The new Japanese chip manufacturer Rapidus joins the development and investment race

New Japanese chipmaker Rapidus Corp faces daunting challenges trying to catch up with Asian rivals in the technology development and investment race, leaving the country’s prospects shaky as it tries to revitalize its once-thriving industry.

Founded by Toyota Motor Corp, Sony Group Corp and six other major Japanese companies with a total investment of 7.3 billion yen, the next-generation semiconductor company plans to mass-produce chips using cutting-edge 2-nanometer technology in Japan in 2027. Such advanced chips can be used for 5G communications, quantum computing, data centers, self-driving vehicles, and digital smart cities.

In addition to Kioxia Corp, Denso Corp, NEC Corp and MUFG Bank, the project also includes SoftBank Corp, Nippon Telegraph and Telephone Corp.

The Ministry of Economy, Trade and Industry will allocate 70 billion yen in subsidies as part of its semiconductor strategy developed last year.

The government views domestic chip production as vital to its economic security, as reliance on key supplier Taiwan poses geopolitical risks amid rising tensions between the United States and China over the self-governing island. A potential crisis in the region could result in Japan losing access to semiconductor supplies.

Rapidus is focused on foundry operations, representing a group of private-sector companies, while the government-backed Leading-edge Semiconductor Technology Center will serve as a research and development center in cooperation with the United States.

These recent efforts follow the country’s failure to keep up in the investment race to miniaturize semiconductors that led to a years-long hiatus in development in the 2010s.

Taiwan Semiconductor Manufacturing Co, a world leader in chip manufacturing, plans to mass-produce 2-nanometer chips in 2025, while Samsung Electronics Co succeeded in mass-producing 3-nanometer semiconductors in June. In contrast, the latest technology in Japan can only produce 40-nanometer chips.

Analysts are skeptical about the new company’s immediate success in the face of fierce global competition. The state’s 70 billion yen in financial support, compared to the much larger US$52.7 billion in aid provided by the US government, raises questions about the Japanese government’s commitment to the revival used by the chip industry. The European Union and the private sector will also offer €43 billion in aid.

Hideki Yasuda, a senior analyst at Toyo Securities, said the 70 billion yen is “not enough at all” for the new company to be competitive in the global market.

“Around 1 trillion yen in annual investment is needed for the chip industry,” Yasuda said. “It’s hard to force private companies to bear such costs. So the question is whether the Japanese government is willing to do it.”

Rapidus chairman Tetsuro Higashi said at a news conference last Friday that he believes the industry ministry is aware of the need for long-term financial support and hopes more support will be provided to help his company build a chip factory help.

Government financial aid should be at least equal to amounts offered by other countries to keep Japanese companies competitive, said Mitsuhiro Osawa, senior analyst at the Ichiyoshi Research Institute.

Japanese chipmakers were once dominant players, taking half of the world’s share in the late 1980s. But they came under pressure when friction over trade with the United States led to export restrictions that allowed South Korean and Taiwanese chipmakers to dig deeper.

Spending by Asian competitors has outstripped that of ailing Japanese companies in an industry where the development and mass production of innovative products determines competitive advantage.

Japan has made efforts to rejuvenate its semiconductor sector through government initiatives in recent decades. In 2006, Toshiba Corp., Hitachi Ltd. and Renesas Technology Corp formed a planning firm for a government-sponsored joint foundry, but the project fell through six months later.

Elpida Memory Inc., formed by the merger of Hitachi’s chip operations, NEC and Mitsubishi Electric Corp, filed for bankruptcy protection in 2012 despite receiving 30 billion yen in state aid.

Rapidus President Atsuyoshi Koike, a former Hitachi engineer in the chips division and former president of Western Digital Cor.’s Japanese unit, says he has learned from the past.

“In the past, Japan has tried to seek solutions only in a closed world,” Koike said at a press conference last Friday. “We will work with people and businesses around the world, including resource companies and chip fabrication equipment manufacturers.”

Rapidus is looking for further partners, also from overseas. For example, the company is in talks with IBM Corp. about a technology cooperation on 2-nanometer chips.

The technological vacuum of the past decade has made it possible to recruit talented personnel from competitors outside the country. Rapidus may find it difficult to source skilled engineers and plant workers in Japan any time soon, said Masahiko Ishino, chief analyst at Tokai Tokyo Research Institute.

Japanese companies trying to catch up with global competitors are “like a high school student who didn’t study at all in school trying to get into the University of Tokyo,” said Osawa of Ichiyoshi Research, referring to the most prestigious college in Japan.

“The bar for manufacturing 2-nanometer chips is extremely high” for Rapidus, which has no experience in mass-producing cutting-edge semiconductors, said Yasuda of Toyo Securities.


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