[KH explains] Japan’s reviving chip industry unlikely to pose direct threat to Korea – for now

Korea urged to focus on advancing logic chip production, fostering chip talent

TSMC's new wafer fab is in construction in Kumamoto prefecture in Japan. (Yonhap)

Japan, which supplied more than half of semiconductors in the global market in the 1980s, is now seen revamping its strategy to reclaim past glory, introducing state subsidies and setting an ambitious goal to mass produce the most cutting-edge chips.

As geopolitics is playing out to reshape the global semiconductors industry -- mainly the intense rivalry between the US and China -- eyes are on whether Japan will come to take a meaningful share in the market, where competition is already fierce.

The Japanese government has been investing billions of dollars to boost its domestic chip industry and attract global chip giants such as Taiwan Semiconductor Manufacturing Co. and Samsung to its soil.

In June 2021, soon after it succeeded in attracting TSMC to build its first semiconductor fab on its soil in Kumamoto prefecture with hefty subsidies, the Japanese government announced its support plan worth 2 trillion yen ($14 billion) to boost its domestic semiconductors industry.

As Japan's chips industry now holds about a 10 percent share in the global chips market, the country also set the goal to increase its chip sales to 15 trillion yen by 2030.

For the goal to increase chip production on its soil, Japan is now offering subsidies for companies that are to launch either production fabs or research and development institutes, including TSMC, Samsung and Micron Technology.

Japan's ambitions do not stop there. In 2022, the Japanese government not only forged a chip partnership with the US, but also orchestrated the establishment of Rapidus, a memory chip firm, gathering support from eight major companies in different fields: Denso, Kioxia, MUFG Bank, NEC, NTT, SoftBank, Sony and Toyota.

As of now, Japan's Ministry of Economy, Trade and Industry has officially offered 330 billion yen of support for the company's goal to begin mass production of cutting-edge 2-nanometer semiconductors in 2027.

On the diplomatic front, Japan also took the bold step to ban exports of 23 types of key equipment necessary in producing advanced chips to China, even as it was the top exporter of the products for China. The move shows the country's commitment to align its trade policy with the US, which is intent to contain China's clout in the global chip market.

Goal 'too ambitious'?

Market watchers here are largely skeptical on the possible impact of Japan's industry boost plan and the chip production goal on Korean chipmakers.

While Japan is undoubtedly a dominant player in the global chip materials market, it does not guarantee that the country will be able catch up with rivals such as Samsung and TSMC, which are thought to be 10 years ahead in production and technology.

"It will be a difficult match if Rapidus is able to produce the 2nm chips, as Samsung and TSMC would have to share the market portion they are expected to secure. But doing well producing the parts used in chips and the equipment does not mean they can do well in making a complete product," an industry official told The Korea Herald under the condition of anonymity.

For Rapidus that is expected to directly compete with Samsung and TSMC, the goal to produce the 2nm chip appears to be "quite extreme" considering how Japan's latest logic semiconductor production is as advanced as 40nm nodes.

Major chip foundries like TSMC and Samsung have yet to enter mass production of the 2nm chips, while both of them also target to achieve the goal at an earlier time of 2025.

Rapidus' strategy strongly relies on the partnership it forged with IBM, the US-based logic chip producer that developed the market's first 2nm technology in 2021. Rapidus will be "learning" from IBM to produce the chips for IBM, the company has said.

Rapidus President and CEO Atsuyoshi Koike has said the company has already kicked off talks on supplying the advanced chips to some of the largest US tech companies.

Another industry official here, however, said it is in question how Rapidus' collective leadership, with companies in the different areas jointly supporting the entity, would play out to help the company make decisions in business.

"It is also hard to find a case in the chip industry where such a joint entity survived to acquire a meaningful market share, and it may be because having an independent structure for decision-making is crucial to do well in this industry."

Experts also point out that it is not the first time Japan made such a joint corporation gathering key companies in an attempt to revive the chips industry, only to fail.

In 1999, Hitachi and NEC, leading chipmakers in Japan at the time, established Elpida Memory, and later took over Mitsubishi Electric. Elpida actually managed to grasp the third largest market share at one time, but the company went bankrupt in 2012 and ended up being sold to the US rival Micron Technology.

In addition, Rapidus would have to secure some 5 trillion yen over the decade to mass produce the cutting-edge chip, which is way above the 330 billion yen the Japanese government is offering.

Despite the limitations, Japan's commitment to revive its chip industry is clear.

Japan still managed to attract the top chipmakers to either invest or build facilities in Japan, in all areas -- TSMC in foundry, Micron in Dram, TSMC, Samsung and Intel in post-processing and packaging. The country also has Kioxia, which is the world's No. 3 memory chip maker, and Renesas Electronics specialized in automotive chips which is a newly growing market.

Experts here say South Korea should also boost its weak areas, such as logic chip production, and focus on fostering skilled talents to make sure it is not caught by Japan's chase in the long-term.

"Japan is taking advantage of the rising economic protectionism. The US which once tried to contain Japan's clout in the global chip market is now fully backing Japan since South Korea and Taiwan carry geopolitical risks," Kim Yang-hee, a professor of economics at Daegu University, wrote in her column.

By Jo He-rim(herim@heraldcorp.com)