The rise, fall, and ‘renaissance’ of Japan’s chip trade

Most chip conversations concentrate on Taiwan or South Korea, which host a few of the world’s main chipmaking corporations. Governments are courting corporations like TSMC, Samsung and SK Hynix to arrange new services of their international locations, ostensibly to spice up provide chain resiliency.

Nevertheless it was a unique image 50 years in the past. Within the Nineteen Eighties, six of the highest 10 chip producers had been Japanese. The nation’s producers managed about half the market in 1988. However Japan’s chip dominance faded due to a mixture of fixing market developments, the rise of recent competitors, and geopolitical stress. 

Now, Tokyo hopes it may revive its chip fortunes with a brand new authorities technique backed by billions of {dollars}—with TSMC’s plant as the primary stage in Chang’s predicted “renaissance.” 

TSMC’s new plant on ‘Silicon Island’

Very like how the U.S. has Silicon Valley and Taiwan has Hsinchu Industrial Park, Japan has its personal chipmaking hub: “Silicon Island,” the trade’s nickname for the island of Kyushu.

A few of the corporations with bases on Japan’s third-largest island embody Tokyo Electron, Sony and Renesas. And now it’s additionally dwelling to a brand new plant from the world’s main producer of modern chips: TSMC. The world’s largest contract chip producer opened the plant on Feb. 24 in Kyushu’s Kumamoto prefecture.

The plant is a three way partnership including native heavyweights Sony and Denso. The Japanese authorities chipped in too, allotting 476 billion Japanese yen ($3.2 billion) in grant cash. Tokyo is promising a further 732 billion yen ($4.9 billion) in further support for a second TSMC plant. The Taiwanese chipmaker stated in early February it was opening a second plant with Toyota becoming a member of as a brand new investor.

The TSMC plant is step one in what Tokyo hopes might be a revival of Japan’s chip trade. In June 2021, the Japanese authorities launched a technique that put semiconductors on the heart of its financial safety coverage. Tokyo promised subsidies for home chip manufacturing, a analysis heart for superior chips, and a deeper partnership with the U.S.

“If TSMC is there, that means [Japan’s chipmaking] capacity will be much bigger than before,” says Helen Chiang, who leads Asia semiconductor analysis on the consulting agency IDC. “It can attract other companies to invest in Japan, like Intel or Samsung.”

A chip renaissance

Japan used to dominate the semiconductor trade. Giant home demand for chips helped to help the sector between the Sixties to Nineteen Eighties, increasing Japan’s share of semiconductor design and manufacturing. Japanese corporations additionally had simpler entry to financing than their U.S. counterparts. Quickly, corporations like NEC, Hitachi and Toshiba had been taking on the worldwide market. 

However finally Japan misplaced floor to different economies like South Korea and Taiwan. Whereas some observers level to the rise of corporations like TSMC and Samsung that invested in foundries, or missed alternatives in the course of the PC growth, Chiang thinks the rationale for Japan’s decline is partly as a result of geopolitics. The U.S. noticed Japan as an financial rival ranging from the Nineteen Seventies, and should have worked with South Korean firms as a substitute, she suggests.

Within the Nineteen Eighties, U.S. corporations complained that Japanese corporations had been dumping chips onto the U.S. market. The Semiconductor Business Affiliation within the U.S. and corporations like Micron and Intel filed anti-dumping lawsuits towards Japanese exporters in 1985. 

One yr later, Japan agreed to voluntarily restrict its gross sales to the U.S., and pledged to open up at the least 20% of its personal market to overseas producers.

At present, Japan is nowhere close to the cutting-edge relating to chip manufacturing, with its most superior foundries producing chips which might be a decade behind what TSMC can do, at greatest. 

But Chiang emphasizes that Japan nonetheless has a agency grip in the marketplace relating to supplying tools to make semiconductors. 

And that offers Japan some leverage within the chip trade. In early 2023, Japan and the Netherlands agreed to restrict the export of superior chip making tools to Chinese language corporations, aligning themselves with U.S. efforts to constrain China’s chip sector. That had an sudden consequnce: Chinese language corporations scrambled to seize chipmaking instruments that weren’t topic to export restrictions. Robust demand for chip making instruments helped grow Japan’s exports to China by 29% in January.  

Japan’s subsequent steps

TSMC’s present plant in Japan will start manufacturing by the tip of the yr, and can develop chips within the 12 nanometer to twenty-eight nanometer vary, which would be the most superior semiconductors produced in Japan.

That superior manufacturing will elevate the extent of expertise in Japan, Chiang says. Japanese corporations can study from being part of TSMC’s manufacturing within the nation. Corporations could even have the ability to construct a long-term relationship with TSMC, maybe working with the Taiwanese producer with its planned facility in Germany, scheduled to begin operation in 2027.

TSMC isn’t the one chipmaker attracted by Tokyo’s provide of cash. Samsung and U.S.-headquartered Micron are additionally planning huge investments in Japan.

“Japan will play a more important role” within the chip sector going ahead, Chiang says. “It will not only have the stream of materials and equipment, but [Japan] will enlarge [its] influence in foundries.”

Japanese officers are already hopeful that the TSMC venture will enhance the encompassing economic system. Above-average pay on the plant is already having “a ripple effect” on the encompassing space, Ken Saito, Japan’s economic system minister, stated on the opening ceremony on Feb. 24. 

However there’s nonetheless extra work to be achieved to reverse the nation’s fortunes. “To revive the Japanese chip industry, this is where the real challenge begins,” he stated.