. With the hindsight and the benefit of hindsight of time, I think they'll say, “How did you move so quickly?” Right? Because I believe, in the assumption, the question you were asking, and perhaps some had this view at the beginning of this, is that the program intended to just the correct checks as quickly as possible and move on.

I think as ambitious as we set our targets, in terms of our thinking and reshaping the resiliency of the supply chain here, being able to stand up a program, being able to build a team, being able to go through learning cycles and learning curves on both sides of the negotiating table, meaning both on the government side, as well as the company side, the applicant side, establishing dialogues, exchanging information, quite frankly, establishing trust with each other.

And I'd don't think about the awards as just money being…going out the door. I think of it as creating a long-term partnership between public servants of the highest caliber at the Department of Commerce, and the US government and these essential semiconductor companies that are providing technology roadmaps for very critical end uses.

I think that people will look back and say, “How did you move so quickly?” And I say that because if you read the report recently released from the industry association, you can see the tanker ship of semiconductor manufacturing shares turning. It takes a lot of effort to do that, right? It's been on a downward trajectory for decades. Now, all of a sudden, it's turning, and the United States will be home to more than a quarter of the industry's capex spent for the next 10 years.

For every leading-edge semiconductor company investing here, these are incredible accomplishments that we are on track to deliver. And I think people will look back and say, “How did you do so quickly?” in hindsight.

HK: I think, you know, sometimes we say, oh, government moves so slow, but we have plenty of private sector comparison points like if you launch a VC fund, you don't give them you don't write all the checks of your VC fund in six months, right, you are going to do diligence on deals and evaluate them, and it can take years to disperse all that funding.

And so I think not just by the metric of how fast we're moving relative to other government agencies, but I think even in relative to private counterparts, and there's not a great counterpart, because our mission is different than like, say, a VC fund, we're moving very fast from getting stood up, right, like raising getting the money to getting the money out the door and getting, you know, a massive chunk of our money out the door, right. After all, you might raise a $10 billion VC fund and not allocate that to investments for seven to ten years. And I think the Secretary has publicly said that we will move much faster than that and get the entirety of our funding awarded to applicants.

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DO: That's a great answer. And I actually want to dive a little bit on one of the things you said. I think there's this concept here that, you know, definitely headlines versus the reality of, like, these were just checks run out the door gone, you know, truly just a handout to industry.

I think the reality is that there are terms to the money, like these are part of these programs, not grants. You know, I mean, some of them are maybe grants, right? There are reasons why they get the money, but one versus another. Perhaps it's like, and I would love to hear little specifics. I understand that you probably can't talk, but I would love to hear about supply chain resilience.

And then I also guess, in the long run, do you think this will be an opportunity for a consistent interface between industry and government? I mean, that's what it sounds like. And I think that, frankly, the government and industry haven't been as close as they should be given how strategic it is. And hopefully, with this, they can start to make longer-term decisions with, like, America in mind.

DK: Yeah, so let me take the last part of that question. First, I was in the federal government before I was the semiconductor in high tech analyst for a government agency called the International Trade Commission. The way that the commission is designed, you have individual analysts who could develop deep expertise in a particular set of goods. And so, for me, that was semiconductors.

At the time, at least on the commercial side of things, not counting the national security communities. There were two employees in the entirety of the federal government who were focused entirely on semiconductors. There was me and one other gentleman at the Commerce Department and the International Trade Administration that was just focused on chips. They had another person who focused on the machinery, semiconductor manufacturing equipment, and others. That was not that long ago. Right?

Everyone is focused on semiconductors, which seems the least in our world. And I could tell you it's the highest caliber in the world in terms of industry, public service, consulting, and the financial world. And I think we'll look back and say, goodness, the team we've built here has become a bit of a national treasure. I think that allows us to create exciting partnerships in the future.

The funding that we have in terms of the CHIPS Program Office that we get out will range if they meet the merits of what we think is a good project, a meritorious project, somewhere between 5 and 15%, as we outlined in the Notice of Funding Opportunity. So we know that the commercial viability has to be there for these projects before our dollars are spent by the companies, right? We're not naive, and the companies are going to come to us. They have to make sense long term.

And I think I credit the companies for coming with us with such fantastic projects because it's allowed us to shape them. And, you know, we are, we have announced several, what we call preliminary Memorandum of terms, we've kind of shorthand to start by saying PMTs, with four leading-edge companies, and several others that are more focused on defense and other sectors, if you look at them carefully, I think what you will see is the much longer timeframe of investments that people probably would have expected, right?

