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TSMC Japan play aims to ease auto, image sensor shortage

Analyst says 'TSMC is filling a market need left vacant by Japanese semiconductor companies'

TSMC Japan play aims to ease auto, image sensor shortage

(AP photo)

TAIPEI (Taiwan News) — Taiwan Semiconductor Manufacturing Company (TSMC) is building its first fab in Japan to increase chip supply for image sensors and the automotive sector as local chipmakers cannot meet demand.

Japanese semiconductor firms’ expertise is now elsewhere, says Strategy Analytics semiconductor analyst Sravan Kundojjala.“ Japanese semiconductor companies now focus on high-end components only and have left the commodity markets,” Kundojjala told Taiwan News.

Japan’s high-end image sensor business, largely led by Sony, is hungry for chips given the demand for continually better smartphone cameras. Research by EET Asia shows that Sony held about half the market in 2020, followed by Samsung and OmniVision at 29% and 10%, respectively.

Data from IC Insights show the image sensor industry is projected to climb 19% in value in 2021 to NT$641 billion (US$22.9 billion). Kundojjala noted that even Samsung, known for its strong vertical integration, has outsourced production of semiconductors to keep up with demand, albeit to TSMC rival UMC.

Despite the COVID-19 pandemic, Sony in April reported its highest-ever annual net profit: US$10.7 billion. The company’s image sensor division posted sales of approximately NT$58.77 billion and operating income of NT$5.14 billion.

Japan's companies accounted for 4.7% of TSMC’s revenue in 2020, far less than the 62% of North American firms, according to Nikkei Asia. However, just as the U.S. government was heavily involved in persuading TSMC to set up a fab in Arizona, geopolitics is also factoring into the Hsinchu-based chipmaker’s decision to go ahead with its first manufacturing facility in Japan.

The Japanese government has been vocal about its desire to have a TSMC plant in Japan. Akira Amari, a senior member of Japan’s ruling Liberal Democratic Party, told Bloomberg in June that Japan must work together with TSMC on semiconductor development and manufacturing.

Japan has allocated NT$50.38 billion to strengthen its domestic chipmaking industry. By building up its domestic chipmaking prowess, Tokyo envisions the country to hold 40% of the global market for next-generation power semiconductors – which are used in electric vehicles – by 2030.

Foundries and supply chains

As TSMC is a pure-play foundry, it is agnostic to the customer it has onboard. While local electronic giants like Sony also manufacture semiconductors they come from in-house designs, while TSMC produces semiconductors from designs provided by its customers.

The fab TSMC plans to build in Japan will not be its latest node, reserved for high-end mobile and PC processors, and instead will use something from the last generation or earlier, as these are the types of chips required for the products.

“TSMC seems fine with mature node outside Taiwan but the company wants to keep leading-edge node close to Taiwan due to engineering requirements,” Kundojjala said.

Kundojjala explained that Japan's companies have a good presence in the lithography — the process of shining ultra-refined UV light onto silicon to create patterns for semiconductor circuits — and semiconductor materials fields but “lost the race in semiconductors as native companies NEC, Panasonic, Hitachi, Sony, Sharp, Mitsubishi all scaled down to focus on something else.”

TSMC and other chipmakers like UMC and Shanghai-based Semiconductor Manufacturing International Corporation (SMIC) are reliant on foreign companies for these lithography machines. Companies in the Netherlands like ASML Holding and a number of US firms have a near monopoly on the most advanced versions of these machines, but Japan’s Nikon is also a contender in the race.

Since American intellectual property is at the core of these machines, U.S. sanctions blocking their export and that of related technology to China have impeded SMIC’s efforts to catch up to TSMC. In March, SMIC said it and the Shenzhen government would jointly invest in a NT$65.78 billion chipmaking facility in the Guangdong Province city. Equipment procurement may be delayed, however, due to U.S. sanctions.

TSMC, meanwhile, is also increasing its China-based capacity and plans to invest nearly NT$81.16 billion to beef up mature chipmaking technology at its fab in Nanjing, the capital of Jiangsu Province.