Unforeseen Chip Deal in Japan Shakes TSMC’s Troubles in Arizona – You Won’t Believe the Twist!

Hello, this is Kenji from Hong Kong.

This Friday marks the third anniversary of Beijing’s imposition of the national security law on Hong Kong. The vaguely worded legislation criminalizes acts of secession, subversion, foreign collusion and terrorism. So far, the national security force established by law has arrested 260 people.

Most of those arrested are opposition politicians, activists, students and members of civic organizations who failed to meet ambiguously defined criteria “patriotism” criteria set by the Chinese Communist Party. Beijing has continued to tighten its grip, recently warning all foreign consulates in Hong Kong to cease providing consular services to dual national detainees.

The city’s new socio-political order was established as China placed national security at the top of its political agenda. This change included a new emphasis on self-sufficiency in technology manufacturing, particularly chips. But it has also brought new restrictions on internet companies, digital content and data flows, with impacts for Hong Kong as well as the mainland.

As China strives to ensure its national security and self-sufficiency, the United States and its allies are stepping up “Friendshoring,” bringing tech companies into their own domestic supply chains. The privatization of high-end chip-making materials maker JSR by a Japanese state-backed fund took the market by surprise, but is in line with the new normal that has arisen from the Sino-US rivalry.

However, not all friendhoring efforts go smoothly, as our correspondents in Taipei report. Taiwan Semiconductor Manufacturing Co. is building its first U.S. chip factory in more than two decades in Arizona, but delays and costs are mounting.

Extra hands in Arizona

TSMC, the world’s largest contract chipmaker, and its suppliers plan to send more than 500 workers experienced in setting up state-of-the-art chip facilities in the United States from Taiwan.

In this exclusive reportNikkei Asia Cheng Ting Fang And Lauly Li describe how construction of the company’s semiconductor plant in Phoenix, Arizona is falling behind due to a combination of factors including labor shortages and a lack of expertise .

“There are not enough American workers who have good first-hand experience, specifically in building semiconductor manufacturing facilities, and many are unfamiliar with the requirements of chip manufacturing plants,” said an executive with direct knowledge of the matter told Nikkei.

Factory construction began in 2021, and the Taiwanese chipmaker recently said mass production would begin in late 2024. In Taiwan, TSMC is usually able to set up a new chip factory in two or two and a half years, but in Arizona it will take more than three years.

Analysts say the delays could also be due to TSMC’s slowing expansion amid weak global chip demand. As a publicly traded, for-profit company, the chipmaker’s needs don’t necessarily align with geopolitics.

Friendhoring, it seems, is easier said than done.

From star to suspect

Choi Jin-seok was once a star in Korea’s semiconductor industry who held senior positions at the country’s two major memory chip producers. Former colleagues described him as a “process engineering genius”, while in the media he was presented as a “master of semiconductor yield”.

But his career came to a halt in 2010. After a period in the desert, he embarked on a chimerical mission to reemerge as a leader in China’s semiconductor industry.

Now he faces a possible prison sentence after being indicted in South Korea this month for stealing technology from Samsung to build a memory chip factory in China.

Industry insiders in South Korea and China tell the FT Christian Davis, Song Jung-a And Eleanor Olcott how Choi, who denies any wrongdoing, was shunned by Chinese investors, thwarted by US export controls and ultimately detained by South Korean prosecutors keen to make an example of a former industry icon the largest in the country.

For South Koreans, the case raises questions about their corporate culture and the risk of pushing skilled workers overseas. But it also illustrates how South Korea has become a key battleground in the escalating US-China tech war.

Unexpected but logical

The announcement this week that the Japan Investment Corp. (JIC), a state-backed buyout and privatization of JSR, the largest producer of advanced photoresist materials for chipmaking, came as a surprise to the stock market — but pleasant, judging by the reaction. JSR’s Tokyo-listed share price jumped 22% on Monday and another 7% on Tuesday, nearing its all-time high recorded in late 2021.

Although he may have taken the market by surprise, the the deal makes sense for both parties, writes Nikkei Akihiro Ota.

It was JSR who approached JIC last November about a potential deal. The race to manufacture ever more advanced chips requires massive investment, and a key industry supplier like JSR needs to keep pace, which means huge expense. Moreover, as a smaller listed company than its foreign rivals, it felt vulnerable to takeover attempts.

A deal also made sense from JIC’s perspective, as it fits well with Tokyo’s strategy to strengthen the country’s semiconductor supply chain. Despite its already high debt load, the Japanese government has earmarked 2 billion yen ($13.9 billion) over two years for support for the chip industry, including a 476 billion yen grant for the new chip factory. TSMC in Kumamoto Prefecture and 330 billion yen for the new national foundry company Rapidus.

An official from Japan’s Ministry of Economy, Trade and Industry said JIC’s investment decision was made ‘by himself, and it’s not something the government planned’ .

But the official also said it was an “important agreement to boost Japan’s competitiveness”.

Where are the women ?

Japan no longer lags behind in terms of women’s participation in tech work. The ratio of female IT specialists in the country reached 22% in 2021, putting it on par with the United States and ahead of Europe’s 19%, according to data from the Japan Industry Association. information technology services, Zippia and Eurostat.

However, Japan keeps dragging in terms of global competitiveness, ranking 29th out of 63 economies in 2022 in a ranking by Swiss business school IMD, writes Nikkei’s Kosuke Toshi.

One of the reasons lies in the country’s education system. Many women’s colleges in Japan do not offer computer science-related courses, while only 9% of computer science graduates in the country in 2022 were women, far behind South Korea’s 28% and around 20% in the United States and Europe, according to a survey conducted by Tokyo recruitment agency Human Resocia. The numbers paint a worrying picture of the future of Japan’s tech workforce.

#techAsia is coordinated by Katherine Creel of Nikkei Asia in Tokyo, with support from FT’s technical office in London.

Suggested readings

1. US weighs tougher restrictions on AI chip exports to China (FT)

2. Japan to teach teenagers to make EV batteries due to labor shortage (Nikkei Asia)

3. TikTok looks to Southeast Asia to drive growth (FT)

4. Eddie Wu prepares to lead the Alibaba empire built with mentor Jack Ma (FT)

5. Asia is catching up in the race for sustainable aviation fuel (Nikkei Asia)

6. Gaming industry puts generative AI to the test (FT)

7. Toyota to make hydrogen from Thai CP waste, others (Nikkei Asia)

8. Fosun-backed startup begins human trials of AI-designed lung drug (Nikkei Asia)

9. Naspers and Prosus leave cross-shareholding (FT)

10. China’s GAC unveils a flying car that can travel on the road (Nikkei Asia)