Japan’s chip sector squeezed as international governments strengthen investment decision

TOKYO — Shozo Saito, a 71-12 months-aged former CEO of Toshiba’s electronic system team, has extended been frustrated about the drop of Japan’s semiconductor sector. “Japanese chipmakers are getting to be significantly less competitive,” Saito laments.

When he was with Toshiba, Japan had a international share of a lot more than 50% in the semiconductor sector, thanks partly to memory chips that Saito’s have team commercialized. Currently, Japan’s share has slid to 10%, information from the Semiconductor Sector Affiliation present — and the country instantly finds itself at a crossroads.

Government policy in South Korea and China is aimed at increasing domestic chipmaking, and the U.S. and Europe — alarmed by this year’s chip scarcity and probable geopolitical threats more than Taiwan, the biggest supply of world-wide supply — are hoping to revive their possess industries.

The flurry of exercise overseas threatens what is still left of Japan’s market place share — and even worse. Industry officials worry that as international locations establish their have supply chains in their have territories, related industries where by Japan nevertheless has globally competitive niche gamers, these types of as chip-products makers and components suppliers, will also relocate to these nations around the world, even further hollowing out Japanese business.

Takeshi Hattori, a semiconductor advisor and former Sony engineer, states Tokyo demands to clearly show leadership. “In the U.S. and South Korea, the president is taking the lead in strengthening the semiconductor sector,” he reported. “What about the Japanese authorities?”

Shozo Saito, previous CEO of Toshiba’s electronic product team, has extensive been disappointed above the decrease of Japan’s semiconductor marketplace. (Picture by Mitsuru Obe)

Prime Minister Yoshihide Suga’s authorities promised to act but, even right before the uncertainty in excess of who will be successful him, there ended up uncertainties about the method set out so considerably and whether the federal government has the political will to observe via. There are also real issues about what Japanese firms will realistically be capable to realize.

Right up until just lately, the Ministry of Financial system, Trade and Business experienced followed a laissez-faire technique. Saito remembers possessing been advised at METI that “semiconductors are a little something that can be acquired from Taiwan.” That angle has shifted 180 degrees.

To safeguard and create on the country’s strengths in raw elements, semiconductor packaging and chipmaking gear, Tokyo would like more chip output in Japan, which is one particular explanation why METI has led talks with Taiwan Semiconductor Producing Co., the world’s major chip foundry, about finding a manufacturing facility in the country.

In its national expansion method unveiled in June, the Japanese governing administration promised help for the progress of chip layout and manufacturing by domestic players, also. Particulars, such as the sum of assist, await the fiscal 2022 finances discussions that will commence later on this thirty day period. It is also but to flesh out converse of collaborating with allies overseas, these as the U.S. and the European Union.

Japanese Prime Minister Yoshihide Suga promised government action on the semiconductor market at a news convention on May perhaps 28. (Image by Uichiro Kasai) 

Experts position out that there are other difficulties to offer with, these types of as pushing the business to consolidate all over just one or two “nationwide champions,” and locating corporate professionals who can guide the turnaround.

And the federal government has presently made crystal clear that its motivation only goes so considerably.

“The Japanese govt, like cabinet ministers, has a higher degree of desire in the semiconductor tactic,” explained Masayoshi Arai, director-typical at METI’s industrial and information policy bureau, which is dependable for overseeing the semiconductor sector. “Eventually, having said that, it’s up to business. The govt cannot make semiconductors.”

As for buyers, it is unclear whether they are on board. “A whole lot of individuals believe that that chip production is unnecessary,” mentioned Hattori, the previous Sony engineer. “The stock market place cheers when a company decides to exit the semiconductor business enterprise.”

According to market place investigate firm IC Insights, Japan experienced the most chip plant closures of any nation or region between 2009-2019, adopted carefully by North The united states.

The decline of the Japanese chip market parallels that of the electronics marketplace, which dropped floor to challengers this sort of as South Korea and Taiwan in own computers, TVs and smartphones, amid others. Devoid of clients at residence, the Japanese chip field started losing focus.

Toshiba alone bought off more than 50 % its stake in its flash memory small business to a Bain Cash-led consortium in 2018 to pay out for a restructuring, even though it even now retains 40% of the company, now named Kioxia. Western Electronic of the U.S., a manufacturing husband or wife with Kioxia, has proposed a merger, a politically delicate offer that will probably want the blessing of the Japanese authorities.

A calendar year ago, Toshiba also introduced it was exiting from technique LSI manufacturing, leaving 770 workers redundant. This was adopted by information that the enterprise was thinking about selling two legacy chip vegetation to Taiwanese foundry UMC.

Sony, even though continue to the leader in picture sensor output, bought off its other semiconductor enterprises as long ago as 2007. Fujitsu has sold its flagship plant in Mie Prefecture to UMC. Previous year, Panasonic exited chip manufacturing, advertising off a few vegetation in Toyama and Niigata prefectures to Taiwan’s Nuvoton Technological innovation.

