Japan’s chip future lies in a Taiwan park

As much as the US pines for the good old days of global semiconductor supremacy, Japan feels its loss of glory even more. Once a dominant name in electronic components, the nation has been overtaken by South Korea, Taiwan, and, more recently, China. Yet Tokyo may have a viable plan to revitalise its domestic sector.
“Unlike the purely domestic, independent way it was done in the past, I think we need to cooperate with overseas counterparts,” Akari Imari, a former economy minister and senior member of the ruling Liberal Democratic Party, told Bloomberg News’s Isabel Reynolds and Emi Nobuhiro this week.
That’s remarkable pragmatism for a country whose industrial policy has largely revolved around protecting and isolating its companies to preserve national identity. Yet three decades of decline show that past policies just aren’t cutting it.
In 1988, Japan commanded 50% of the global semiconductor industry, according to a presentation this month from the Ministry of Economy, Trade and Industry (METI) that cites data from research firm Omdia. Back then, names such as NEC, Toshiba, Hitachi and Fujitsu occupied six of the top 10 places in market share, alongside American giants Intel and Motorola.
By 2019, Japan accounted for 10%. The US had climbed to 50%, due to the ascent of chip designers like Qualcomm Inc, Nvidia Corp and Advanced Micro Devices Inc.
These American firms rose thanks to a bifurcated business model aided by Taiwan Semiconductor Manufacturing Co, an anchor tenant in the island’s noted science parks. The arrangement reflects complementary skill sets. Rather than both design and manufacture a chip, as was once the case, most US companies now just outsource to foundries like TSMC.
Amari said that TSMC is exactly the type of foreign partner that local companies should work with, since it’s the world’s largest maker of non-memory semiconductors. His words carry weight, given that he’s heading a party working group on chip strategy as part of Prime Minister Yoshihide Suga’s policy to incorporate industry plans into the government’s growth plans.
Japan remains a global leader in the equipment and materials used for production. As chips get increasingly more difficult to make, tighter integration across the supply chain is inevitable. Taiwanese companies, including TSMC and United Microelectronics Corp have a lot to offer.
The Taiwan-Japan relationship is also becoming one of the closest in East Asia.

—Bloomberg