Japan, once the world leader in microchips, is now racing to catch up

TOKYO – It was spring 2021, and the demand for new cars was rising. But, with consumers pouring in and savings amassed during the pandemic, they rushed to dealerships around the world, one Japanese car maker after another. out of production While they were waiting for imports of a critical component: semiconductors.

The coronavirus outbreak has shut down chip factories, and an unexpected surge in electronics demand from people coming out of the pandemic at home has restricted supplies. Nissan alone predicted a drop in production of half a million vehicles.

The chip shortage deficit — a blow to the “head” of the Japanese economy, in the words of Yoshihiro Seki, the lawmaker leading a study group on semiconductors — has awakened the country to the fragility of the supply chains that support its most important industries.

This has led to a broad reconsideration of how Japan protects its economy, the world’s third largest, against both unexpected economic shocks such as the pandemic and looming risks such as escalating tensions between the United States and China. These dangers were highlighted this week as House Speaker, Nancy Pelosi, visited taiwan, Which led to an angry reaction from China.

The review covers a range of sectors, including energy, but semiconductors are among the most important concerns. To increase production, the Japanese government is investing billions of dollars in the domestic chip industry and providing massive subsidies to joint ventures with companies from Taiwan, a major supplier of semiconductors, and from the United States.

In a break with its former economic nationalism, it is also seeking to form an alliance with allies such as the United States and the European Union to build a semiconductor supply chain that is less geographically focused and better insulated from disaster and geopolitical instability.

The latest move came on Friday, when Japan and the United States announced they would establish a joint research center for advanced semiconductors that would be open to other “like-minded” nations.

“The era of peace is over and it doesn’t matter who supplies us with semiconductors,” Kazumi Nishikawa, a director at Japan’s Ministry of Economy, Trade and Industry, said in an interview.

For both Japan, once the world’s largest chip maker, and the United States, the birthplace of semiconductors, the erosion of chip-making capabilities over decades has made them play catch-up. Congress last week Huge industrial policy bill passed That included $52 billion in subsidies and incentives to revitalize the US chip industry.

The new efforts in both countries are seen as critical to economic and national security as China expands its chip market share and takes an increasingly tough stance on Taiwan, raising the risk of disruptions to the flow of chips made there.

The question is whether the initiatives will be sufficient. Japan once made more than half of the world’s supply of semiconductors, powering Toshiba computers and Nintendo consoles, but its market share has fallen to about 10 percent as globalization has prompted companies in rich countries to contract chip production abroad.

Companies like Taiwan Semiconductor Manufacturing Company, or TSMC, a custom chip maker that has received ample government support, amassed enough customers for economies of scale that made it irrational for companies in Japan and elsewhere to continue manufacturing most chips in-house.

Japan continues to lead the market in some products essential to semiconductor manufacturing, including specialty chemicals and silicon wafers. The state also has a monopoly on some highly specialized tools used in the production process.

But it lacks the expertise to make high-end chips that are made only in Taiwan and South Korea. And while the geopolitical calculus of supply chains has changed, many of the economic factors that caused Japan’s shrinking chip market share have not.

Analysts said that would make it difficult, and possibly very costly, for Japan to revive the industry. A semiconductor study group run by Mr. Seki, a Japanese legislator, has estimated This success will require an investment of at least $78 billion.

“What they are trying to do is reverse more than 20 years of underinvestment,” said Damian Thong, head of Japanese equity research at Macquarie Group.

Whether the project is economically viable or not, Japan believes it has no choice but to try.

The first steps actually took place in Kyushu, in southern Japan, which is known as Silicon Island due to its location as the hub of the country’s once thriving semiconductor industry.

In June, METI announce It will provide 3.5 billion dollars in subsidies to build $8.6 billion chip smelter In Kumamoto, a prefecture on the western coast of the island.

The plant, the first to receive government support under the new initiative, is a joint investment between TSMC, which makes more than 90 percent of the world’s most advanced chips, and two major Japanese companies, Sony and Denso, which supply parts to Toyota.

It will be the most advanced production facility in Japan, albeit still behind the world’s leading factories. Production is scheduled to start by the end of 2024.

TSMC is expected to employ more than 1,700 workers in the region, with 300 employees from Taiwan. Universities in the region are preparing to train hundreds of new engineers to fuel the industry.

Keisuke Motoda, the Kumamoto prefectural official who oversees government relations with the semiconductor industry, said the project is “the biggest investment we’ve ever had.”

Last month, the Japanese government also announced that it would provide nearly $690 million for a joint venture between Kioxia, a Japanese company, and US firm Western Digital to modernize a chip facility in the western region of Kansai.

New investment will not even begin to meet the seemingly limitless demand for chips from Japan’s largest industries. The TSMC plant is expected to produce 50,000 to 60,000 wafers per month. One vehicle can contain hundreds of semiconductors, and Toyota alone built nearly 8.6 million vehicles worldwide last year.

Despite this, Japanese officials hope that TSMC’s investment in developing an ecosystem that could one day serve as an insurance policy against supply chain disruptions will begin.

This insurance policy is likely to include partnerships with allied countries.

Semiconductor manufacturing is one of the most complex industrial processes in the world, and no country has the capacity to make this process completely domestic.

Prime Minister Fumio Kishida has made global ties a priority recently talks with its counterparts in the United States and the European Union. In May, Japan’s Economy Minister Visit Semiconductor Research Facility in New York to discuss collaboration on developing next-generation chip technology.

Efforts by Japan, the United States and their allies are creating a “new geopolitical landscape,” said Patrick Chen, head of research at CLST, a subsidiary of brokerage firm CLSA.

As for trade in general, but particularly for semiconductors, “the world is divided into two camps,” he said, “US allies — including, obviously, Japan, Korea and Taiwan — and on the other hand, we’re the likes of China, Russia and maybe North Korea.”

As for domestic investment in Japan, Hideki Wakabayashi, a professor at Tokyo University of Science and a senior government advisor on semiconductor policy, believes that with adequate government support, the country could regain at least 20 percent of the semiconductor market by 2030.

Even with subsidies, it makes no economic sense for most Japanese companies to invest in domestic chip production, said Masatsune Yamagi, senior analyst and expert on semiconductors at consultancy Gartner.

“If the fab industry was making a lot of money for Japanese companies, they would invest in production capacity,” he said, referring to the semiconductor manufacturing plant. “But in the past 15 years, Japanese companies have not invested in the development of the semiconductor production process.”

Japanese chip maker rum It has received multi-million dollar subsidies from METI to build more energy-efficient chips for industrial applications in its overseas plants.

Tatsuhide Goto, the company’s director of public relations, said that while the company does some of its operations in Japan, the funding isn’t enough to convince it to bring manufacturing back home.

And just as the government does, the company is concerned about the geopolitical risks of its overseas operations. But, he said, at least for now, “we are not considering changing our business model.”

Leave a Comment