The great powers have finally realized the great strategic importance of manufacturing highly advanced chips to order, which is now practically in the hands of two companies, TSMC and Samsung (Intel hardly manufactures for third parties). While the United States and the European Union have been debating for months how they can reverse this situation, the new Japanese Administration has also taken action on the matter and is firmly determined to revitalize its semiconductor production industry, which in the late 1980s It exceeded that of the United States but now represents barely 10% of world production.
The Government of the former Japanese Prime Minister, Yoshihide Suga, always promised that he would act to strengthen his country’s position in the global semiconductor market, but even before the period of uncertainty about who would succeed him, there were doubts about the strategy to follow, the degree of political commitment to set the course for Japan in semiconductor manufacturing and whether the large Japanese industrial groups could achieve it, notes Takeshi Hattoti, now a semiconductor consultant and knowledgeable about the ins and outs of the sector and the country, in a recent article by Nikkei Asia.
The current Japanese Prime Minister, Fumio Kishida, appointed a couple of months ago and who is expected to be re-elected on Wednesday next week, following the success of his party in the general elections last Sunday, is a strong advocate of investing in science and advanced technologies to accelerate growth and raise wages to generate a new cycle of growth and distribution of wealth, in line with its “new capitalism” policy.
TSMC has agreed with Sony to build an image sensor chip plant on Japanese soil, with government support, with a planned investment of one trillion yen.
A clear sign of the new direction dictated by Kishida was the appointment, three weeks ago, of Takayuki Kobayashi as responsible for the security of the country’s economy, with prerogatives within the ministries of foreign trade, finance and telecommunications. Kobayashi who will intervene in broad strategic and technological security issues, such as chip manufacturing, cybersecurity or the supply of rare earths, the elements of the periodic table essential for the manufacture of many technological products and that China now accounts for about 70% of world production.
Takayuki Kobayashi pointed out, a few days ago, that Japan should protect and promote an economy largely based on industry, to ensure that it becomes “indispensable” for everyone, as published a couple of weeks ago by the Financial Times, a well-known newspaper. informed of the affairs of Japan (it is owned by Nikkei, the main Japanese economic medium).
The question, Kobayashi said, is how you can create areas of excellence in such a way that the international community cannot survive without Japan. He also recognized that you cannot revive the semiconductor industry with mere wish but you must act decisively and consistently in the future.
The uncertainty about the electoral results of last Sunday, that it was even feared that the government coalition would lose the majority of the congress, caused that the appointment and the functions of Kobayashi were not given too much importance. But with the electoral result, in which the Liberal Democratic Party (LDP) has achieved the absolute majority of the parliament with 261 seats out of a total of 465 (although with the loss of 15 seats), it places Fumio Kishida in a position to continue governing. the country and to carry out a more nationalist policy in accordance with its electoral promises, with the stimulation of the country’s economy and a more balanced growth thanks to the development of technology.
In recent months, there had already been a growing interest on the part of large industrial groups in supplying the essential raw materials to manufacture semiconductors both to mainland China and to Taiwan or South Korea, such as silicon ingots, photolithographic grids, machinery and various equipment and the chemical compounds or the many gases that are needed to make chips. After all, the subsoil of any semiconductor plant is full of pipes through which different gases circulate and is supplied by multiple companies, many of them Japanese, such as Tokyo Ohka, Daikin or Shin-Etsu Chemical, apart from subsidiaries of better known groups such as Mitsubishi, Sumitomo or Hitachi.
Japan halts Kioxia sale
Another change in attitude was seen in mid-October, when the merger of Kioxia Holdings with the American company Western Digital was abruptly stopped, a transaction valued at more than 20,000 million dollars and that had been negotiated since the beginning of the year. With the merger, one of the world’s largest producers of flash memory would have been created, rivaling Samsung and Hynix, with a turnover of the order of 40,000 million dollars annually.
Kioxia was part of Toshiba Memory, with a huge flash memory factory in Japan that produced cards and solid-state drives for various brands, including Western Digital, SanDisk, Toshiba itself, and many more. As a result of Toshiba’s problems, the plant was bought by the investment group Bain Capital for 18,000 million dollars and Toshiba retained 40% of the capital, changing the following year to be called Kioxia.
In 2016, Western Digital, at that time one of the main hard disk manufacturers along with the also American Seagate, acquired Sandisk, well known for its memory cards that it obtained thanks to its participation in Toshiba’s flash memory plant. Over time, Western Digital’s hard drive business has been declining while their solid state drive sales have increased, making Western Digital very interested in buying Toshiba’s stake in Kioxia and that In this way, it will fully control the design and manufacture of a strategic asset as important as NAND flash memories.
The new Japanese Prime Minister, Fumio Kishida, seems determined to strengthen his country’s chip industry, in line with the promises in the elections that he just won.
At a summit in late August between US President Joe Biden and then-Japanese Prime Minister Yoshihide Suga, the sale of Toshiba’s stake in Kioxia to Western Digital was discussed and the issue appeared to be well on track. for the American company to take control of the flash memory plant located in Japan, until a month ago it all fell apart, in part because the price of Western Digital shares had fallen in recent months and the initial valuation was had gone to hell.