A real sign of building out large clusters of production, giving a roadmap of nodes and technology for customers to follow for several years, not just a flash in the pan. And I think you can see those as the intent of the success.

HK: So I think building quickly on what Dan said, the first element, I think, is essential of what he said, which is we are the marginal dollar for the majority of these projects. So, we don't take a project that, you know, makes no sense. And we're like, great; we'll fund this too, you know, some absurd amount and make you build here, even if there's no economic rationale for it.

This immediately means that we get good-caliber projects because these firms realize they're on the hook for the majority of the capital. And, so we see ourselves as taking a project that's, oh, it almost nets out, or maybe a smaller version of this project, or a less ambitious, ambitious version of this project nets out, or perhaps we do it on a slower timeframe. And we can enable it to happen faster, more ambitiously, and in a more economically sound way because the government is leaning in. I think that's one big one, we're not trying to create something that would not happen otherwise, and like an unnatural way.

That's why I think having the investment team on to really diligence, these projects from a financial perspective is essential. But I think also to build on that, you know, part of it is saying, hey, great, we're gonna help enable these projects, but you can't just look at it as the government giving you free money; there will be things that you do for earning those dollars, in addition to bringing up that capacity.

And there's a big focus on things like workforce, environmental stewardship, and responsibility, and supply chain resiliency. Those are some of our policy objectives where we work, and they're very bespoke, where we work directly with companies to say, yes, we certainly want you to build this facility. But we also want to know what sort of workforce investments you're gonna be making in the community and what types of training you are going to be doing. Who will you be working with to create those training programs?

And we have like a workforce team that works directly with each major firm to sort of understand what their challenges are and where public dollars may help on that. Similarly, I think we have an environmental team that evaluates all these projects to go through and says, first of all, what are the roadblocks from a permitting or environmental perspective that might delay implementation?

That's one big one, but then also, where are there opportunities for, you know, additional investments like water, water recycling, carbon abatement, etc., that we can help these firms with to improve the quality of the projects? Right? And, I think that's part of our overall approach, which is to say, we help to improve the economics of these critical projects that are important from an economic and national security perspective.

And then, on the margins, continue to help improve them from a societal perspective through other policy objectives. And I think those are some of the most fruitful conversations we have with firms because we often come with a different lens and help them think bigger and broader. Even if you know, I'm sure for some of those firms. It's a headache to say l, “Oh, I want to go build this plan. I don't want to go think about all these things. But I think that's an important role that the government can play in helping to, you know, candidly, shape and improve manufacturing in the United States.

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DO: I think you guys have a lovely way to think about it because $150 billion a year, right? You couldn't stand anything up if you just spent it all in one giant check, right? Like you have to how you're thinking about is more like shaping flows and ensuring all of the flows are returning to the United States where we need it critically.

And keeping in line with some of those considerations. I actually want to segue off one of those points here because this is my number one burning desire question that I personally always am very, like, I always think about a lot. And just the challenges of this is the talent aspect, right?

You talked about how, you know, some of the some of the things had considerations for how much workforce investment you're gonna do in local areas. Awesome. But something that I think is like the biggest ticking time bomb in, you know, even the United States is there kind of is this like burning desire for technical talent that I think doesn’t seem to be replenished fast enough. The average semiconductor worker is the in the mid-50s, I think, even late 50s.

And I would love to talk about some of the things that you thought about in that regard. Because if we're talking about, like, hey, bringing semiconductors home to America, that seems like one of the burning questions in the middle of it

DK: I'm happy you asked this question because I think there was an assumption, again, because, you know, it's a funding program. So, I understand why there was an assumption made that the only thing we need is just additional funding to close the gap in manufacturing costs between other locations, potential locations, and the United States.

And if you do that, then you know, all the other manufacturing will happen here. And we know that's not the case; there needs to be an investment in people. We know that there needs to be a talent to support it. So, if I could give you just a couple of examples of my personal experiences with this. And Hassan, I'd love to have your thoughts as well.

The first is that I worked in my previous position before coming to CHIPS, was as the Chief Economist for a company called SK Hynix, which is a which is a major memory producer based out of South Korea. And I remember sitting in a meeting between a high-ranking government official and the CEO who I reported to at Hynix. They asked him a very pointed question: What did South Korea do right? To get so much manufacturing in South Korea?

