New TSMC plant key to Japan’s plan to rebuild chip industry

Mark O'Neill January 16, 2023 08:44

These cold winter nights, electric lights flood a site of 213,000 square metres in Kumamoto prefecture, western Japan. Workers and building machines are labouring 24 hours a day to complete the first factory in Japan of Taiwan Semiconductor Manufacturing Company (TSMC), so that it can start production in December 2024.

Japan Advanced Semiconductor Manufacturing (JASM), in Kikuyo, is costing US$8.6 billion and is a joint venture between TSMC, which holds over 50 per cent, and Sony Semiconductor Solutions and Denso, a maker of auto parts, which each hold between 10 and 20 per cent. Sony is one of TSMC’s most important customers.

The new factory is the centerpiece of an ambitious plan by the Japanese government to rebuild its semiconductor industry. On the western island of Kyushu, Kumamoto is the Silicon Valley of Japan, thanks to excellent underground water and a high-quality workforce. From the 1960s, major electronic companies invested there. Kyushu’s production of semi-conductors peaked in 2000 but has declined since because its firms could not compete with rivals in South Korea, Taiwan and elsewhere.

But, as the technology Cold War between China and the U.S. has intensified and a global shortage of semi-conductors worsened, the Japanese government decided that it could not rely on imports and badly needed to increase domestic output. In March 2021, it set up a strategic committee for this purpose.

It wooed TSMC with a subsidy of 476 billion yen, one of the largest single payments ever given to a single manufacturing project. One condition of its subsidy is that TSMC purchase at least 50 per cent of the plant’s machines and raw materials in Japan. Meeting this target will not be easy and will require new investment by TSMC’s 69 Japanese suppliers

The factory will produce 55,000 12-inch wafers a month and employ 1,700 people, of whom 320 will come from Taiwan. TSMC said the plant will produce chips using 12-nanometer and 16-nanometer process technology, in addition to those utilizing 22-nanometer and 28-nanometer processes. It is adjacent to a Sony plant making image sensors for smart phones.

The new plant is part of a battle by countries around the world to increase rapidly their output of semi-conductors. They are critical components for a wide range of products, including cars, jet fighters, i-Phones, image sensors, high-performance computing, the Internet of Things and consumer electronics.

Denso said it hoped owning a stake in the joint venture will lead to a more stable supply of chips for use in automobiles. “We have decided on the move because we expect to require more semiconductors down the road as more automobiles go electric,” it said.

The plant is part of TSMC’s strategy to become a global producer, instead of concentrating output at home. In 2021, its annual capacity was more than 13 million 12-inch equivalent wafers, with 10 fabs in Taiwan, two in China and one in the U.S.

It is building a plant in Phoenix, Arizona and in negotiations to build one in Germany, probably in the eastern city of Dresden. In 2022, it spent US$36.3 billion in capital investment.

In Germany, as in Japan, automakers will be a very important market for its semi-conductors. They are racing to produce electric and self-drive vehicles. In Germany, TSMC is likely to form a joint venture for its new plant, as in Japan.

Last week (December 12) the company reported a 78 per cent increase in net profit year-on-year in the fourth quarter to NT$295.9 billion (US$9.6 billion), with revenues of NT$625.5 billion.

It has the world’s most advanced fabrication technology and controls more than half of the global market for made-to-order chips. But it is facing fierce competition from Intel and Samsung, both of which are increasing investment.

This rapid expansion overseas has sparked fierce debate within Taiwan. Is the company leaving the island? How will it protect its most sensitive technologies from being stolen or copied by those who work in its overseas factories?

The company insists that it retains its cutting-edge technology at home, including the two-nanometres chips that will be made at a factory under construction in its home base of Hsinchu. “We are changing from Taiwan TSMC into Global TSMC,” it says.

In a conference call last Thursday, TSMC chairman Mark Liu said that building overseas fabs carried higher costs than developing such facilities in Taiwan, which remained the crown jewels of the company’s foundry operations. “Concentrating TSMC’s fabs in one place would not suffice to meet the needs of the company’s customers among an evolving political development,” he said. He seemed to be referring to the high-tech Cold War between China and the U.S.

Its founder, Morris Chang, said that the company had attained its current scale and status only because of special conditions that exist in Taiwan and were very hard to replicate abroad.

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Mark O'Neill

A Hong Kong-based writer, teacher and speaker.