Japan to get Taiwan chip maker TSMC’s help to revolutionise its semiconductor sector amid economic, security concerns

Japan will spend huge amounts on making advanced chips, with Taiwan Semiconductor Manufacturing Company to build its second plant in the country
Analysts say post-Covid growth must take Ukraine war and Taiwan tension into account as it could lead to chip supplies from the island being cut off

Japan

Julian Ryall

Published: 9:30am, 9 Jun 2023

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Japan plans to inject massive amounts of cash into its semiconductor sector to rebuild its domestic industry – with a little assistance from Taiwan.

The coming “revolution” will be different to the first time Japan dominated the microchip sector, say analysts, with Tokyo keen to build alliances with foreign governments and companies including European firms at the same time Japanese firms use their world-leading technology to manufacture niche chips, the tiny bundle of circuits that do specific tasks in electronic devices used by billions.

Taiwan Semiconductor Manufacturing Company, the world’s largest contract chip maker, on Tuesday announced plans to build a second plant in Kumamoto, in southern Japan, even before the firm’s first plant in the prefecture is completed.

The latest project is being carried out in collaboration with Japan’s Sony Group and car components manufacturer the Denso Corporation. TSMC Chairman Mark Liu was quoted by Taiwan’s Central News Agency as saying that the facility will start producing logic chips – the so-called brains of a device – with circuit line widths of 10 to 20 nanometres in late 2024.

Japan is chipping in with 476 billion yen (US$3.4 billion) for the development of the first factory, with TSMC matching Tokyo’s investment.

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The same day, the Japanese government said it was looking at introducing “substantial” tax incentives and financial support for capital spending and plant construction in the semiconductor and battery storage sectors.

The full details of the scheme will be unveiled by the end of June and are a key element of Prime Minister Fumio Kishida’s plans for economic growth. His government is also aiming to attract skilled engineers and will step up cooperation with Europe and the United States to do so.

The foundations of the new policy have already been established, with semiconductor manufacturer Rapidus Corp established in Japan in 2022 with funding from eight domestic tech firms, the Sankei newspaper reported.

Investment of around 5 trillion yen (US$35.6 billion) has been allocated for the next decade, including the construction of a state-of-the-art production facility in Hokkaido. The Japanese government has announced support to the tune of 330 billion yen and made it clear that additional support will be made available when needed.

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Rapidus intends to commence mass production of advanced two-nanometre logic semiconductors by 2027.

Meanwhile, Japan’s Renesas Electronics Corporation intends to resume output at its Yamanashi plant in 2024, 10 years after it closed, while the nation’s Kioxia Holdings Corp opened a flash memory chip production facility in Mie prefecture last year.

Critically, Japanese Trade Minister Yasutoshi Nishimura and Gina Raimondo, the US commerce secretary, agreed in talks in the US in late May on the need for a joint road map to develop next-generation semiconductors as well as the engineers needed to keep the technology advancing.

Their discussions also addressed measures to protect and enhance the sector’s supply chain and cooperation on export controls.

Semiconductors are essential elements in electronic devices, enabling technological advances, including speed and efficiency, in communications, military systems, clean energy, healthcare and numerous other applications.

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Experts say Japan’s commitment to rebuilding a sector that was allowed to decline in recent decades underlines concerns over both economic and military security.

“Japan is still one of the world leaders in semiconductors in terms of core components, but not so much in wafers [the material in which chips are embedded],” said Martin Schulz, chief policy economist for Fujitsu’s Global Market Intelligence Unit.

“Japan still has a lot of capacity for producing for the auto industry and this is an area in which they are extremely competitive, but there is concern over the latest chip technology, those used in smart technology.”

Japan and the US both outsourced that work in the past, in Japan’s case largely to Taiwan’s TSMC but also to South Korea’s Samsung, today the only firms capable of producing the vast numbers of advanced chips required around the world.

Japan got out of producing [chips] on its own 30 years ago but is now bringing capacity back

Martin Schulz, Fujitsu’s Global Market Intelligence Unit

Challenges to global supply chains in the last couple of years – linked to the Covid-19 pandemic and the war in Ukraine – and rising security concerns in northeast Asia have prompted a rapid rethink in Tokyo, Schulz said, and it is scrambling to bring back production.

“Japan got out of producing on its own 30 years ago but is now bringing capacity back, although the difference now is that it is doing it with partners, primarily TSMC,” Schulz said.

That drive is supplemented with active investment in the development of more sophisticated chips and a “sustainable, long-term plan with its partners”.

Tokyo also clearly has one eye on China, which is being squeezed by the US and other governments concerned at its growing aggressiveness on the global stage. China consumes 36 per cent of global production of semiconductors, Schulz said, but only 6 per cent of all chips are manufactured in China and a mere 2 per cent are in Chinese-controlled factories.

Employees work at a semiconductor production facility for Japan’s Renesas Electronics in Beijing. File photo: AP

“Japan’s priorities right now are all about economic security and that is largely driven by the situation surrounding Taiwan,” said James Brown, a professor of international relations at the Tokyo campus of Temple University.

“It’s a shared concern, of course, that if [Chinese President] Xi Jinping decides to take action against Taiwan, whether that is a blockade or a full-scale invasion, then that will cut off supplies of chips,” he said.

“TSMC has a special position in terms of chips and so the setting up of production facilities in Japan is for a worst-case scenario, and it also suits Japan to have as much of the chip supplies it needs in Japan.”