Renesas Electronics, Japan’s greatest manufacturer of processors, announced the closure of two legacy vegetation this 12 months, a move that will decrease its chipmaking plants in Japan to 7 from a peak of 22. The company is not even pondering about earning a main expenditure in creation ability. “There is no change to our fab-lite small business model,” CEO Hidetoshi Shibata reported in April, referring to its plan of outsourcing the most funds-intense portion of generation to foundries.

A fire at Renesas’ Naka manufacturing unit in Hitachinaka, Ibaraki Prefecture, in March has contributed to a scarcity of automotive chips. (Photograph courtesy of Renesas)

Japanese chipmakers didn’t go totally “fabless,” compared with their U.S. counterparts Texas Instruments and Qualcomm. What producing potential has been retained can be modernized and created much more successful and expense-aggressive, turning Japan into an extra supply of chip supply for the relaxation of the world, some argue.

“Japan has to make crystal clear why it requirements a strong semiconductor marketplace,” stated Hideki Wakabayashi, a professor of technologies management at Tokyo University of Science and a important member of METI’s semiconductor strategy panel. He argues that Japan’s semiconductor marketplace nonetheless has strengths, such as automotive chips and people specializing in electricity administration, which could be utilized to support the relaxation of the earth attain the shift to electrical autos and the “small-carbon overall economy.”

Semiconductors are significant parts in cars and trucks and will be a lot more so in the potential, Wakabayashi predicts. Graphic chips and graphic sensors are at this time employed only in smartphones and computer system game titles, but they will be mounted on autos in the potential as they turn into extra related and autonomous, he says. “This is a current market Japan should deal with,” he explained. “Without the need of semiconductors, Japan cannot make cars if they want to.”

Chips used in automobiles and industrial robots are equipped by Renesas Electronics, which fabricates 60% to 70% of its chips in-dwelling and subcontracts the remainder to foundries these kinds of as TSMC. At current, automotive chips only have to have processing systems involving 20 and 40 nanometers, but in the long term, they are possible to need chips in the 10-nanometer course. That is a stage of miniaturization nicely over and above Renesas’ capabilities it subcontracts everything scaled-down than 40 nanometers.

“Nations around the world like Japan need initial to make clear their objectives: Do you want to establish bleeding-edge technological innovation, or are you looking to protected ample potential for a number of older-era technologies to management your own future for working day-to-day applications, this sort of as industrial, automotive, appliances etc.?” mentioned Jean-Philippe Biragnet, spouse at Bain & Co., a international consultancy. “Establishing your individual bleeding-edge technological innovation is very tricky and extremely highly-priced — only very huge and technologically sophisticated gamers like TSMC, Samsung and Intel may possibly be equipped to do it,” he explained to Nikkei Asia.

Even protecting essential chipmaking capacity will be highly-priced. In accordance to Wakabayashi, it would need investment well worth up to $50 billion in excess of the upcoming number of a long time for Japan to hold its 10% share in semiconductor output.

Chips utilised in autos and industrial robots are supplied by Renesas Electronics, which fabricates 60% to 70% of chips in-property and subcontracts the relaxation to foundries these types of as TSMC. (Image by Hideaki Ryugen) 

Opportunity resources of cash involve telecom provider NTT — which is creating mild-primarily based chips with Sony and Intel in the hope of making the technology the common for 6G networks — and overseas investors or the condition-backed Japan Investment decision Company, according to Wakabayashi. One notion, he mentioned, is to build a “countrywide security financial investment fund” concerning the U.S. and Japan.

Hattori, the previous Sony engineer, argues that human money in the semiconductor field has been depleted via a long time of restructuring, and that the rebuilding need to start out at the university degree. He suggests giving scholarships or work claims at organizations like Sony for students who research in fields relevant to semiconductors.

Wakabayashi, the METI panel member, agrees that incentives are essential to bring in engineering expertise. “When learners listen to about semiconductor engineers getting built redundant, they naturally keep away from going into the semiconductor market as a occupation,” he stated. Wakabayashi himself is an engineering graduate who selected to work in expenditure banking.

In the meantime, Saito, the previous Toshiba govt, is executing what he can. He is now head of the Nippon Electronic Gadget Field Association, which he helped located in 2013. Doing work out of a compact, modest office in Tokyo’s Akihabara district, the affiliation offers seminars and helps companies to start new ventures.

“Grassroots action is our most critical mission,” Saito explained. “How can we rebuild the market? It are unable to be accomplished by a single organization, or even by a handful of companies. Semiconductor output requires horizontal cooperation among the several corporations. I required to do some thing to help rebuild this sector,” Saito claims.

He also has a word of tips for the Japanese government.

“Velocity is everything in the semiconductor business. My issue is the speed of alter in Japan. The govt needs to outpace other nations in phrases of help and scale.”