What has happened lately, seen in perspective, fits with Japan’s intention to rethink its future strategy in the manufacture of semiconductors, which over the years has been declining to the current 10% of the world market. When Ronald Reagan was president of the United States in the 1980s, Japan was seen as a great threat precisely because of its strength in the world market for semiconductors and all the electronic products associated with them. Now, half a century later, the great enemy of the United States is not Japan but China.
A few decades ago, the Japanese consumer electronics industry was a large consumer of chips but also a large producer, because television, video and camcorder manufacturers such as Matsushita (Panasonic), Sony, JVC, Sharp, Hitachi or Toshiba itself also made chips for own consumption and for others, as well as television screens, first tube, then plasma and finally LCD, which basically were semiconductors and image signal controllers.
There was also a powerful telecommunications equipment industry, with NTT and Fujitsu at the forefront but many other manufacturers of specialized equipment, such as spectrum analyzers, not counting the manufacturers of digital cameras, such as Canon, Olympus, Minolta that were adsorbed by Sony, Panasonic, Fujitfilm or Nikon.
The latter company, together with Canon and Olympus, also produced photolithographic equipment to make chips. Many of these companies are still in business, but their production is a shadow of what it used to be, because they have been outsourced to China or they have simply been left with a very minority of the market. It has happened as in the United States, where it is more profitable to subcontract production to countries like China, with the corresponding loss of know-how (a concept very in vogue a few decades ago). Short profitability now takes precedence over industrial experience.
TSMC to make chips in Japan for Sony
Another indicator that Japan is serious about going back to being someone in the manufacture of chips is the agreement reached at the end of October Sony and TSMC for both companies to jointly invest in the construction and management of a plant located in Japan and destined mainly to the production of chips that govern Sony’s image sensors. The Japanese company is one of the great world leaders, both in the sensors used in smartphones, with half of the world share, as well as photographic or video surveillance cameras. Instead, he suffers unspeakably to get chips for his PlayStation.
It would be the first time that TSMC, the world’s leading manufacturer of sophisticated custom chips, together with Samsung, has a plant on Japanese soil. Construction is scheduled to start next year and production will start in 2024. The approximate cost of the project is one trillion yen, or about $ 8.8 billion. The executive president of TSMC, C.C. Wei said in mid-October that his company has received support from both Sony and the Japanese government to proceed with the investment.
Obviously, the project has been in the making for months, but no one is aware that, on the one hand, the current crisis in the supply of chips has influenced Sony’s decision to have a stable supply of chips for a product as strategic as its image sensors. But, on the other hand, it has coincided with the intention of the Japanese government to be more self-sufficient in chips and the change of Prime Minister and the appointment of a coordinator in the field of high technology, such as Takayuki Kobayashi, has just promoted it.
According to Wei, this TSMC investment in Japan is not part of the Taiwanese company’s three-year plan to invest $ 100 billion. The plant will focus on manufacturing highly specialized chips for controlling various components, from image sensors to microcontrollers. These chips will be manufactured with design rules of 22 to 28 nanometers, because this level of integration is considered the most suitable for their purpose.
Apparently, the physical distance of the indicated size between transistors is not very different from the generations of chips known as five or three nanometers, or the future two nanometers, because in the latter cases it is more than one commercial name per hour. to indicate its level of sophistication that of the physical distance between the gates of the transistors; at least from 14 nanometers there is no direct relationship between its denomination in nanometers with the physical distance between tracks of electronic circuits. This means that the level of sophistication and feature integration of a chip from the joint Sony and TSMC plant can be similar to other more generic purpose and feature chips.
TSMC plant for Sony and other customers
The plant that TSMC will build in the Japanese prefecture of Kumamoto will serve to supply both the needs of Sony and other customers, initially Japanese. The Japanese government has so far been very sparing in the details of its involvement, although a spokesperson for the METI, the Ministry of Economy, Industry and Foreign Trade, has indicated to the Japanese press that the government’s involvement will not cross any of the red lines. of the World Trade Organization (WTO), such as export subsidies. Nor, the spokesperson added, will public capital provide regular subsidies to the plant. A 2019 METI document indicated that government support would be through providing subsidies to the private sector.
The joint investment of TSMC and Sony, whatever the Japanese state support, represents a change in TSMC’s traditional policy of investing in plants located on the island of Taiwan. In 1996, TSMC made a joint investment with the US companies Analog Devices and Altera (which was later acquired by Intel), but in 2000 TSMC bought the shares of the US companies.
TSMC, due to the insistence of Donald Trump, is building a plant in the state of Arizona, but in principle it will be the exclusive property of TSMC, apart from the fact that it may receive various subsidies from various public bodies in the United States. In Germany, there is also talk of TSMC building a plant and supplying various clients in the European Union, although there is nothing signed (it does not seem to be the case with Sony either, although it is well advanced).
China’s interest in Taiwan becoming an integral part of its country may also have influenced TSMC’s interest in setting up factories off its island. And for Japan, strengthening ties with Taiwan may be convenient, first so that its industrial groups supply more products to its chip factories and, also, to try to curb as much as possible the expansionist anxieties of China, which has Taiwan very close. But Japan must measure its alliances very well, because it also has a lot of interest in supplying products for chip factories to mainland China.
The strategic interests of the United States, the European Union and now Japan add to the need to ensure a stable supply of chips while trying to be as self-sufficient as possible. And, all this, without overstressing relations with China, as Joe Biden is seeing, because the world is increasingly interdependent, and not only with climate change.