In 2024, the global semiconductor industry is predicted to reach global sales of $588 billion. Over the coming decade the industry is projected to grow 2.3 times, driven by advancements in AI, robotics, and next-generation automobiles. All of this means investors should want to get in on the action; however, there are few industries more heavily bound up with geopolitics and national interests.
The COVID-19 pandemic has highlighted the vulnerabilities of the global supply chain. Additionally, semiconductors have become a battleground for economic supremacy, notably between the United States and China. Nations either seek their own semiconductor manufacturing or aim to depend on reliable, stable allies.
Amid these issues, Japan has emerged as a pivotal player, with a proactive government determined to strategically position its domestic semiconductor industry in the global chip marketplace. Prime Minister Fumio Kishida has signalled his intent to support Japan’s semiconductor industry, in July; telling reporters at Rapidus’ new plant under construction that “Japan will make investment for mass production and support research and development on a large scale with a plan over multiple fiscal years.”
Japan aspires to use the semiconductor industry to return to the glory days of the 1980s and 90s, a time when industry-leading factories housed giants like NEC and Toshiba. To this end, the government has allocated a substantial 2 trillion yen (approximately $13 billion) to bolster the nation’s chip industry and lay the foundation for a decade of industrial expansion. In the late 80s, Japan accounted for over half (51%) of semiconductor sales worldwide. By 2021, that figure had been reduced to 7%. Amid heightened trade tensions, the U.S. leveraged its influence to support South Korea and Taiwan, while increased competition from China further exacerbated Japan’s competitiveness challenges. Nishikawa Kazumi, Counselor to the Minister of Economy, Trade, and Industry’s Secretariat (METI) has previously said that the METI’s policies and resources have too long been focussed on the applications of technology, “rather than the fundamental building blocks that go into it.”
But that’s set to change. Japan not only enjoys close ties with the US but cultural and political affinities with Taiwan and South Korea. In February 2024, Taiwan Semiconductor Manufacturing Company (TSMC), the world’s largest semiconductor chip manufacturer, opened its first chip fabrication plant in Japan, with a second planned by the end of 2024. Over the past two years, at least nine Taiwanese chip firms have chosen to establish or expand their operations in Japan. South Korean Samsung is also investing in a centre for next-generation semiconductor packaging technology in Yokohama.
Government support and international partnerships are bolstering the prospects of Japanese semiconductor firms. For example, the government recently injected $3.9 billion in subsidies to the domestic semiconductor company Rapidus, has partnered with the U.S firm IBM since 2022. International support and government investment have been crucial in boosting confidence in Rapidus’s plans for “2-nanometer” semiconductors, which offer increased performance and lower energy usage. These were, until recently, not thought to be feasible in Japan, largely due to lagging fin field-effect transistor technology.
Other names to watch out for are in the material supply space. Japanese electronics company IBIDEN currently stands out as the world’s leading manufacturer of semiconductor equipment packages for CPUs and GPUs utilised in data centres. Another Japanese name, SUMCO is world’s foremost manufacturer specialising in semiconductor silicon wafers, commanding a market share of approximately 30%. SUMCO is anticipated to reach its profit peak by 2026.
Another major player in the material supply space is Tri Chemical Laboratories, which produces high purity chemicals in semiconductor manufacturing. Its share price has risen almost 250% since 2019, and it’s likely to play an important role in the supply of in-demand resources over the coming decade.
A wide range of Japanese companies have benefitted from the government’s national strategy. Once known for producing high end porcelain, Maruwa now has a market capitalisation of $2.75bn amid demand for its electronic ceramic components in which can play a role in AI data centre cooling. Maruwa produces ceramic components that are required to withstand extremely high temperatures, and with exceptionally high barriers to entry, it’s likely to remain a popular manufacturer of circuit board components for years to come.
Despite a firmly committed government and significant financial tailwinds, Japan’s national strategy faces its challenges. Japan has reaped rewards by forging partnerships with Taiwanese and South Korean companies, but it faces competition from the rising south-east Asian semiconductor tide. In late 2023, chip manufacturer GlobalFoundries opened a $US4 Billion facility and created 1,000 jobs, in Singapore.
Singapore’s highly skilled workforce and stable government contribute to its accounting for 11% of global semiconductor production. However, the limited availability of real estate and comparatively lower government incentives in Singapore suggest that Japan should remain highly competitive in the industry.
Vietnam and Malaysia are also ramping up their efforts to attract foreign companies but face challenges that Japan has managed to overcome. Vietnam recently missed out on investments from Intel and LG Chem due to a lack of investment incentives, a factor that has been mitigated in Japan through a committed, government-backed fiscal strategy.
Malaysia has indeed managed to attract investment from notable companies such as, Micron, Intel, AMS Osram, and Infineon, positioning itself to capitalise on the US-China race. However, compared to Japan, Malaysia faces challenges attracting leading talent and has launched a national strategy to double the manufacturing median wage to remain competitive. Additionally, Malaysia’s preference for Chinese products and companies could lead to political challenges from the US, the largest contributor to Malaysia’s FDI.
The strategic positioning of Japan, with its strong government support and partnerships, continues to be a significant factor in maintaining its competitiveness against emerging semiconductor hubs like Malaysia.
One of Japan’s biggest challenges is attracting private investment to complement its substantial public spending. Yet, recent Nikkei reports of major chip manufacturers Sony, Toshiba, and Rohm’s combined $31 billion capital expenditure over the next five years signal a positive shift in investor confidence.
Sony has committed 1.6 trillion yen up until fiscal 2026, Toshiba and Rohm are investing around 370 billion yen combined into data centres, and EVs, while Toshiba has committed to increasing production at its Ishikawa factory.
Semiconductors are emerging as a key growth industry, with geopolitical tensions prompting a shift in plant locations and supply chains. Thanks to a proactive government, international partnerships, and strong industry links, many Japanese semiconductor firms are poised for success and have bright prospects ahead.
