Japan's 'Awakening': Betting on 2nm Chips After $7.2 Billion Loss

00:00 Intro
01:34 Is Rapidus Japan's Real Game Changer?
03:48 Will Rapidus Succeed?
04:52 Japanese Government's All-Out Support Through Legislative Reform
06:10 Securing Specialized Talent
07:24 Market Dominated by TSMC and Samsung: Can They Secure Customers?

Reporting from Tokyo. Today, I would like to discuss the semiconductor industry in Japan. Following the announcement of a mega-project in South Korea, I visited Chitose, Hokkaido, last week to see how Japan is responding. When people think of Japanese semiconductors, the TSMC plant in Kumamoto often comes to mind first. As the world's leading foundry, the fact that a Taiwanese company like TSMC has established a plant in Japan has already drawn significant attention. However, I became interested in Chitose, where the Rapidus plant is located, for several reasons. First, it shares similarities with South Korea's mega-project. Unlike the strategy of attracting foreign companies like TSMC or Micron—an 'external transfusion'—this is a hub for 'self-cultivation' to foster Japanese companies. It is also similar in that it received significant government intervention and was established in a regional area rather than the capital region. In terms of the 'speed war' emphasized by President Lee Jae-myung regarding the mega-project, it is also worth noting. Above all, I believed that Japan's true intentions and real game changer lie with Rapidus in Chitose. To regain its past status as a leader in various cutting-edge technologies, including semiconductors, Japan is attempting a technical gamble: jumping from its last mass-produced 40nm chips directly to 2nm. Rapidus means 'fast' in Latin, and true to its name, it has shown record-breaking speed so far. Today, we will examine what Japan aims to achieve through Rapidus, the likelihood of its success, and what lessons we might draw from it.

1. Is Rapidus Japan's Real Game Changer?
To understand the goal, we must first understand why it started. Rapidus was established in 2022, one year after the incorporation of TSMC's Kumamoto plant. Yes, this coincided with the COVID-19 pandemic. At the time, Japan's core national industries were shaken due to a failure in semiconductor supply. In particular, the automotive industry, the backbone of the Japanese economy, was hit hard. At one point, eight major Japanese automakers, including Toyota and Nissan, cut production by 1.7 million units annually, suffering losses exceeding 10 trillion won. It wasn't just automobiles; daily necessities like air conditioners and boilers faced shortages, and even game consoles like the PlayStation, which represent Japan, were unavailable. Although it happened a bit later, there were also periods when new issuances of transportation cards like Suica and Pasmo were suspended for extended periods due to a lack of semiconductors. Experiencing such a situation led the Japanese government and industry to awaken. They realized that relying solely on other countries for semiconductor plants could paralyze both national security and public livelihood. Consequently, the Japanese government made semiconductors a national priority and began pursuing both 'external transfusion' and 'self-cultivation' strategies simultaneously. In this light, it could be seen as starting for more defensive reasons compared to our mega-project. While the mega-project began with the aggressive goal of expanding global market share, the primary goal of Rapidus was to protect the domestic industry. This is clearer when looking at the equity structure. There are currently 32 private investors, including many major Japanese companies that need semiconductors, such as Toyota, NTT, and Sony. They have essentially prepared a domestic ecosystem that can purchase the chips immediately upon successful mass production. This is also why Rapidus has been able to move forward without hesitation.

[Kiyoshi Hashimoto / General Manager of Public Relations, Rapidus: There are semiconductor companies, automotive companies, and companies like NTT that are trying to pioneer new technologies in the communications sector. The investing companies are likely thinking about various business synergies in the future.]

2. Will Rapidus Succeed?
However, if you ask whether Rapidus will succeed in the future, it is true that relying solely on the domestic market is difficult. Due to the nature of semiconductor manufacturing, massive initial investment is required, so to turn a profit, they must secure large customers, such as Nvidia. Even the TSMC Kumamoto plant had major companies like Sony and Denso as customers from its inception, yet it did not escape losses until last year. In fact, apart from TSMC, which holds an unrivaled position with a market share of over 60%, there are virtually no foundry companies that generate stable profits. Furthermore, succeeding in a 2nm semiconductor prototype and achieving mass production are two completely different problems. Also, while the Japanese government has provided over 20 trillion won in research funding and directly purchased over 2 trillion won in equity, it is negligible compared to the 2,000 trillion won scale of South Korea's mega-project. In that sense, it is indeed a risky gamble, and it is true that there are concerned voices within Japan as well.

