Relations between Taiwan and Japan, dubbed the “semiconductor honeymoon”, are getting closer and closer. TSMC, a Taiwanese foundry (semiconductor consignment manufacturing), is constructing a production line in Kumamoto Prefecture, Japan, at a total cost of 1.2 trillion yen (about 11.6 trillion won). The Japanese government subsidizes 40% of the construction cost. Construction began in April and will be completed in September next year, with series production scheduled for late 2024.
Sony, Japan’s leading information technology (IT) company, plans to build a production line of “image sensors” (semiconductors that act as the human eye) next to the TSMC factory. The aim is to receive the chips produced by TSMC and immediately complete the sensor at the factory next door.
Recently, a senior TSMC official hinted at the possibility of building a second plant in Japan. “We are not ruling out the possibility of building a new factory in Japan,” Hou Yongqing, senior vice president of sales at TSMC in Asia and Europe, said in an interview with Japanese media on the 8th. Japanese Minister of Economy, Trade and Industry Yasutoshi Nishimura said on the 9th, “We welcome that TSMC is considering building additional factories in Japan.”
Indeed, Japan is not rated as the best place to build a state-of-the-art semiconductor factory. Due to frequent earthquakes. The production lines of Japanese semiconductor companies such as Kiosia are likely to come to a standstill due to the earthquakes. A recent example is the contamination of Kiosia’s state-of-the-art NAND flash manufacturing line by a 7.6 magnitude earthquake in March. As a result, 10% of Kiosia’s NAND flash production is reported to have declined. Kiosia’s market share dropped from second place in the first quarter to third place in the second quarter.
The building of a factory by TSMC in Japan is the foundation of Apple
However, why is TSMC so active in building a factory in Japan? On the surface, it is analyzed that the huge amount of subsidies distributed by the Japanese government and the collaboration with Sony, a long-time customer, have had an impact. There is also an opinion that we should look the other way. A high-ranking semiconductor official I met recently said, “The real reason why TSMC is building a Japanese factory appears to be because of ‘Apple’.”
Apple, which accounts for the majority of TSMC’s sales, is ‘No. 1’ is a customer. As of last year, TSMC accounted for about 25% of TSMC’s sales. From TSMC’s point of view, Apple is a customer “big hand” not to be missed.TSMC cannot be free from Apple’s influence.
Apple is ordering “Leave China” from its partners like Foxconn these days. This is because Apple has experienced several production setbacks in recent years due to the CCP’s unpredictable policies. A typical example is the shutdown of the Foxconn factory, which produces iPhones, due to the Chinese government’s blockade of Zhengzhou. Apple has asked Foxconn to “move its major manufacturing lines from China to India and elsewhere.”
“I don’t believe in China”… Pressure on “De-China”
It is analyzed that the pressure from Apple is also acting on TSMC. Apple is known to be concerned that TSMC’s factories, which make basic semiconductors for iPhones and MacBooks, are concentrated in Taiwan. Either way, if TSMC’s state-of-the-art factory were to collapse due to a Chinese invasion, it could cause “catastrophic” damage to Apple.
So Apple asks TSMC to “leave Taiwan and diversify production locations”. TSMC’s construction of a factory in Japan is being viewed as an extension of Apple’s policy of inducing “de-China” for its partners. To understand this, we must first look at the love triangle leading to TSMC-Sony-Apple.
Sony’s flagship product is an image sensor that serves as the human eye in electronic devices. Sony’s image sensor is supplied to Apple.
Sony manufactures the core chip of its image sensor from TSMC. From Apple’s point of view, if there is a problem in TSMC’s factory, it will not be able to smoothly supply Sony’s image sensors. Ultimately, iPhone sales are very likely to take a hit.
That’s why Apple lobbied TSMC to build a factory in Japan. In 2024, when the TSMC Kumamoto factory is completed, Apple will put aside concerns about Sony’s “image sensor”.
Apple says it will use American-made chips
Not all problems have been resolved. The TSMC plant in Taiwan also produces the AP (application processor) for iPhone and Macbook, developed directly by Apple. Apple’s AP is incomparably more important than the Sony-supplied image sensor.
The US government lobbied TSMC to build a factory in Phoenix, Arizona. TSMC’s top executives, including TSMC founder Maurice Chang, flatly stated, “Production in Taiwan is beneficial. There is no need to build a factory in the United States,” but they surrendered to the United States. TSMC is currently building a 4nm production line in Phoenix by investing tens of trillion won. Tim Cook, Apple’s CEO, welcomed the plant at a recent equipment presentation ceremony, saying, “We will be the first customer of TSMC’s Arizona plant.” Once this plant is completed, Apple can escape the risk of Taiwan.
Even more surprising news is that TSMC has announced that it will build another plant in the United States. The process should also be the latest 3nm, not 4nm. Here, too, there is expected to be compelling demand from Apple. A semiconductor industry official analyzed: “It is impossible to understand that TSMC, burdened by the abandonment of Taiwan, is increasing its investments in Japan and the United States, with the exception of ‘Apple’.”
Negotiation on equal terms with the ‘superpower’ Apple, only Samsung Electronics
Few companies can stand up to this mighty superpower Apple. In Korea, Samsung Electronics is said to be negotiating supplies on a relatively equal footing with Apple. In the smartphone market, Samsung Electronics and Apple are fiercely competing for the world’s No. 1, but it is different in the semiconductor market. Apple receives memory semiconductors such as DRAM and NAND flash from Samsung Electronics. Of course, there are alternatives to Samsung Electronics, such as SK Hynix and US Micron. However, it is known that Samsung Electronics ranks first in terms of “quality”.
The competition between countries to attract Samsung Electronics’ semiconductor factories to their countries is also fierce. The United States, the European Union (EU) and Japan are asking Samsung Electronics to “build a factory in Korea” with trillion-won worth of cash parcels. A tax deduction of more than 20% is also promised.
However, the situation in Korea is different. Samsung Electronics completed Plants 1 to 3 in Pyeongtaek, Gyeonggi Province and soon started the groundwork for Plants 4 and 5. The construction of the 6th plant is also seriously planned. It is a large-scale project that requires a huge amount of more than 20 trillion won for each plant.
The whole world stepped forward to promote the semiconductor industry… Korea backs down
President Yoon Seok-yeol personally pushed through a special semiconductor law that would raise the tax credit rate for large corporations’ investment in facilities from the current 6 percent to 20 percent. It was at this time that a consensus was formed on the need for unconventional support measures to compete with the United States, which decided to give 25% tax credits to companies investing in its country, and China, which was investing 187 trillion won by 2025 to feed the semiconductor industry.
The result is “less than expected”. On the 23rd, the government and opposition parties raised the tax credit rate for large companies by only 2 percentage points, from 6% to 8%. It is a poor achievement created by the Ministry of Strategy and Finance, which opposed the reduction of corporate tax revenues, the Democratic Party of Korea, which advocated preferential treatment for big companies, and the power of the people which responded tepidly.
Representative Yang issued a separate statement and said, “The global standard for semiconductor investment tax credit is 25 percent.” It is a policy to kick global semiconductor companies out of Korea.” If they build a factory in the US, they can get a 25% tax credit, but what kind of company would want to build a factory in Korea? Representative Yang also said that “withdrawing an 8% tax credit is on the level of breaking the promise of the last presidential election.”
Disappointing reactions have also come from the semiconductor industry. Lee Chang-han, vice president of the Korea Semiconductor Industry Association, said, “Even if semiconductors have strategic value, they offer fewer advantages than competing countries.”
Reporter Hwang Jeong-soo [email protected]
