Japan Bets $67 Billion To Become A Global Chip Powerhouse Once Again

(Bloomberg) -- Deep in the snowy northern island of Hokkaido, Japan is pouring billions of dollars into a long-shot bet to revive its chip-making prowess and insulate its economy from growing US-China tensions.

Excavators and trucks criss-cross the frosty ground as construction work continues on a futuristic factory looking over a grassy plain with roaming horses. It’s a development that is changing the landscape of an area known for farming, military bases and Chitose airport. It’s a project that also aims to change the face of Japan’s chip industry.

A freshly created homegrown venture, Rapidus Corp., is looking to mass produce state-of-the art 2 nanometer logic chips in 2027 from an initial starting point of zero. By industry standards it’s an implausible challenge for an 18-month-old venture in a country that has fallen far behind overseas rivals on semiconductor production.But with the US and China sparring over access to the latest chipmaking expertise and equipment, Japan’s government has sensed an opportunity to leverage Washington’s concern over supply chain security to get back into a game it once dominated.

The stakes are huge. Advanced chips will serve as the foundation for a dozen critical technologies, including artificial intelligence, weapons systems and electric vehicles. A large portion of global production centers on Taiwan and South Korea, leaving future supplies vulnerable to regional tensions.

“There are geopolitical, economic security factors involved,” said Atsuo Shimizu, a Rapidus executive in charge of launching the new foundry. “To survive as a nation, Japan needs to be a global player with technology. And we can clearly demonstrate that with semiconductors.” Tokyo has already shown it means business. In less than three years, Japan has earmarked about ￥4 trillion ($26.7 billion) for revitalizing its semiconductor punching power with Prime Minister Fumio Kishida targeting financial support for the industry to eventually reach ￥10 trillion with private sector support. Among the goals is a tripling of domestically produced chip sales to more than ￥15 trillion by 2030.

Japan’s new chip strategy has two main strands. First, the country is seeking to reestablish itself as a prime location for manufacturing legacy chips by luring to Japan the biggest foreign names in the industry with generous subsidies of up to half of the set-up costs.The second and more ambitious part of the strategy is the Rapidus project in Hokkaido aimed at restoring Japan’s place as a player at the forefront of silicon-chip wizardry.“Why do we do so much for chips? Honestly, that’s because there’s the US-China confrontation,” said Kazumi Nishikawa, principal director of economic security policy at Japan’s Ministry of Economy, Trade and Industry and one of the architects of the strategy. “If chip supplies from Taiwan halt, there will be negative impacts of trillions of dollars everywhere and economies will collapse.”

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Even if Rapidus is able to hit its target by 2027, TSMC and Samsung will likely have already jumped into the market at volumes that will give them a cost advantage.

Takashi Yunogami is a former Hitachi Ltd. engineer who made news by fiercely criticizing past government initiatives in parliament right before the chip strategy was released. He likens Rapidus’s 2nm goal to a little leaguer in baseball trying to turn into superstar Shohei Ohtani overnight.

“Kids should dream, but if a baseball boy says he is trying to do well as a two-way player starting from tomorrow, I’d say, ‘Hold on. Let’s take it step by step,’” Yunogami said.

Still, in addition to the support from IBM, California-based  Lam Research Corp. and Imec are planning to open shop in Hokkaido. Rapidus has also struck an agreement with Canada’s “There are so many risks and challenges for Rapidus. It’s still in a research and development stage before becoming a business,” said METI’s Nishikawa.

Russia’s invasion of Ukraine, North Korea’s launching of missiles and China’s posturing toward Taiwan have reminded the world of the vital importance of securing chip supplies and strengthening defense systems.“Chips are used for drones, fighters, submarines and missiles,” said the LDP’s Seki. “If we can make others feel Japan can halt chip exports if they mess with us, that will mean our investment has served as a war deterrent, too.”

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