And I think they were because, you know, a lot of the debates about CHIPS Act that was happening at the time, I think the answer they were expecting was tax breaks, grants, whatever it is, permits. But his answer was straightforward: the government invested in people.

They invested in engineering talent. When it was time to build the facilities, it became very clear where they had to go. And I think that's right. And if you talk about the industry, the workforce is the number one problem they anticipate. Right? And so, when dealing with our applicants, we have a specific set of questions and dialogues about workforce development and the ecosystem they'll be building out. And rightly so.

As part of our R&D programs that Hassan referred to earlier, the Center of Excellence for Workforce Development is mentioned. This will be our major focus in the future, and it's a long-term effort.

The other is if I could share just one more anecdote with you. I'm an economist. And so, you know, labor is something that I think about a lot. And I think people assume that you know, once you have a pool of talented workers, then it becomes easier to fabricate the goods there, the widgets there.

I had a chance to visit a Southeastern country. It was Vietnam, as they were increasing in their test packaging ecosystem of semiconductors in Vietnam. Major companies are there. Samsung is there, Intel is there on semiconductors, a variety of others. And I remember sitting in a meeting with a medium-sized packaging company, I would say, right. The CEO there asked us for, and I wasn't in the government then, they asked us for a list of scholars from the reverse Fulbright program.

So, the Fulbright scholarship, you know, is where students can go abroad to study. However, they did the opposite thing in Vietnam at the State Department, where they took Vietnamese students and placed them in opportunities to study in the United States and then return. So, the CEO wanted a list of every participant. And he said something to me that I thought was remarkable. He said I don't care what they studied. I couldn't teach them this semiconductor engineering in-house. I want them to speak English and be interested in working for a global company. And I thought that was a remarkable statement.

And I was thinking about that and walking out of that science park. And I look across the street. In this thick building, which had Vietnamese signs everywhere, only one sign had English signs. And it said Arizona State University. So, in the middle of Vietnam, ASU was there, and they had a training program ranging from a week to several months for semiconductor engineering. And that changed my perspective on how the labor market could work.

It's a bit of a chicken and egg situation, once there was a manufacturer manufacturing base. The institutions for training and education came along and did their work in developing the talent, right? But it's hard to do that without having a manufacturing base. And so I think we're going to see that we're doing the hard work of revitalizing our manufacturing and putting in the fabs and ecosystem they'll create.

And then, we want to make sure that the companies we are supporting have an executable plan to partner with local universities, community colleges, and even high schools to create talent pipelines to feed into their ecosystems. And we're encouraged to see how they're all doing. Now that we have created some momentum here, universities and others are coming to us for advice on how they can participate. And so, I see the tide turning there as well. And it needs to because that's the only way we can make it successful.

HK: You know, and I think I don't know about both of you, but or not we, you know, when I picked my college major. All right, I was seventeen. I was like, you know, I did decently well in school. They handed us, I think it was in my chemistry class, they gave us like this notebook that was, like, your average earnings by major. '

And I swear to God, I chose chemical engineering because it had the highest average earnings by major. I was seventeen. I was like, that’s what I will apply to schools for, chemical engineering. I didn't know then that it was because of a bunch of people in chemical engineering going to oil and gas. And so like, they there's actually like, pretty bifurcated, where they made a ton of money, like right out of college, because they could go make six figures, but a lot of chemical engineers didn't make a ton of money. I didn't learn this until I went to school. And I was like, “Oh, wait, never mind”.

It ended up fine for me. But the whole reason I share this anecdote is that I think one of the things that this industry will have to do is create excitement, right? People have to be excited about it. And I think part of the low that we had for the last fifteen, twenty years; it wasn't a super exciting place to work because we weren't building fancy things like indeed, you know, people who you could go make tons of money, being a designer at a firm like Apple or Nvidia, but it didn't have a lot of cultural cachet, because everyone was like, oh, I want to go be a coder at Google or Apple or Facebook, or wherever.

And I think one thing that is also coming out of this program is it's increasing the cultural cachet of the industry. And that will help build excitement for people to say, like, maybe I should look at this industry and have a career there. Right. And I think that will also be part and parcel with demystifying it. I think the industry loves to talk about how it builds the most advanced devices and the most like, you know, in the most advanced factories in the world, but I think that also kind of scares people away. We're like, wow, that just sounds complicated.

