[Chiptalk] Japan Riding the Allied Forces... Korea's Semiconductor 'Tightrope Walk'

Japan's Rapidus Targets 2nm New Technology
Government Allocates 70 Billion Yen with Additional Support Plans
Deepening US-Japan-Taiwan Honeymoon
Korea Raises Deduction Rate but Faces Opposition's 'Chaebol Privilege' Claims

[Asia Economy Reporter Han Ye-ju] The foundry (semiconductor chip contract manufacturing) market has become a battleground for East Asian technological powerhouses such as South Korea, Japan, and Taiwan. Following Taiwan's TSMC, the industry leader, and Samsung Electronics, ranked second, Japan's 'Rapidus,' dreaming of a 'semiconductor lottery,' has also joined the fierce competition in the cutting-edge foundry chip war. As Japan's project dreaming of a 'semiconductor lottery' is progressing rapidly, voices are emerging that strong government-level support for the domestic semiconductor industry is urgently needed.

Recently, Rapidus announced plans to establish a prototype line for 2-nanometer (nm, one billionth of a meter) semiconductor production by the first half of 2025. Rapidus is a joint venture established last November by eight major Japanese companies, including Sony, Toyota, Kioxia, and NTT, to domestically produce advanced semiconductors.

2-nanometer is a process that requires high technological capability, with industry leaders Samsung Electronics and TSMC also targeting production by 2025. Currently, the most advanced process in the foundry market is 3-nanometer. Samsung Electronics is known to have significantly improved the yield of its first-generation 3-nanometer process, which began operation last year. In late June last year, Samsung Electronics became the world's first to produce chips using nanometer processes and delivered them to Chinese fabless (semiconductor design specialist) companies. TSMC's mass production of 3-nanometer chips was about six months later than Samsung Electronics. On the 29th of last month, TSMC held a 3-nanometer mass production event at Fab 18 in the Tainan Science Park in southern Taiwan. TSMC developed the 3-nanometer process while maintaining FinFET technology. The first customer is presumed to be Apple.

In fact, applying new technology to cutting-edge processes like 3-nanometer is considered a gamble. This is because initial yield stabilization can be challenging. Considering that Japan's latest chip process technology has only reached 40-nanometer, Rapidus's goal can also be interpreted as a strong expression of development will by the Japanese government and companies regarding semiconductor chips.

What the Japanese government aims for through Rapidus is undoubtedly a 'lottery ticket' to become a 'semiconductor powerhouse.' Japan is a major producer of automobiles, power and optoelectronics, and memory semiconductors but lags behind in logic process chip miniaturization. However, it seems they have concluded that they cannot rely solely on South Korea or Taiwan for the manufacturing of cutting-edge semiconductors essential for future technologies.

Japan's semiconductor strategy is being pursued on two tracks: nurturing domestic technology and attracting foreign company factories. The Japanese government has already decided to support Rapidus with 70 billion yen (approximately 661.4 billion KRW) and is reportedly prepared to provide additional funds in the future. Based on this, Rapidus plans to invest 5 trillion yen (approximately 48 trillion KRW) over ten years to develop semiconductors related to supercomputers, autonomous vehicles, and AI by 2027. TSMC, supported by the Japanese government, has drastically shortened the construction period of its Kumamoto Prefecture plant from five years to two years and recently announced plans to consider a second plant in Japan. The Japanese government provides subsidies covering 40% of the 1.2 trillion yen (approximately 11.34 trillion KRW) investment required for the Kumamoto plant construction, amounting to 476 billion yen (approximately 4.5 trillion KRW).

Cooperation with the United States in semiconductors is also expanding. At the end of last year, Rapidus signed a technology license agreement with IBM in the U.S. IBM is known to have succeeded in producing a 2-nanometer semiconductor prototype in 2021. Rapidus is dispatching employees to the U.S. to train in the necessary foundational technologies.

Of course, the semiconductor industry views Japan's roadmap with skepticism. Even if Japan achieves the scheduled 2-nanometer prototype, the prevailing opinion is that transitioning to 'mass production' will not be easy.

However, concerns are rising that South Korea might become isolated as the U.S., Japan, and Taiwan strengthen their cooperative relationships. Samsung Electronics is struggling to fight alongside its allies, but it is difficult for an individual company to maintain a super-gap alone. This implies that the timing of the passage of our government's semiconductor support law could be a variable.

Earlier this year, the government announced an amendment to the Restriction of Special Taxation Act (RSTA) that increases the tax credit rate from 8% to 15% for large and medium-sized enterprises and from 16% to 25% for small and medium-sized enterprises. For this amendment to take effect, judicial procedures must precede, but it seems unlikely that the government will achieve its goal of passing the amendment by February. The opposition party appears to want to adjust the scope of the tax credit increase, citing the argument of 'chaebol privileges.'

Meanwhile, according to U.S. market research firm Counterpoint Research, as of the fourth quarter of last year, TSMC's global foundry revenue share increased by 1 percentage point from the previous quarter to 60%. The gap with Samsung Electronics, which remained at 13% for the third quarter, widened further to a 47 percentage point difference.