When you read the words “Silicon Island” you might think of Taiwan – but in Japan the name refers to Kyushu.
A TSMC-Sony joint venture is revitalizing the economy of the big island in southwestern Japan. Kyushu was already home to a large and diverse high-tech industry, but it needed a boost.
Kikuyo City, Kumamoto Prefecture, where the plant is being built, is experiencing a real estate boom, with industrial land prices up 31.6%, commercial land prices up 13.6% and residential land prices up 7.7% in 2022.
The joint venture, called Japan Advanced Semiconductor Manufacturing (JASM), will bring manufacturing expertise from Taiwan and the world’s first semiconductor foundry to Japan. JASM, which also includes Toyota Group auto parts maker Denso, will produce logic ICs for Sony, Denso and other Japanese customers.
In nearby Kumamoto, Kyushu’s third-largest city, the business community and general population look forward to years of prosperity. Last month, a Japanese accountant on a business trip sent this report from Kumamoto to the head office in Tokyo:
Investment in the plant alone is expected to reach around 1 trillion yen [$7.5 billion], about half of which is subsidized by the Japanese government. When it is completed in late 2024, TSMC, SONY and their suppliers will need 7,000 to 8,000 additional workers. Transport, communication, water, electricity and gas infrastructures are insufficient; there is not enough housing; and shops, schools and entertainment facilities are limited. There should be many opportunities for our business.
The new plant is a perfect fit for Kyushu, whose businesses and factories already produce semiconductors, flat panel displays and solar panels as well as the materials, parts, equipment and facilities used to manufacture them.
Kyushu’s semiconductor products include memory and logic ICs; microcomputers; discrete, analog, radio frequency and hybrid devices; optoelectronic devices; image sensors; other sensors; and actuators. The production processes used range from design and manufacture of the device to final testing. Materials include silicon wafers, photomasks, gases, and chemicals. The equipment includes wafer processing, inspection, assembly, packaging and testing systems.
End products manufactured in Kyushu include car audio, navigation, driver assistance and safety systems, solar and wind power generation equipment, disc players, digital cameras and a variety of other electronic machines.
Kyushu is a net exporter of semiconductors to China, Southeast Asia, India, Europe and North America, and has a roughly even trade in semiconductors with Korea South and Taiwan. It is a net exporter of semiconductor production equipment and flat panel displays to all of these regions except Taiwan and North America, with which its trade is roughly balanced.
The Kyushu Semiconductor & Electronics Technology Innovation Association currently has 245 corporate, academic and government members. Corporate members include semiconductor manufacturers Renesas (automotive integrated circuits), Rohm (power devices), Toshiba (discretes and LSI systems) and Sony (image sensors); silicon wafer manufacturers Shin-Etsu and SUMCO; photoresist manufacturers JSR and Tokyo Ohka; and equipment manufacturers Tokyo Electron and ULVAC.
Kyushu (36,782 km2) is almost exactly the same size as Taiwan (36,197 km2). Its population (12.6 million) is just over half that of Taiwan (23.3 million). Kyushu’s GDP (about $400 billion at the current exchange rate) is just under half that of Taiwan (about 830 billion yen), about the same size as the Philippines and slightly larger than that of Denmark. Kyushu accounts for about 10% of Japan’s total population and total GDP.
In addition to electronics, Kyushu’s major industries include automobiles and auto parts, steel, agriculture, forestry, and fishing. Before being chosen as the site of the new semiconductor factory, Kikuyo was best known for its carrots.
Kyushu’s largest city is Fukuoka to the north. Fukuoka Prefecture has the most high-tech companies on the island and is also the center of its steel industry. The prices of investments and real estate are also increasing there.
Like much of Japan, Kyushu is an earthquake zone. In April 2016, back-to-back earthquakes of magnitude 6.2 and 7.0 caused severe damage in Kumamoto City. This is not unusual for the semiconductor industry: Taiwan and Silicon Valley are also at the top of the Pacific Ring of Fire. There are nine active volcanoes on the island of Kyushu, including Mount Aso in Kumamoto Prefecture.
Things are looking up for Kyushu now, but the past few years have been tough. The island’s population, like that of Japan as a whole, is declining. The birth rate is below the replacement rate and there is net emigration to Tokyo. Within Kyushu, the population is concentrated in the city of Fukuoka, which has been growing for five years.
Kumamoto City’s population has been declining since 2020, but at average annual rates of less than 0.2%. The new employment opportunities created by JASM and related businesses are likely to reverse this trend.
Some Japanese wonder if the JASM will be self-financing. Last July, in an article titled “Will TSMC take Japanese taxpayers’ money and run away?” Editors of the Nikkei business journal asked, “How much can Japan really expect in terms of returns on subsidies?
“A lot” is the correct answer. Nikkei editors ignored the investment’s positive impact on job creation, population and demand for local goods and services. By focusing on the size of the grants, they overlooked the dynamics of industrial development — and that TSMC also needed grants to invest in Arizona.
In December, it was reported that Sony planned to build another image sensor factory in Kumamoto Prefecture. Construction is expected to begin next year. Production could start at the end of 2025.
Meanwhile, property speculators are already positioning themselves for the announcement of TSMC’s second factory in Japan.
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