The country used to be a semiconductor powerhouse. Can it be one again?
Mr. Atsushi Koike likes to go big. As chief executive of Rapidus, a newly launched Japanese semiconductor foundry, his company has made its ambition clear: Japan must catch up to the leading chipmakers.
The successful firms (in Taiwan, South Korea and America) have become national champions that underpin the military, industrial and economic vitality of their countries. Mr. Koike wants to do the same for Japan, in the boldest tradition of Japan Inc. His government pledged $3.3 billion (S$4.5 billion) to help support Rapidus and the new foundry it is building in Hokkaido.
As share of gross domestic product, that amount is barely a rounding error, but shows how heroic interventionist ambitions are in semiconductors. Analysts through the Chip Act, Japan hopes to boost chip manufacturing to one-third of global output by 2030. That is a tall order. Japan’s advance comes after the country’s collapse in the semiconductor business and then stagnation –– while rivals such as Taiwan’s TSMC and South Korea’s Samsung leapfrogged ahead.
Japanese dominance in semiconductors once looked unassailable. In 1986 Japanese firms produced two-thirds of chips worldwide, flooding the market with best-in-class quality at rock-bottom prices. Today Japan accounts for less than 10 per cent of the world’s chips.
The Japanese government came to the costly realisation that it needs to control all parts of the chipmaking chain. Supply chain disruptions during the pandemic, and American efforts to squeeze China out of advanced chipmaking, forced Japanese officials to rethink national strategy. After America imposed sanctions on China, Japanese firms are now reshaping the supply chain, making Japan’s manufacturing base self-sufficient.
The trade friction with America in the late 1980s began a decline in Japanese output. America accused Japan of flooding the global market and harming its own industry. After years of disputes, subsidies and restrictions, Japanese pride was hurt, and the once-dominant manufacturing base shrank.
Japan’s new chip strategy has two main pillars. The first is to secure supplies of rare materials and skilled labour, and firewall advanced manufacturing by preventing others (that is, China) from weaponising their control over certain inputs.
The second pillar is autonomy, by facing competition head-on. The world today is run by two suppliers: countries that can supply advanced chips, and countries that cannot. Japanese officials have taken inspiration from America’s “CHIPS” Act, but with more state-support policy.
As with other manufacturing winners, the source of the wins is the same: the country with the best engineers will win the hearts and minds of buyers. The challenge: The LDP hopes to retain/restore Japanese engineering prowess so Japan takes leading position.
Japan’s solutions bring more outsourcing of technology (like Rapidus’ partnership with IBM) and support from the government for building advanced foundries. The government has also lured big chip firms like TSMC to set up shops in Kyushu; the first fab there produces chips of 28nm to 12nm, to let Japan re-enter the most advanced segment of semiconductors to be produced in Japan on-site. But, so far, even Rapidus had to look abroad for the talent required to run such advanced facilities—hiring experts from IBM, and getting buy-in from America’s global enterprises.
Mission, an American memory chipmaker, has also invested heavily in Japan. Japanese foundries now make chips for automobiles, AI, mobile phones and the cloud, seeking subsidies and government grants.
Meanwhile, Samsung in South Korea is looking for new sources and building new facilities. TSMC in Taiwan and Samsung in South Korea dominate ultra-fine fabs, and both have new projects under way in Japan. Both are building new mega-projects to supply chips to automobile companies, makers of batteries, and consumer electronics.
Analysts caution that Japan will have to catch up with global pace-setters. Even with gains from new investments, scaling high-end chips for cutting-edge devices, including AI, may take years.
Overall, the policy shift is clear––Japan eyes national security and economic vitality through advanced manufacturing. Whether it can keep up with Taiwan and South Korea will depend on how quickly Japan can leverage partnerships with foreign (mainly American) engineers, regain its lost expertise, and attract the next generation of engineers to its industry.
Japan’s new strategy is focused on securing supply chains, building foundries for leading and lagging-edge chips (especially for automotive and industrial equipment), and investing in engineering skills. This ambitious plan will require government support, foreign partnerships, and willingness to adapt to smaller lots of specialised chips, rather than just mass-market silicon for phones and computers.
The question is, will Mr. Koike and Rapidus lead this charge? Japan needs to focus on both the supply of rare materials, and its engineering talent, for it once again to reclaim its former status as a semiconductor powerhouse.
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