Can Japan’s semiconductor industry make a comeback?

Japan is aiming to regain lost ground in the field of semiconductors with a state-backed special-purpose company that has joined hands with American tech heavyweight IBM. 

The development comes amid concerns that the global nature of the semiconductor supply chain will fundamentally change in the coming years. 

A Japanese company called Rapidus, which was created a few months ago with financial support from Tokyo, signed a technology-sharing agreement with IBM this week to fabricate advanced 2-nanometre chips in Japan. Production will start in the second half of this decade. 

For years, Japan has relied on imports of advanced chips from South Korea and Taiwan to meet the demand of its electronic device-makers, says Hiroo Kinoshita, a Japanese scientist and expert on chip-making photolithography equipment. 

That trade relationship is vulnerable amid rising tensions between China and Taiwan, which Beijing considers its own territory, Kinoshita tells TRT World. 

“We have managed to get by with imports. But I believe that the recent semiconductor shortage and China’s reaction to [former] US house speaker Nancy Pelosi’s visit to Taiwan have triggered a rethink of policy.” 

Pelosi’s controversial August trip, which was the first by a high-ranking American official in years, caused a crisis, with Beijing retaliating with military drills around the island. 

Taiwan is home to TSMC (Taiwan Semiconductor Manufacturing Company), the world’s largest contract chip-maker, and accounts for 90 percent of the global output of advanced chips. 

Can Japan do it? 

Tokyo plans to inject a subsidy of $500 million into Rapidus. Those funds will be used to buy two advanced Extreme Ultraviolet Lithography (EUVL) machines, says Kinoshita. 

Japanese industrial and financial bigwigs including Sony, Toyota, Denso, Softbank, Mitsubishi UFJ Bank, NTT and electronic giant NEC have taken an equity stake in Rapidus with a joint investment of more than $50 million. 

But the government subsidy, combined with this investment, is minuscule compared to the tens of billions of dollars needed to build a modern chip foundry; TSMC has, for example, announced it will invest $40 billion to build a fab plant in the US. 

Japanese firms such as Toshiba and Hitachi dominated the global semiconductor market in the 1980s. They lost the lead in the face of strong opposition from American politicians and industry. 

Right now, Japan has the technology to produce chips on 40nm nodes. One nm (nanometre), a unit of measurement, is a billionth of a metre. It denotes the distance between transistors on a chip and it is generally considered that the smaller the distance, the more advanced the chips are. 

Rapidus also signed an agreement this month with Belgium-based research centre IMEC, which has expertise in advanced chip processing systems. 

As per the agreement, IMEC will help Rapidus scale up 2nm chip production. 

Currently, the world’s most advanced chips are centred around 3nm and 5nm nodes produced by Samsung and TSMC. They plan to produce 2nm chips in the next two to three years. 

Kinoshita said it was unlikely that Rapidus would be able to build a high-tech fab plant within the targeted time period. The project will probably end up requiring the use of a facility, that Japan’s National Institute of Advanced Industrial Science and Technology (AIST) is developing at its Tsukuba West site. 

This is not the first time Japanese companies are collaborating in such a way. A similar effort launched a few years ago involving Hitachi, NEC and Mitsubishi went nowhere. 

But Kinoshita points out that Rapidus has an advantage: its Japanese backers make products that require advanced chips. 

“In this case, there are automakers Toyota and Denso, NTT in telecommunications equipment and Sony in CMOS sensors.” All these firms are looking to incorporate advanced semiconductors into the devices and services they produce. 

Semiconductor production depends on a collaboration of companies spread around the world. For instance, the intellectual property for the complex architecture that underpins modern chips is in the possession of UK-based firms such as ARM, while Dutch company ASML is the leader in photolithography equipment. 

Japan might have lagged behind in chip production. But it is home to companies which produce speciality products such as photoresists that are essential in the production of semiconductors. 

The US-led export curbs targeting China’s semiconductor industry are threatening to undermine this vital collaboration between different international players.

“Globalisation is almost dead and free trade is almost dead. A lot of people still wish they would come back, but I don’t think they will be back,” said Morris Chang, TSMC’s founder, last week while speaking at a ceremony in Phoenix, Arizona, where his company will build the advanced chip plant.