The world relies on semiconductor technology. All technology is based around it and chip companies are at the key of ensuring the world keeps running. In the 1980s Japan was the world’s largest semiconductor manufacturer, but they have fallen behind in recent years. Taiwan Semiconductor Manufacturing Company (TSMC) currently produces over 90% of all semiconductors in the world, the USA and South Korea are also key players.
The government of Japan is looking to change this, large amounts of investments are being poured into existing companies and startups in Japan to become a key player in the space.
The problems with the industry right now
The largest issue currently is Taiwan and China. Geopolitical tensions between China and Taiwan mean that the future status of TSMC is not entirely certain. Beijing believes Taiwan is a part of China despite Taiwan being an independent state. If a conflict were to occur, supply chains would be disrupted, either by TSMC being controlled by China or by TSMC dismantling due to conflict.
Semiconductor shortages have also plagued the world in recent years. During the Covid-19 pandemic, disrupted supply chains combined with a surge in demand caused issues with many tech companies and chip manufacturers.
The consistent development of technology is another pressure on the chip manufacturers. With the globalization and technological integration of the majority of the world, chips are ever increasing in demand. EV production, AI development and technological innovation require large amounts of chips to be produced constantly, and having this production focused on a select few companies is a risk.
Japan’s plan
Rapidus is a startup company in Japan, it began in 2022 and had investments from many sources, including: Sony, Toyota and the Japanese government. Since its inception, Rapidus has collaborated with Belgium’s IMEC, USA’s IBM and Dutch ASML.
On September 1st, construction began on Rapidus’ plant in Hokkaido. Their first customer is Canadian startup Tenstorrent, who contracted them to produce the next generation of AI chips.
Rapidus is Japan’s answer to the current semiconductor issues, despite the huge gap in experience and infrastructure. They plan to produce chips efficiently in smaller quantities than the powerhouses in the market currently. They plan to begin by producing the most advanced 2 nanometre chips yet. Mass production is set to begin in 2027.
what could go wrong
Japan may have been a leader 40 years ago, but times have changed, and the players have been developing for much longer. The government has high hopes for Rapidus and other Japanese companies, pledging $65bn for AI and semiconductor industries over the next 7 years, some politicians stated that this was the most focused the government has ever been on a single area.
Many companies and even countries are even slightly putting hopes in the success of Rapidus, lots of foreign investment is entering Japan because of the potential returns. Heavy reliance on Taiwan has caused a lot of tensions in the space and this could reverse the issues.
However, CEO Atsuyoshi Kioke has tried and failed before. In a joint venture between Japan’s Hitachi and Taiwan’s UMC to develop Japan’s semiconductor industry in 2000 failed in 2002 due to an industry slowdown. Some analysts fear this will be a repeat, but with more hopes behind it.
Rapidus is planning on going straight into the most advanced chips, which will be very fast and very energy efficient, but also very expensive. Production is one thing, but there needs to be a demand for the chips they are making. TSMC focuses on making a very large quantity of chips for a low price, which allows them to grasp a majority of the customers demand, big companies such as NVIDIA and ASML rely very heavily on TSMC production. Perhaps they may diversify their supply due to the risks, however Rapidus clearly has risks of its own.
Additionally Japan has problems with labour force, an aging population and a shortage of a skilled labour force could lead to a lack of people for Rapidus. The company has plans to collaborate with Hokkaido University to further develop human resources for Rapidus and Japan.
final thoughts
The tech sector is constantly evolving, but this development could be the biggest one to keep an eye on. If Rapidus and Japan is successful, the country and industry could be completely refreshed. Japan is finally starting to grow after years of negative interest rates and deflation, GDP is slowly growing but there are still underlying problems. Rapidus could be a kick-starter to help Japan compete with the worlds major players.
Whether or not Rapidus will succeed is uncertain but either way, all eyes are on Japan.