Strategy for revival of the Japanese Semiconductor Industry

Strategy for revival of the Japanese Semiconductor Industry

In 1988, Japan’s global market share in the semiconductor industry was larger than that of the US’s and in fact the most in the world, at more than 50%.[1] Its share has been declining since 1990 due to increased competition with newly established Asian semiconductor companies. As of 2020, the market share of Japanese semiconductor companies is just 6%.[2] Although Japanese companies remain strong in areas such as manufacturing equipment, power semiconductors and sensors, it is still a far cry from the late 1980s.  The Japanese Government is continuously criticised by the industry for its lack of policy to restore the semiconductor industry in the nation.

In response to increasing political pressure from the domestic industry, Japan’s Ministry of Economy, Trade and Industry (METI) issued “The Strategy for Semiconductors and the Digital Industry”[3] in June 2021, with the aim of revitalizing the Japanese semiconductor industry, as well as its digital industry. The Strategy particularly emphasised the importance of the semiconductor industry, highlighting its critical role in the move towards a digital society incorporating 5G, artificial intelligence (AI), Internet of Things (IoT), and autonomous cars, as well as its positive effect on national security.

Mr.Akira Amari, the chairman of the working group in the ruling Liberal Democratic Party for semiconductor strategy promotion, stressed at an interview for Jiji Press in September 2021 that the semiconductor industry must remain in collaboration with foreign companies to avoid risks to Japan’s economic security.[4]

Japanese Strategy and TSMC’s decision

The Strategy, considering the amount of subsidy and support provided by other governments including the US, China, EU, Taiwan and South Korea for securing their domestic semiconductor industry, declared that the Japanese government will:

  • Invite foreign companies to build their semiconductor foundries in Japan together with Japanese companies and institutions.
  • Accelerate digital-related investments and strengthen the design and development of cutting-edge logic semiconductors.
  • Promote green innovation.
  • Strengthen the portfolio of the domestic semiconductor industry and enhance its resilience.

Japan also convinced Taiwan Semiconductor Manufacturing Co. (TSMC), the world’s biggest contract chipmaker, to invest in the nation. Further, on 14 October 2021, TSMC announced the construction of its first-ever chipmaking plant in Japan, with the aim of strengthening the local semiconductor supply chain.[5]

On 15 October 2021, Koichi Hagiuda, the Minister of Economy, Trade and Industry warmly welcomed TSMC’s decision to build their plant in Japan. He committed to providing a multiyear support package for TSMC and to secure several billion dollars’ worth of subsidies in the fiscal 2021 supplementary budget. Japanese Prime Minister Fumio Kishida noted that he expects the country’s semiconductor industry to become “more indispensable and self-reliant, making a major contribution to economic security”. He also affirmed his support for large private-sector investments.[6] The Japanese Government will subsidise up to half of the cost of said investments.[7]

TSMC’s Kumamoto Plant with Sony

In a joint project with Sony Semiconductor Solutions Group, TSMC plans to build a USD 7 billion plant in the Kumamoto Prefecture, located in Southwestern Japan. Construction is scheduled to begin in 2022, and production set to begin by the end of 2024. The foundry, which will be 22-nanometer and 28-nanometer chip production line, is expected to have a monthly production capacity of 45,000 12-inch wafers. Sony will invest some USD 500 million in the TSMC subsidiary, which will be called Japan Advanced Semiconductor Manufacturing Inc. (JASM), representing an equity stake of less than 20%.[8]

Denso’s Participation

A further announcement was made on 15 February 2022 that TSMC will increase its investment in the joint project, as auto parts maker Denso joined along with Sony Group. Denso will provide USD 350 million in equity for JASM, taking a stake of over 10%.  The expected increase in funding will help TSMC build a production line for 12-to-16-nm chips in Kumamoto, in addition to the 22-to-28-nm chip production line envisaged in the original plan. The project was originally estimated to cost 800 billion yen (USD 7 billion), but the three companies estimate that the project will be now worth USD 8.6 billion. The Kumamoto Plant will turn out logic chips, which serve as the main processors in computers. Chips in the 10-nm class are necessary to handle complex data generated by autonomous vehicles and advanced driver-assistance systems designed to prevent collisions. Denso aims to secure a stable source of the advanced chips needed for autonomous vehicles.[9]

Comments

When the announcement was made by TSMC to build the Kumamoto Plant in October 2021, the plan to build 22-to-28-nm chip production line was criticised for being far behind TSMC’s most advanced 5-nm technology, which is currently used in its domestic plants mostly for smartphone and computer processors. South Korea’s Samsung is currently the only chipmaker other than TSMC that is capable of mass-producing 5-nm chips.[10] After Denso decided to participate in this joint project, the original plan was changed to 12-to-16-nm chip. However, this is still not the most advanced technology.

TSMC was also vied by the US government, and it has announced plans to build a USD 12 billion chipmaking plant in Arizona. Construction of the plant has begun. Despite delays due to labour shortages brought on by the Covid-19 pandemic, the plant is expected to be operational by the first quarter of 2023.[11] TSMC’s Arizona Plant will provide a 5-nm chip production line with the most advanced technology.[12]

These additional chipmaking plants will contribute to addressing the increasing global demand for semiconductor chips. In addition, domestic plants are needed for national security reasons.  Several experts are of the view that large-scale subsidies to a particular project contradicts the World Trade Organization rules. The Japanese government has amended the “Act on Promotion of Developing/Supplying and Introducing Systems Making Use of Specified Advanced Information Communication Technologies (known as ‘Act for promotion of 5G network’)” to justify the expenditure for semiconductor subsidy. This  will enter into force on 1 March 2022.[13]

The Japanese Government’s decision to support TSMC’s Kumamoto Plant is said to be too late for the Japanese semiconductor industry to restore its market share in the global market. Those affected should pay attention to the impact of the Japanese Government’s policy in coming years.

[1] https://www.shmj.or.jp/museum2010/exhibi065.htm
[2] https://dempa-digital.com/article/186425
[3] https://www.meti.go.jp/english/press/2021/0604_005.html
[4] https://www.jiji.com/jc/article?k=2021100100883&g=eco
[5] https://asia.nikkei.com/Business/Tech/Semiconductors/TSMC-announces-plans-to-build-first-chip-plant-in-Japan
[6] https://asia.nikkei.com/Business/Tech/Semiconductors/Japan-readies-multiyear-support-package-for-TSMC-s-new-chip-plant
[7] https://asia.nikkei.com/Business/Tech/Semiconductors/TSMC-in-Japan-5-things-to-know-about-its-chip-factory-plans
[8] https://english.kyodonews.net/news/2021/11/610ebdba1ea1-urgent-tsmc-to-build-plant-in-japans-kumamoto-pref-to-make-20-28-nm-chips.html
[9] https://asia.nikkei.com/Business/Tech/Semiconductors/TSMC-lifts-Japan-chip-plant-investment-with-Denso-following-Sony
[10] https://asia.nikkei.com/Business/Tech/Semiconductors/TSMC-in-Japan-5-things-to-know-about-its-chip-factory-plans
[11] https://asia.nikkei.com/Business/Tech/Semiconductors/Construction-of-TSMC-s-U.S.-chip-plant-delayed-by-labor-crunch-COVID
[12] https://asia.nikkei.com/Business/Tech/Semiconductors/TSMC-starts-construction-of-12bn-Arizona-chip-plant
[13] https://www.meti.go.jp/english/press/2022/0222_001.html

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