And I think as more people get exposed to the industry and exposed to the curriculum, they will learn like, oh, yeah, you know, this is a place that I can go have a career and do work that is interesting, and exciting, and also make good money. And it's not like rocket science, which is way above my head. I can go and do it and contribute, you know, in myriad ways that fit my skill set and feel good about it. And I think that will go a long way in addressing the shortage.

If you remember, people were like, we're not really going to have enough coders. And now, we're turning out so many computer science graduates that they're like, okay, I think we may actually have too many computer science graduates like guys, just go study something else. So, I think that will be a part of the ecosystem development for this industry, and we will have to get them to attract talent through excitement.

DK: Yeah, there's actually, you know, an incredible amount of automation in the industry, right? And you have to because the technical requirements for these chips are so intricate that you don't do these by hand. So, if you're counting, like capex to jobs, it won't look very good, right?

At the same time, these are enormous factories that we're building. And so you do require a lot of people just out of sheer necessity. So, Doug, I don't know if you've ever been to an actual fab, right? In East Asia? Okay. They're the biggest things you've ever seen. Right? You walk around it, and you're just awed at the scale of what is happening, right? Like it's like blocking out the sun, this enormous structure. And it's especially true if you go to places like Korea, where they're building two fabs on top of each other. Right? And so they're the tallest and the biggest thing you've seen.

In my last job, I remember interacting with the manufacturing worker when I was taking a tour and having lunch together. And he said he asked me a question. And he said, you see these restaurants, karaoke bars, and others, these things run here. 24/7. Right? You will notice happy hours happening at 6 am for the night shift because these fabs run 24/7. You have to run them 24/7; otherwise, you don't make you can't be profitable. And they asked me the question, do you think this is possible to create in the United States? Will people work hard enough?

Because it's not just electrical engineers and PhDs that need to be at these fabs. It's your high school graduates and your community college graduates that will need to be in there and doing the line shifts. Do you think that kind of talent will be there? And there was a misperception in East Asian countries as to whether American workers will be willing to work hard. Because I think in foreign places, there is this caricature of lazy American workers compared to these Asian folks.

My answer to them was: absolutely. Right. They will work hard because you haven't met them yet. And I was biased because, you know, my mother was a manufacturing worker. This was, you know, she worked at a frozen food factory. And her shift was from 3 pm, to 1 am. Right. And I would often have to go pick her up from work. It was hard work. But there was benefits attached, there was health insurance. And we could put food on the table in our household doing honorable work. And so, of course, we can do it.

American workers are resilient. And I think the companies that are building here will find that you know, of course, there'll be learning curves for them as well as building and adapting to new cultures here. But I have absolute faith in the American workers to pull this off.

DO: One hundred percent.

HK: One little quick, I think on the internet, there's this. I've complained about this. But on Twitter, there are a lot of people who kind of, especially in the context of the TSMC fab, they'll be like, “Oh, Americans can't build fabs because you need hardworking and obedient East Asians who will work 24/7 to build these fabs”. And I think I have found that discourse to be pretty uncomfortable.

America is full of hard workers. You go to any of our world-leading companies, and they're chock full of people who work more than 40 hours a week, and they're very diligent. And those people can find the industry in the US exciting.

There are plenty of hard-working, talented people. “Cool, I want to go work on those projects and be at the forefront of semiconductor technology. It will be a culture shock, for sure. Right. I think one of the most interesting challenges is that we now have foreign firms setting up in the US in this industry in a way they did not. And I think that'll be a cultural challenge for them.

But as you know, I look at the history of automakers. There are tons of Japanese, German, and South Korean auto plants across the US, and they seem to be able to work just fine. I don't see why Taiwanese and South Korean chip makers won't be able to do it, either. Maybe it'll take a little while. But everything takes a little time to get to a steady state. Yeah.

DK: And, you know, when I speak with Korean executives, they actually complain about, like, they actually are concerned about like youth and the cohort of folks entering into the working age in Korea and saying, they don't want to work at a factory. They want to do other things. And I think, you know, this sounds familiar, right? But I think they underestimate how much the American workforce wants to make things right and wants to work in manufacturing. I find that to be a caricature that's been perpetuated, and it is not helpful. And I think the reality will be very different.

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DO: This is an amazing conversation, by the way. You're right; there has to be a desire and willingness for why, right? You have to have a cultural cachet to understand that. Like, I guess semiconductors, for a long time, was a very unsexy industry. And now I think people realize it is building the future, right? We want to build the future back here in the United States.

