Report: Japanese government seeks pact with TSMC to build local chip plant

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TSMC is no longer taking orders from Huawei.

The Japanese government is seeking to work with Taiwanese Semiconductor Manufacturing Company (TSMC) to establish a new state-of-the-art domestic chip plant, reports the South China Morning Post. The nation wants to bring local suppliers into the project and ultimately revive its local microelectronics industry. Tokyo plans to invest billions of dollars to capture the attention of TSMC or another top tier chipmaker.

The Taiwanese firm told Reuters no deal is in place currently, but it would not rule out a future pact.

Why Japan Wants to Build an Advanced Chip Foundry

Japan likely has two reasons for wanting to bolster its domestic chip manufacturing sector. Though it sits on the cutting-edge of biomedical technology, the nation lags behind South Korea, Taiwan, the United States, and Western Europe in terms of technical refinement and production capacity. However, the East Asian country could give its microelectronics industry a boost by subsidizing the building of a new high-end foundry.

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With adequate economic support, the new chip plant could become the crux of a new Japanese electronic component supply chain.

By cultivating a revived microelectronics sector, Japan could create new jobs, increase trade, and foster widescale digital transformation. As the coronavirus pandemic pushed the country into a recession, it badly needs some form of economic stimulus. As Fortune Business Insights predicts the global semiconductor market will reach $730.29 billion in value by 2026, chip sector development seems like a wise investment.

Japan also probably wants to achieve semiconductor independence amid the emerging trend of nationally subsidized microelectronics development.

The Shifting Global Microelectronics Landscape

For decades, the global electronic components industry depended upon China to fabricate its parts. However, in recent years, mounting global trade tension and the coronavirus pandemic have prompted manufacturers to reassess their supply chains. Firms are now looking at high expertise, low labor cost regions like Taiwan, India, and Vietnam as potential production hubs.

Wanting to take advantage of the paradigm shift, various nation-states have launched incentive programs to lure in high volume chipmakers.

In June, Taiwan announced it would offer $334 million in subsidies to microelectronics companies that build factories within its borders. That same month, India initiated a $6.6 billion incentive program to convince global semiconductor firms to build new facilities in-country. Moreover, U.S. lawmakers also introduced senate bills directing $47.8 billion to improve American chip production capability.

The New York Times reports Germany, Israel, Ireland, and South Korea have also launched domestic semiconductor industry bolstering projects.

As a result, Japan’s efforts to make a deal with TSMC is a shrewd investment in its future. As the microelectronics field is becoming increasingly geographically segmented, domestic chip supply chains will become economically and technologically essential.

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