TSMC’s Arizona headache and a surprise chip deal in Japan

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 criminalises acts of secession, subversion, foreign collusion and terrorism. So far, the national security force established by the law has arrested 260 people.

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

The city’s new sociopolitical order was laid down as China put national security at the top of its policy agenda. This shift included a new focus on self-sufficiency in tech manufacturing, particularly chips. But it also brought new restrictions on internet companies, digital content and data flows, with impacts for Hong Kong as well as the mainland.

While China strives for national security and self-sufficiency, the US and its allies are stepping up “friendshoring”, bringing tech companies into their own domestic supply chains. The privatisation of high-end chipmaking material maker JSR by a Japanese state-backed fund caught the market by surprise, but it is in line with the new normal that has resulted from the Sino-American rivalry.

Not all efforts at friendshoring are going smoothly, however, as our Taipei correspondents report. Taiwan Semiconductor Manufacturing Co. is building its first US chip plant in more than two decades in Arizona, but delays and costs are piling up.

Extra hands in Arizona

TSMC, the world’s largest contract chipmaker, and its suppliers are planning to dispatch more than 500 workers with expertise in setting up cutting-edge chip facilities to the US from Taiwan.

In this exclusive report, Nikkei Asia’s Cheng Ting-Fang and Lauly Li describe how construction of the company’s semiconductor factory in Phoenix, Arizona, is falling behind schedule, owing to a combination of factors including labour shortages and a lack of expertise.

“There are not enough US workers who have good first-hand experience specifically on building semiconductor manufacturing facilities, and many are not familiar with the requirements for chipmaking plants,” one executive with direct knowledge of the matter told Nikkei.

Construction on the plant began in 2021, and the Taiwanese chipmaker recently said mass production will begin in late 2024. In Taiwan, TSMC is usually able to get a new chip plant up and running in two or two-and-a-half years, but in Arizona, it will take over three years.

Analysts say the delays may also be due to TSMC slowing its expansion push in the face of sluggish global chip demand. As a listed, for-profit enterprise, the chipmaker’s needs may not necessarily align with geopolitics.

Friendshoring, it seems, is easier said than done.

From star to suspect

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

But his career stalled in 2010. After a period in the wilderness, he embarked on a quixotic mission to re-emerge as a leading light in the Chinese semiconductor industry.

Now he faces a possible prison term after he was indicted in South Korea this month on charges of stealing Samsung’s technology in order to build a copycat memory chip plant in China.

Industry insiders in South Korea and China tell the FT’s Christian Davies, Song Jung-a and Eleanor Olcott how Choi, who denies wrongdoing, was spurned by Chinese investors, thwarted by US export controls and finally detained by South Korean prosecutors keen to make an example of a former icon of the country’s most important industry.

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 intensifying US-China tech war.

Unexpected but logical

The announcement this week that state-backed Japan Investment Corp. (JIC) was buying out and privatising JSR, the largest producer of advanced chipmaking material photoresists, came as a surprise for the equity market — but a pleasant one, judging by the reaction. JSR’s Tokyo-listed stock price jumped 22 per cent on Monday and climbed a further 7 per cent on Tuesday, approaching its all-time high recorded at the end of 2021.

While it may have taken the market by surprise, the deal makes sense for both parties, writes Nikkei’s Akihiro Ota.

It was JSR that approached JIC last November about a potential deal. The race to make ever more advanced chips requires massive investments, and a key industry supplier like JSR needs to keep pace, which means hefty spending. Moreover, as a listed company that is smaller than its overseas rivals, it felt itself vulnerable to takeover attempts.

A deal was logical from JIC’s perspective, too, as it sits well with Tokyo’s strategy of strengthening the nation’s semiconductor supply chain. Despite its already high debt load, the Japanese government has budgeted ¥2tn ($13.9bn) over two years for chip industry support, including a ¥476bn subsidy for TSMC’s new plant in Kumamoto prefecture and ¥330bn for newly established domestic foundry venture Rapidus.

An official from Japan’s Ministry of Economy, Trade and Industry said JIC’s investment decision was made “on its own, and this is not something that the government planned”.

But the official also said it is an “important deal for bolstering Japan’s competitiveness”.

Where are the women?

Japan is no longer a laggard in terms of women’s participation in the tech workplace. The ratio of female IT specialists in the country has reached 22 per cent in 2021, putting it on par with the US and ahead of Europe’s 19 per cent, according to data from the Japan Information Technology Services Industry Association, Zippia and Eurostat.

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

One of the reasons can be found in the country’s education system. Many women’s colleges in Japan do not offer IT-related courses, while only 9 per cent of the country’s graduating IT majors in 2022 were women, far behind South Korea’s 28 per cent and around 20 per cent in the US and Europe, according to a survey by Tokyo staffing agency Human Resocia. The figures paint a worrying picture of the future of Japan’s tech workforce.

#techAsia is co-ordinated by Nikkei Asia’s Katherine Creel in Tokyo, with assistance from the FT tech desk in London.

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