With electronics and auto manufacturers continuing to suffer from the global chip shortage, a recent announcement by Taiwan Semiconductor Manufacturing Co. that it plans to build a plant in Japan may seem to offer a glimmer of hope for the country.
The move is also in line with the Japanese government’s strategy of reinvigorating the country’s semiconductor industry, as it aims to enhance the nation’s economic security by enticing foreign chip producers into developing production bases in the country.
“We welcome the TSMC’s announcement to invest in a plant in Japan. … (Building a cutting-edge fabrication facility) will create jobs in the local area and help stabilize supply chains,” said Yohei Ogino, who heads the semiconductor strategy office at the economy ministry, during a symposium late last month.
The government is reportedly considering shouldering ¥400 billion of the cost, about a half of what is needed for the new fab, which is expected to begin operations in Kumamoto Prefecture in 2024. Japanese companies, including Sony Group Corp. and Denso Corp., may participate in the project as well.
While some experts believe the new fab will mitigate the risk of supply chain disruptions and have a positive impact on Japan’s chip industry by boosting competitiveness, others warn that the semiconductor industry has historically seen ups and downs in demand and supply, so it’s anybody’s guess whether the TSMC plant will be seen as a key facility in the future.
“Boosting domestic production capacity is a critical issue. In that sense, I think Japan has advanced a step further,” said Yuji Miura, a senior researcher at the Japan Research Institute.
Those in the industry often say that the missing piece of the puzzle for Japan is the capability to produce advanced logic chips — something that TSMC can do. Currently, 5-nanometer chips are the most cutting-edge on the market and are used in the latest smartphones.
But the new fab won’t be a production base for such high-tech chips, as TSMC has said it will focus on producing 22- to 28-nanometer semiconductors there. Those are critical to automobiles, so the new fab will likely focus mainly on the domestic auto sector, one of the nation’s economic pillars.
Semiconductors of those sizes do not represent the latest technology, but the fact that TSMC is building a production base in Japan is expected to stimulate the domestic chip industry, Miura said.
“Japan withdrew from competition over the microfabrication of chips a long time ago,” but since TSMC has such know-how, the domestic industry could have the chance to learn from the Taiwanese manufacturer, Miura said.
TSMC also plans to open a research center in the city of Tsukuba, Ibaraki Prefecture, and collaborate with Japanese companies.
Ogino of METI stressed the importance of Japan’s overall chip industry having domestic production bases.
Although Japanese chipmakers have lost a significant amount of market share over the past three decades, chip equipment and material firms such as Tokyo Electron Ltd. and Shin-Etsu Chemical Co. are still leaders in the global market.
Increasing domestic production bases will help maintain the competitive advantage of those companies, Ogino said.
It is also thought that TSMC’s move will motivate young engineers to engage in research and development, thereby helping to improve Japan’s technological capabilities overall.
For TSMC, 22- to 28-nanometer chips are actually not the most profitable products. According to the firm, more than half of its revenue in the last quarter came from 5-nanometer and 7-nanometer technologies. Meanwhile, revenue from 22- to 28-nanometer chips accounted for just 10% of the total.
As such, it would have been unrealistic for the Taiwanese firm to invest in the fab without huge financial support from the government. Since Japan will fund about a half of the investment, the deal is something of a win for TSMC.
“TSMC can acquire a new fab without spending that much money. It is a project strongly supported by the Japanese government and will attract Japanese clients very easily,” said Masatsune Yamaji, an analyst at Gartner Inc.
But Yamaji pointed out that it is possible that the project may not completely fulfill its promise.
Strengthening national economic security has become increasingly critical in the past few years because of the heightened tensions between the United States and China. Amid that trend, a number of nations are scrambling to secure more semiconductors.
“Because of the current shortage, a lot of people may think that the new fab will be operating at full capacity, but I have to say that they should not be that optimistic,” Yamaji said.
“The industry’s history has shown that the volatility of supply and demand has always been high. It would be nothing unusual if the plant hardly received orders because stock began piling up everywhere over the next few years.”
In that case, taxpayers’ money might have been wasted.
Also, if this new plant was a promising source of profit, some private companies would have likely made a similar move by now.
“The private sector hasn’t done it because they think it won’t be profitable. … I’m not saying whether it’s right or not, but the fact is that private companies think that way,” said Yamaji.
Given that the government itself did not seem to be eager to create manufacturing bases in Japan up until now, it might have been swayed too much by the recent chip shortage and concerns over economic security, Yamaji said.
For the government, its motive to step in this time does indeed seem to be be driven more by economic security than profit.
If the goal of the project is reinforcing Japan’s self-reliance, the focus should be on how much it will help mitigate supply shortages.
But Taiwan is still the center of global semiconductor production, so if China were to invade the self-ruled island — which Beijing views as a renegade province — supply chain disruptions would likely be unavoidable, Yamaji said. Thus, the new fab in Japan won’t necessarily ensure stable chip procurement for Japanese manufacturers, he added.
Miura of the Japan Research Institute said that since the manufacturing process of semiconductors involves products from many firms, it is nearly impossible for it to be controlled by a single nation or company.
Even Samsung Electronics Co., one of the world’s leading chipmakers, struggled when Japan tightened restrictions on exports of materials necessary for chip production in 2019.
“The best thing you can do is to partner with friendly nations and allies to cooperate with each other for stable procurement,” said Miura.
From that perspective, Japan’s move at this time to ally with TSMC will reinforce supply chains for Japanese manufacturers, he added.
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