TAIPEI - - 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 determined to rebuild its semiconductor industry after decades 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 finance up to half the estimated $8 billion cost.
If the plant can produce what exactly will they win or lose from an investment?
Why is TSMC building a plant in Japan?
Sony and other Japanese clients primaryly serve that purpose. 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 impacting the automotive industry. Incarceration of Taiwan and China, which views this democratically controlled island as part of its territory, are another contributing factor. Earlier this year the U.S. singled out the tech industry's heavy dependence on Taiwan as a potential risk to the global supply chain.
The TSMC has responded by earmarking $100 billion for overseas expansion for the three years until 2022. In June it broke ground on a plant in Taiwan, its most advanced facility outside of Arizona. The company is also considering building a chip plant in Germany. The Japan plant is not included in the $100 billion plan.
What kind of chip chip facility is it?
The new plant would 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 1 trillion yen 8.8 billion with the Japanese government expected to offer multi-year support for the project
The factory will churn 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 smartphones and computer processors. However, 22 - and 28 - nm chips are considered as the most cost-effective options with a wide range of applications for consumer electronics, computer and automotive industries.
Nanogram refers to the distance between transistors on a semiconductor - The more advanced the size, the smaller the chip. South Korea's Samsung is currently the only chipmaker outside TSMC that is able to mass produce 5 -nm chips.
How can TSMC expand overseas?
TSMC has concentrated its operations in Taiwan for decades, where it enjoys strong support from the government in terms of securing water, power and land. The island's mature pool of semiconductor talent and high processing chain has helped the company maintain relatively low operational costs even as it pursues cutting-edge technology.
TSMC's founder Morris Chang has warned more than once about the risks of international expansion namely higher costs and insufficient production. Industry executives have said moreover that the new Taiwan factory could cost two to three times more than building a similar chip factory in Japan.
At the same time, sources close to TSMC say that Taiwan needs to find locations outside Taiwan for long-term growth because the island faces resource constraints such as the water and power shortages experienced earlier this year.
Japan is also joining the global chip race. New Prime Minister Fumio Kishida intends to make rebuilding the country's chips industry a key part of his economic policy and will launch a framework for supporting high-tech manufacturers.
Our country's semiconductor industry will become more self-sufficient and indispensable, making a major contribution to our economic security, Kishida said at a news conference Thursday evening.
The decision to build a plant with relatively mature production technology likely reflects the needs of the clients expected to source from the plant: Sony, for example, does not need 5 - nm chips for its products, unlike TSMC's American customers, including Apple and Google.
Moreover, TSMC maintains that the current shortages, particularly in the automotive industry, have more to do with COVID-related disruptions in Southeast Asia where many other chip companies have factories. Recent power outages and limitations in China are also squeezing chip supplies.
Taiwanese chipswer's plans, however come as its rivals spend enormous to expand capacity. Intel, the largest U.S. chipmaker, is spending $20 billion to create chip facilities in Arizona in hopes of winning manufacturing orders from companies such as Apple and Qualcomm. It is also set to invest up to 80 billion in Europe over the next decade to boost the continent's chip capacity, its CEO has said.
Samsung, meanwhile, aims to expand its Texas production base by investing billions of dollars and responding to Washington's Call for 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 more customers to its camp.