DK: that's right. And it is hard work. Let's not let's not make any, let's not, you know, let's not get ourselves, it is incredibly hard work, right, you're on your feet, you're working with very little things. And it's very intricate. In some ways, like, the companies take a lot of risks, because it's inherently capital intensive. It's not for the faint of heart, either. But I don't know where we got the idea that Americans can't do that.

DO: Don't forget that, you know, I still think it is a little bit of a melting pot, right? There are people who come here and take risks to come here and are more than willing to drop everything to come to the United States, right?

DK: That's right.

DO: People are more than willing to do anything and whatever it takes to achieve the American dream. And I think that, you know, people forget. I'm sure we're like, I'm the son of a first-generation Chinese-born person.

I think the thing is, if you pay people enough, like, you know, and there has to be, you know, it's like the supply-demand thing, right? At a certain point, you can definitely always attract the talent. I'm excited that when you start making these manufacturing things, you must reinvest in the workforce. Otherwise, your investment goes bad.

And so these things will start to happen. And then, and then also, even on the super high end, like we're talking about, like the PhDs and stuff, that itself is also a very competitive field, right? Why be a PhD in semiconductor engineering when you can go do it in something else? These things are slowly moving but the tide is hopefully back.

And I think that so far, from what I've seen from the CHIPS Act, I believe you are doing a great job or are beginning to build a framework to continue to do this. It was super excellent talking to you guys. I just want to ensure we covered everything we want to discuss.

DK: You know, speaking on that last point, Doug, Hassan, and I both have PhDs. And we joke about why we do PhDs at all, for life choices we've made. So you know, and I think if you talk to ten PhDs, they'll, you know, half of them will tell you the same.

But you know, the answer is that we were really passionate about the things we were studying, right? And what do people who are passionate about the subject they're studying and want to push the boundaries on? They want a place where they can do work. I worked for SK Hynix. But I also worked for a company called Qualcomm, and I'm sure you're familiar with that. And what they do, right?

Incredibly, incredibly important company, critical technologies they invent. And, you know, the two chief economists there that that that hired me, something I'll never forget, they said, you know, when she was studying wireless engineering, she said, everyone that studies wireless engineering around the world know that the place you want to end up as San Diego, that is the capital of the world for wireless engineering.

So, if you want to be at the top of the game, that's your goal. And I've thought about that a lot since then. And I think, how do we measure the success of chips? In some ways, I think two people will want to work on electrical engineering, material sciences, and everything that feeds into the semiconductor ecosystem. Will they look at the United States and say, and around different locations in the US, right? That's why we had an ambitious goal of creating as many clusters for the leading edge as possible.

Will they say, you know, the pinnacle of my goal is to end up in Arizona, or Texas, or Oregon, or New York, for Micron? And I think that is, there's a lot of value to that. Right? And I think that's a generational shift that we're making. We're proud of that.

HK: You know, I think, you know, there's a lot of consternation of, are we going to have the right workers and are we going to fill all these fabs and get them all the employees? I think our secret sauce in this country is precisely what Dan said: is that we have an existing ecosystem that attracts the world's most motivated, sharpest people, and they come here on their own.

And now we have an industry that is because of the CHIPS Act, not because of, but in part because of the CHIPS Act, and in part because of the growing realization of the importance of semiconductors, right? That is being reignited here in the US. You're going to have people, you know, who will have careers where they get to go work at, at an NVIDIA as a designer, but then they'll, they'll need those skills at the foundries as well, right, because you're going to need people who know what it takes to design a leading edge chip to help create the PDKs that you want.

And so you're gonna have, like our secret sauce, that we're gonna have so many leading companies across the entire stack that you're gonna have people bringing that knowledge as they move across these firms, right? And I think just in the case of manufacturing, I'm personally so excited by the fact that we're going to have multiple leading-edge firms operating in close proximity because, hey, people are going to move across those firms, and they're going to show they're going to teach each other best practices, hey, why don't you guys do you know, your layouts this way? At the other place? We were doing it this way.

And people might worry about trade secrets and stuff. But that's how knowledge flows. And it will force companies that are operating here to get better from the knowledge transfer from amongst these firms. Right? If you think about it, you know, Dan, when you went from SK to…Qualcomm to SK, you probably brought like, hey, you know, we thought about some of these things this way over there. And it probably helped improve how SK operated.

