The world’s biggest chipmaker is gearing up to build its first-ever chip plant in Japan, a major win for a country that is attempting to rebuild its semiconductor industry after years of decline.
Taiwan Semiconductor Manufacturing Co. announced the plan on Thursday, and the Japanese government has voiced its full support for the project, with sources indicating it will subsidize up to half of the estimated USD 8 billion cost.
But what exactly will the plant produce, and who will win from the investment?
Why is TSMC building a plant in Japan?
Primarily to serve Sony and other Japanese clients. The investment, however, is also part of a broader global push by the chipmaker as governments around the world call for semiconductor production to be brought on shore for economic and national security reasons.
Such geopolitical pressure has intensified due to COVID-19 disruptions and the unprecedented chip shortage that is hammering the auto industry. Rising tensions between Taiwan and China, which views the democratically controlled island as part of its territory, are another contributing factor. Earlier this year the US singled out the tech industry’s heavy reliance on Taiwan as a potential risk to the global supply chain.
TSMC has responded by earmarking USD 100 billion for overseas expansion for the three years through 2022. In June it broke ground on a plant in Arizona, its most advanced facility outside of Taiwan. The company is also considering building a chip plant in Germany. The Japan plant is not included in the USD 100 billion plan.
What kind of chip facility is it?
The new plant will be located in Kumamoto, in western Japan, on land near a chip factory owned by Sony, TSMC’s biggest Japanese client, Nikkei Asia reported earlier. The cost is estimated at JPY 1 trillion (USD 8.8 billion), with the Japanese government expected to offer multiyear support for the project.
The factory will churn out a wide range of chips, mainly image signal processors to microcontrollers, using so-called 22- and 28-nm production technology. It is far behind TSMC’s most advanced 5-nm technology, which is currently used in its domestic plants, mostly for smartphone and computer processors. However, 22- and 28-nm chips are viewed as the most cost-effective options, with a wide range of applications for consumer electronics, computing, and automotive industries.
Nanometer size refers to the distance between transistors on a semiconductor—the smaller the size, the more advanced the chip. South Korea’s Samsung is currently the only chipmaker other than TSMC that is able to mass-produce 5-nm chips.
What are the risks for TSMC of expanding overseas?
TSMC has for decades concentrated its operations in Taiwan, where it enjoys strong support from the government in terms of securing water, power, and land. The island’s massive pool of semiconductor talent and mature supply chains have helped the company maintain relatively low operational costs even as it pursues cutting-edge technology.
TSMC founder Morris Chang has warned more than once about the risks of overseas expansion, namely higher costs, and insufficient production. Industry executives, moreover, have said building the new Japan factory could cost two to three times more than building a similar chip factory in Taiwan.
At the same time, sources close to the company say TSMC needs to find locations beyond Taiwan for its long-term growth as the island faces resource constraints, such as the water and electricity shortages experienced earlier this year.
What does Japan hope to gain from this investment?
Japan is likewise joining the global chip race. New prime minister Fumio Kishida has made rebuilding the country’s chip industry a key part of his economic policy and intends to launch a framework for supporting high-tech manufacturers.
“Our country’s semiconductor industry will become more indispensable and self-reliant, making a major contribution to our economic security,” Kishida said at a news conference on Thursday evening.
The decision to build a plant with relatively mature production technology likely reflects the needs of the clients who are expected to source from the plant: Sony, for example, does not currently need 5-nm chips for its products, unlike TSMC’s American customers, including Apple and Google.
What does this mean for the global chip crunch and the broader chip industry?
TSMC’s new plants will not have an immediate impact on the chip shortage, as neither the Arizona plant nor the Kumamoto one are expected to enter mass production until 2024.
Moreover, TSMC maintains that the current shortages, particularly in the auto sector, have more to do with COVID-related disruptions in Southeast Asia, where many other chip companies have factories. Recent power outages and restrictions in China are also squeezing chip supplies.
The Taiwanese chipmaker’s plans, however, come as its rivals also spend big to expand capacity. Intel, the biggest US chipmaker, is spending USD 20 billion to build chip facilities in Arizona in hopes of winning manufacturing orders from companies such as Apple and Qualcomm. It is also set to spend up to USD 80 billion over the next decade in Europe to boost the continent’s chip capacity, its CEO has said.
Samsung, meanwhile, aims to spend billions of dollars expanding its Texas production base, answering Washington’s call to bring more vital semiconductor production on shore. The South Korean titan makes chips for itself and others, such as Qualcomm and Google, and is working to win over more customers to its camp.