Chips : the gamble of the Japanese renaissance

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With Rapidus, the Japanese government is stepping up its support for domestic semiconductor production against a backdrop of growing geopolitical tensions in Asia, which are casting uncertainty over the security of supplies. Like South Korea, China and Taiwan among others, Japan has entered the global race to produce semi-conductors. Japan’s strategy is to focus on the production of 2 nanometre (nm) logic semiconductors by forging international partnerships. Beyond Rapidus, the Japanese government’s policy is to subsidise other semiconductor producers who set up in Japan in order to ensure the country’s technological independence.

At the end of 2022, the Japanese government announced the birth Rapidus, a Japanese national chipmaker.  It is a partnership between a total of eight Japanese companies. Sony Group Corp. and Toyota Motor Corp, SoftBank Group, NTT are among the investors in this public-private project. Each of these companies is investing 7.3 billion yen ($53 million) in the new entity. For its part, the Japanese government has allocated 2.4 billion dollars to this project, and has said it is prepared to provide a comparable budget each year. Politically, Prime Minister Fumio Kishida has spoken of his “unfailing support” for Rapidus. The aim of Rapidus is to focus on the design and manufacture of 2 nm logic semiconductors by 2027. This type of semiconductor is dedicated to applications using artificial intelligence and in supercomputers. Rapidus vice-president Koke, a former Western Digital Corp executive, points out that these Rapidus’s chip will consume less electricity. Low energy consumption is in line with global market demand at a time of green transition and energy savings across the board.  If successful, this industrial gamble would also mean a generational technological leap for Japan, whose semiconductor manufacturing capacity stopped at 40nm nodes several decades ago.

Japan was once at the forefront of the semi-conductor industry. When it comes to equipment and materials for semiconductor production, a number of Japanese companies continue to demonstrate great technological mastery. Shin-Etsu Chemical has the largest share of the international market for silicon wafers, while Tokyo Electron has a strong presence in wafer cleaning and coating devices. But during the 1990s, Japanese semiconductor manufacturers were unable to keep pace with technological investment in advanced logic semiconductors, which are considered to be the brains behind high-end smartphones. Their competitors at the time, US companies, also changed their strategy when it came to locating foundries. As Chris Miller points out in his book “The Chip War”, Silicon Valley companies overtook the Japanese DRAM memory behemoths not by replicating them (in terms of production) but by innovating around them. Regarding production, US companies relocated production to Taiwan and South Korea to regain their competitive edge”. Under a strong competition, Japanese foundries such as Toshiba, Fujitsu and others stopped producing semiconductors in Japan in the 1990s. As a result, Japanese companies now lack a range of technical skills needed to produce next-generation semiconductors. Rapidus is among the tools to regain ground and international markets shares.    

International cooperation

To help Rapidus achieve this goal, it was first necessary to pass and promulgate a law on economic security. This was done in 2022. Semiconductors were then identified as essential products whose value chain must be supported. METI, the Japanese Ministry of Economy, Trade and Industry, launched a new program with a budget of 368.6 billion yen (EUR 2.8 billion). Moreover, international cooperation was needed. A first partnership was signed in December 2022 between Rapidus and IMEC, the Belgian research institute. It gave access to extreme ultraviolet lithography technology. Given the decision to produce 2nm semiconductors, this technology is absolutely essential. The second partner of choice to join the venture is IBM. IBM, which does not have a factory, was looking for quality chip manufacturers to integrate in supercomputers and quantum computers. With Tokyo and Washington aligned on the development of semiconductor supply chains, IBM turned to Japan as a strategic partner. As part of the agreement, Rapidus will obtain a licence to develop circuits based on IBM technology. Atsuyoshi Koike, President of Rapidus, emphasises the importance of this player in the partnership: “We have been able to establish a relationship of trust with IBM, which owns the technology. We can certainly achieve mass production (of 2nm)”.

Although Rapidus has gained a key ally, the new company faces an uphill battle to regain Japan’s technological supremacy. Other international foundries are struggling with the mass production of advanced semiconductors. Intel, once the leader in logic semiconductors, experienced delays in the late 2010s in bringing advanced products to market, and the company is now being outpaced by TSMC, which this year is producing a 3nm semiconductor for the new iPhone 15. The world’s chip leaders – Samsung, Intel and TSMC – are all aiming to produce 2nm chips by 2025. Atsuyoshi Koike, President of Rapidus, admits that it will be difficult to catch up: “It will not be easy to make up for 10 to 20 years of delay”.

“Hokkaido Valley”

The Japanese national chipmaker wants semiconductor manufacturers, their suppliers and partner research institutes to set up on the island of Hokkaido in order to make this isolated region a centre of semiconductor innovation within the next ten years. Hokkaido has two major advantages: the island has an abundance of clean water and access to renewable energy. This choice of location is part of a wider project to create an ecosystem similar to that of Silicon Valley. Atsuyoshi Koike wants to create a “Hokkaido Valley” stretching from Tomakomai to Ishikari, which could rival Silicon Valley in terms of size. Rapidus is already building a factory in Okkaido prefecture with a view to setting up a pilot line in 2025, barely two years from now. And Atsuyoshi Koike, a veteran of the semiconductor industry, insists on the need for good collaboration between players in the supply chain. “Companies need to work together more effectively to achieve a common goal. Working separately is not the right solution”. So far, Lam Research Corp. and IMEC did set up in Hokkaido. Numerous Japanese chip material suppliers and equipment manufacturers are also planning to build production sites near the future Rapidus plant.

Like in the United-States and in the European Union, the Japanese political authorities have decided to attract foreign companies in the country by financing part of their new fabs. The production of mature semiconductors will eventually be supplemented by Taiwan’s TSMC and Sony. TSMC is  building two plants in Japan. The first plant is situated in Kumamoto and it started building it in April 2022. It will manufacture chips between 12 to 28 nm. This plant will receive an investment of 1,2 trillion yen. The METI is considering providing 900 billion yen. The Taiwanese company is planning to produce 6 nm and 12 nm chips in a second plant. Its construction will start during the summer 2024. The mass production for Sony and other costumers will start in 2027. This plant will cost 2 trillion yen ($13,3 billion). The METI is considering providing 900 billion yen[1].

However, formidable obstacles remain. The shortage of engineers is limiting semiconductor production worldwide. Japan lacks engineers and professionals capable of organising production lines and running them efficiently. Rapidus employs just 200 people, compared with more than 73,000 at TSMC, which is also recruiting workers for its new plant in Kumamoto prefecture, in South-west Japan.

There is a strong political will to strongly sustain the renaissance of the chip industry in Japan. Rapidus is at the heart of Prime Minister Fumio Kishida’s plan to restore Japan’s status as a semiconductor superpower. Geopolitical considerations add to the equation: the ability to produce the most advanced semiconductors locally is crucial to reducing dependence on industry leaders such as Samsung and TSMC. The constant military tensions between China and Taiwan and the increasing number of missile and satellite launches by North Korea are putting supply chains at increasing risk. Taiwan manufactures 90% of the world’s advanced logic semiconductors. A cross-strait crisis with mainland China, which claims the island as its own, would disrupt the global supply chain. For the moment, there is no sign of improvement on this front. Many political leaders are therefore opting for other solutions to guarantee their country’s economic and strategic security. Japan is no exception.    

Estelle Prin

[1] TSMC plans to produce 6-nm chips in 2nd Japan plant – Nikkei Asia

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