[Taiwan Chip Dispatch] "Because of AI demand"... Why TSMC Is Really Building Japan as Its "Second Hub"

TSMC to upgrade Kumamoto Plant 2 to 3-nanometer process
Capital expenditure to increase from 12.2 to 17 billion dollars
Strategy to secure a key geopolitical foothold amid U.S.-China tensions

Taiwan's TSMC, the world's largest foundry (contract semiconductor manufacturing) company, is upgrading the production process at its second plant in Kumamoto Prefecture, Japan, to an advanced 3-nanometer (nm) node. On the surface, the move is being justified as a response to surging demand for artificial intelligence (AI) chips, but analysts say it also reflects a strategic calculation to disperse geopolitical risks stemming from U.S.-China tensions and to diversify the global supply chain. As news of the abrupt relocation of 3-nanometer production to Japan spread and concerns about technology leakage grew within the industry, the Taiwanese government moved quickly to calm the situation, stressing that "the core of advanced processes remains on the home island."

Reuters, Yonhap News Agency

TSMC to bring '3-nanometer' production to Kumamoto, Japan

According to local reports, including the Taiwan Economic Daily News on the 7th, TSMC Chairman Mark Liu met with Japanese Prime Minister Sanae Takaichi at the Prime Minister's Office in Tokyo on the 5th and stated that the company plans to mass-produce semiconductors using a 3-nanometer process at its second plant in Kumamoto. The plant had originally been slated to produce chips using 6-12 nanometer processes, but TSMC has decided to move the schedule forward and upgrade the production node.

Chairman Liu said, "I am confident that this project will further boost economic growth in Japan's regions," adding, "More importantly, it can serve as a foundation for the development of Japan's AI industry." The 3-nanometer process is a cutting-edge technology essential for producing generative AI and high-performance computing (HPC) chips.

In response, Prime Minister Takaichi said, "Given its critical significance for economic security, the government will spare no effort in providing support." With this decision, TSMC's investment in its second Kumamoto plant will increase substantially. The capital expenditure originally set at 12.2 billion dollars (about 18 trillion won) for 6-12 nanometer production is expected to rise to 17 billion dollars (about 25 trillion won) with the shift to 3 nanometers, an increase of nearly 40%. If the plan proceeds as scheduled, this will become the most advanced semiconductor process ever produced in Japan. TSMC is expected to finalize the plan soon and discuss the details with Japan's Ministry of Economy, Trade and Industry.

TSMC is building semiconductor plants in Kumamoto Prefecture, Japan, in a joint venture with partners including Sony. The first plant began mass production at the end of 2024, and construction of the second plant is currently underway.

A view of the factory that Taiwan Semiconductor Manufacturing Company (TSMC) is building in Kumamoto Prefecture, Kyushu, Japan. Photo by Yonhap News

Industry voices concern over technology leakage... Government says "Home island remains the core"

The market interprets TSMC's latest move as an effort to manage geopolitical risk and diversify its supply chain in line with customer demands. Major clients such as Apple and Nvidia, amid ongoing geopolitical instability including U.S.-China tensions, have been asking TSMC to diversify its production bases beyond Taiwan in order to secure advanced chips for AI servers. Analysts say TSMC has chosen Japan, which is actively offering subsidies and infrastructure support, as the optimal alternative. The Japanese government has provided about 476 billion yen (about 4.4 trillion won) in support for TSMC's first Kumamoto plant and has decided to provide about 732 billion yen (about 6.8 trillion won) for the second plant.

However, in Taiwan there are also growing concerns about the outflow of advanced technology overseas. Until now, TSMC has adhered to the principle that its most advanced processes at 2 nanometers and below would be produced only on the island of Taiwan.

The Executive Yuan (central government) of Taiwan moved swiftly to address these concerns. At a briefing, Executive Yuan spokesperson Lin Tze-luen said, "About 80% of Taiwan's advanced process production capacity will still be maintained domestically," emphasizing that "under the principle of 'rooted in Taiwan, aiming at the world,' we will continue to support the semiconductor industry." He added, "Taiwan remains at the center of TSMC's global advanced process strategy, and its leadership position is intact." Taiwan's Minister of Economic Affairs Kung Ming-hsin also said, "Taiwan's share of advanced process production will remain at around 80% through 2036." Chairman Liu likewise reiterated, "Every decision is based on customer demand, and overseas investment is not intended to replace Taiwan."

Taiwan Economic Daily News = Reporters Yeo Sunmyo and Ju Jacheong / Translated by The Asia Business Daily

*This column is published under a strategic partnership between The Asia Business Daily and Taiwan Economic Daily News.