3. Japanese Government's All-Out Support Through Legislative Reform
However, there are reasons why this company does not look like a pushover. Based on an interview with Rapidus, I will summarize this in three aspects: funding, technology, and customers. First, government investment in Rapidus should not be measured solely by the amount. Last year, through the revision of the Act on Facilitating Information Processing, known as the 'Rapidus Support Act,' the Japanese government made it possible for the government to make long-term investments in private companies. And this year, it invested 250 billion yen to become the largest shareholder. The fact that it became the largest shareholder is important. The government can now mobilize administrative power to provide both tangible and intangible support. Regarding power supply, they decided to invest 1.8 trillion yen to build a subsea power transmission line connecting Hokkaido and the main island, and Sanae Takaichi, a Japanese politician, pledged full support while on a tour of Europe.

[Sanae Takaichi / Japanese Politician (Last month, meeting with Rapidus management): I intend to firmly promote this not only to the UK and Italy, but also to other countries, focusing on our allies.]

It means the government will directly engage in semiconductor sales, just as it does for nuclear power or the defense industry. There is an expectation that as long as Japan mobilizes all its economic and diplomatic power, it will not allow it to fail.

4. Securing Specialized Talent
Second, technology is a matter of talent. Regarding concerns that it might be difficult to secure specialized talent because they have neglected cutting-edge semiconductors for 20 years, they responded as follows.

[Kiyoshi Hashimoto / General Manager of Public Relations, Rapidus: We are proceeding by receiving technology sharing from IBM. We sent 160 engineers to IBM's research lab in New York to conduct research together. More than 100 have already returned.]

Efforts to foster talent at the regional level have also begun.

[Shuichi Mori / Director of Next-Generation Semiconductor Hub Promotion Office, Chitose City: We are cooperating (with local educational institutions) with the goal of training about 600 people per year for semiconductor-related employment and positions at related companies, which is the expected annual demand.]

I visited a science and technology university near the Rapidus plant, and the students were also looking forward to it.

[Keita Shima / Freshman, Chitose Institute of Science and Technology: Rapidus is one of the biggest career options at our school. There aren't many semiconductor classes right now, but I heard that a semiconductor-related department will be established starting next year.]

5. Market Dominated by TSMC and Samsung: Can They Secure Customers?
Whether they can secure enough customers in a situation already dominated by TSMC and Samsung is also an important point. Rapidus stated that it intends to target the niche, noting that it would be difficult for TSMC to handle all of the explosively increasing demand.

[Kiyoshi Hashimoto / General Manager of Public Relations, Rapidus: Looking at the supply and demand balance for the next three years or so, demand is very strong. There may be cases where companies want to order (cutting-edge semiconductors) from TSMC, but orders cannot be placed immediately due to business reasons.]

The goal is not to become number one in the world immediately. The point is that Japan will possess cutting-edge semiconductor technology, and Rapidus calculates that customers will naturally follow once that happens. Whether Rapidus will ultimately succeed will have to be seen until the mass production stage next year. What is more worth noting is the process that led to this point. The fact that the Japanese government, starting from Prime Minister Kishida and going back to former Prime Minister Abe, has drawn a big picture including the semiconductor industry and has consistently supported it even as prime ministers changed, is something that South Korea, where the mega-project has begun, might want to refer to.

[Park Sang-jun / Economics Professor, Waseda University: Since it takes at least 10 to 20 years to see results, it is also an achievement to improve step by step, rather than the government trying to produce results quickly or make announcements just to show off.]

(Reported by Mun Junmo | Produced by Shin Hee-sook | Video by Han Cheol-min, Mun Hyun-jin | Video Editing by Ahn Jun-hyeok | Graphics by Lee Jung-joo | Produced by SBS Digital News)
※ Please note: This article was translated by AI and may contain errors.