I know that was how I operated, going from, say, McKinsey to Apple. And I think that same thing will happen in this industry where you're going to have the world's best and brightest moving across different firms. And that will, you know, be their superpower in the years to come. That's not available anywhere else. Other ecosystems are probably more advanced today, like probably in South Korea and Taiwan. But they don't have the breadth and diversity of firms that we do that will help force people to uplevel their game.

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DO: Sometimes people forget who invented the freaking semiconductor. And that happens to be America. And so what it sounds like is we're on a long journey, but maybe, just maybe, perhaps we'll be back, right?

I really think that people have forgotten who the leading semiconductor, AI semiconductor company is today. It's Nvidia, the leading wireless company today. Qualcomm, you know, sells the most phones, at least in terms of value. It's Apple.

We still have a lot of chops here. And sometimes we, you know, we outsource things because it's cheaper. But I think we have focus, and I'm happy that we have, you know, flows and ways to position and shape and mold the long term because I think that if we, you know, with a little bit of interest, a little bit more passion, and, you know, public discovery, public funds, that we are manufacturing back. I'm pretty excited about that.

HK: I agree. However, I caution us that is a long journey. Right. We talked, you know, Dan, Dan, and I, we spoke to these firms, and they're talking about investment timelines that are on the order of a decade, decade-plus in some cases, right?

So I think it's tough because the coverage of this has been very much around like, we get it, it's a political program, and there's a political election cycle, etc. But we won't see this results until probably the end of the decade when these fabs are up and running in numbers that we can say, here's how many jobs have been created, and so on.

But I think to Dan's point earlier, an essential part of getting to that end-of-decade success, where all these fabs are up and running, will be to maintain that relationship between the CHIPS Office and these firms. So that way, when hurdles do come up with naturally, you know, schedules slip, or something comes up, there's a collaborative arrangement between the government and these firms to ensure that A) taxpayer dollars are used well and managed correctly and B) that these firms are successful.

And so it's a process, but I think, you know, I'll speak for myself, but I think Dan agrees; we're excited about what the future of the industry in the US looks like. Because there's going to be a lot of activity. And it's going to mean, you know, I think the future is bright.

DK: Yeah, I, you know, I want to express gratitude to the Secretary who laid out a vision, a President who has been very supportive and has also been laying out that vision, and bipartisan support from Congress from the beginning. It's not easy in this country to sort of dabble in what many people would call industrial policy.

And I think many people would imagine this amorphous bureaucracy where they don't know what they're talking about. They're unfamiliar with how, you know, businesses work. And they make a lot of a lot of waste. And, you know, the government can never really make it work. I think I think all those, despite those potential hurdles, have those assumptions; Hassan and I are humbled to have been entrusted to play our part among 150 others who are of the highest caliber public servants and the CHIPS Program Office to execute this thing on behalf of the American people.

This has taxpayer dollars, and I never forget it. Every time I show up, I think, how do I use taxpayer dollars to maximize the American people’s national security and economic security? And I can tell you that everyone works incredibly hard. The knowledge base and the experience in the industry, about the industry, the financing, workforce, national security, and the level of expertise that exists within the team, I think people will be shocked, right?

They would say, “How did you create a team like this?” and I think at the end of the day, that's what makes this job really fun, and we're all understanding this is the most consequential thing that we might do in our lives. So it's just been an honor. Our job's not done. I think any investor could tell you the hard work begins after you've decided to fund something. And we all see it that way.

We want to make sure that we're planting the right seeds and laying the proper foundation for us to build on, so we really appreciate your attention to this as well. Doug, you know, we could use all the expertise and attention we can get on it.

DO: Perfect, thanks. Thanks for coming on. I appreciate that. Maybe you know because this is a, you know, as you know, as I was saying, this is this a marathon. Maybe in a while, we'll talk again or something.

I'm sure this will be a decade-long journey for America, and I'm excited to be a part of it—either on the outside or inside of it. I think it matters to all of us here, and I'm excited for whatever that's going to be. I think it will be bright. Thanks for your time, guys.

DK: No problem. Yeah, and honestly, I'll be here as long as I can stomach it financially. Are we still recording?

DO: We can stop it now, haha.


Shout out to the public servants who work at the CHIPS program office. It’s not exactly a glorious job, and neither are the paychecks that come with it. But the CHIPS act will be consequential, and I’m happy we are bringing some manufacturing back. Until next time!

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Fabricated Knowledge
Fabricated Knowledge
Let's learn more about the world's most important manufactured product. Meaningful insight, timely analysis, and an occasional investment idea.
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