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Morris Chang, founder of Taiwan Semiconductor Manufacturing Company, gave a bold <\/a>prediction when he opened the chipmaker\u2019s new facility<\/a> in Japan\u2019s Kyushu island on Feb. 24. Chang predicted that the new foundry, backed<\/a> by billions of dollars in Japanese government money, would spark \u201ca renaissance of semiconductors\u201d for the Asian country. <\/p>\n Most chip conversations focus on Taiwan or South Korea, which host some of the world\u2019s leading chipmaking companies. Governments are courting<\/a> firms like TSMC, Samsung and SK Hynix to set up new facilities in their countries, ostensibly to boost supply chain resiliency.<\/p>\n But it was a different picture 50 years ago. In the 1980s, six<\/a> of the top 10 chip manufacturers were Japanese. The country\u2019s manufacturers controlled about half the market in 1988. But Japan\u2019s chip dominance faded due <\/a>to a combination of changing market trends, the rise of new competition, and geopolitical pressure.\u00a0<\/p>\n Now, Tokyo hopes it can revive its chip fortunes with a new government strategy backed by billions of dollars\u2014with TSMC\u2019s plant as the first stage in Chang\u2019s predicted \u201crenaissance.\u201d\u00a0<\/p>\n Much like how the U.S. has Silicon Valley and Taiwan has Hsinchu Industrial Park<\/a>, Japan has its own chipmaking hub: \u201cSilicon Island,\u201d the industry\u2019s nickname for the island<\/a> of Kyushu.<\/p>\n Some of the companies with bases on Japan\u2019s third-largest island include Tokyo Electron, Sony and Renesas. And now it\u2019s also home to a new plant from the world\u2019s leading producer of leading-edge chips: TSMC. The world\u2019s largest contract chip manufacturer opened<\/a> the plant on Feb. 24 in Kyushu\u2019s Kumamoto prefecture.<\/p>\n The plant is a joint venture including<\/a> local heavyweights Sony and Denso. The Japanese government chipped in too, allotting 476 billion Japanese yen ($3.2 billion) in grant money. Tokyo is promising an additional 732 billion yen ($4.9 billion) in further support<\/a> for a second TSMC plant. The Taiwanese chipmaker said in early February it was opening a second<\/a> plant with Toyota joining as a new investor.<\/p>\n The TSMC plant is the first step in what Tokyo hopes will be a revival of Japan\u2019s chip industry. In June 2021, the Japanese government released a strategy that put semiconductors at the center of its economic security policy. Tokyo promised subsidies for domestic chip manufacturing, a research center for advanced chips, and a deeper partnership with the U.S.<\/p>\n \u201cIf TSMC is there, that means [Japan\u2019s chipmaking] capacity will be much bigger than before,\u201d says Helen Chiang, who leads Asia semiconductor research at the consulting firm IDC. \u201cIt can attract other companies to invest in Japan, like Intel or Samsung.\u201d<\/p>\n Japan used to dominate the semiconductor industry. Large domestic demand for chips helped to support the sector between the 1960s to 1980s, expanding Japan\u2019s share of semiconductor design and manufacturing. Japanese firms also had easier access to financing than their U.S. counterparts. Soon, companies like NEC, Hitachi and Toshiba were taking over the global market.\u00a0<\/p>\n But eventually Japan lost ground to other economies like South Korea and Taiwan. While some observers point to the rise of firms like TSMC and Samsung that invested in foundries, or missed opportunities during the PC boom, Chiang thinks the reason for Japan\u2019s decline is partly due to geopolitics. The U.S. saw Japan as an economic rival starting from the 1970s, and may have worked with South Korean firms<\/a> as an alternative, she suggests. <\/p>\n In the 1980s, U.S. companies complained<\/a> that Japanese firms were dumping chips onto the U.S. market. The Semiconductor Industry Association in the U.S. and companies like Micron and Intel filed anti-dumping lawsuits against Japanese exporters in 1985.\u00a0<\/p>\n One year later, Japan agreed<\/a> to voluntarily limit its sales to the U.S., and pledged to open up at least 20% of its own market to foreign producers. <\/p>\n Today, Japan is nowhere near the cutting-edge when it comes to chip production, with its most advanced foundries producing chips that are a decade behind what TSMC can do, at best.\u00a0<\/p>\n Yet Chiang emphasizes that Japan still has a firm grip on the market when it comes to supplying equipment to make semiconductors.\u00a0<\/p>\n And that gives Japan some leverage in the chip industry. In early 2023, Japan and the Netherlands agreed<\/a> to limit the export of advanced chip making equipment to Chinese companies, aligning themselves with U.S. efforts to constrain China\u2019s chip sector. That had an unexpected consequnce: Chinese companies scrambled<\/a> to grab chipmaking tools that were not subject to export restrictions. Strong demand for chip making tools helped grow<\/a> Japan\u2019s exports to China by 29% in January.\u00a0\u00a0<\/p>\n TSMC\u2019s current plant in Japan will begin production by the end of the year, and will develop<\/a> chips in the 12 nanometer to 28 nanometer range, which will be the most advanced semiconductors produced in Japan.<\/p>\n That advanced production will raise the level of talent in Japan, Chiang says. Japanese firms can learn from being a part of TSMC\u2019s production in the country. Companies may even be able to build a long-term relationship with TSMC, perhaps working with the Taiwanese manufacturer with its planned facility<\/a> in Germany, scheduled to start operation in 2027.<\/p>\n TSMC isn\u2019t the only chipmaker attracted by Tokyo\u2019s offer of money. Samsung and U.S.-headquartered Micron are also planning massive investments in Japan.<\/p>\n \u201cJapan will play a more important role\u201d in the chip sector going forward, Chiang says. \u201cIt will not only have the stream of materials and equipment, but [Japan] will enlarge [its] influence in foundries.\u201d<\/p>\n Japanese officials are already hopeful that the TSMC project will boost the surrounding economy. Above-average pay at the plant is already having \u201ca ripple effect\u201d on the surrounding area, Ken Saito, Japan\u2019s economy minister, said at the opening ceremony on Feb. 24.\u00a0<\/p>\n But there\u2019s still more work to be done to reverse<\/a> the country\u2019s fortunes. \u201cTo revive the Japanese chip industry, this is where the real challenge begins,\u201d he said. <\/p>\n<\/div>\n\nTSMC\u2019s new plant on \u2018Silicon Island\u2019<\/h2>\n
A chip renaissance<\/strong><\/h2>\n
Japan\u2019s next steps<\/strong><\/h2>\n