February 2024

Japan’s Semiconductor Market Makes a Strong Comeback!

Written by Katsunori Ogawa
February 2024
“Japan's growth strategy is driven by the semiconductor industry.”
This was the powerful message delivered by Prime Minister Kishida at the opening ceremony of SEMICONJapan, a specialised semiconductor industry trade fair. The Prime Minister’s words reflect the reality that thecurrent trends in the semiconductor industry present Japan with excellent opportunities that the governmentis actively pursuing. In this article we will shed some light on semiconductors in Japan, focusing on industry
trends and the efforts of the Japanese government.

Source: Bloomberg, Statista, SuMi TRUSTThe global semiconductor industry is expected to grow by 2.3 times over the next decade, driven by newtechnologies in AI, next-generation automobiles, and robotics. We have identified two key trends in thesemiconductor industry: “advancement of semiconductors" and “restructuring of the supply chain”.
The focus of semiconductor advancement has traditionally been on pursuing "miniaturisation”. However, as thephysical limits of miniaturisation have become an issue, the importance of materials and processing
technologies, such as innovative materials and three-dimensional structures, has been increasing. In terms ofsupply chain restructuring, the semiconductor shortage caused by COVID-19 and potential procurement
challenges due to geopolitical risks have prompted nations to position semiconductors as a strategiccommodity and to develop supply networks domestically and in friendly countries.

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The Japanese semiconductor industry is characterised by its dominant share in the supply chain andattractiveness as a production base. Sub-materials and manufacturing equipment, in which Japan has a highmarket share, are expected to grow alongside technological evolution. A good example of this is the integrationof Japanese equipment and materials companies by major semiconductor manufacturers, such as Samsung's
establishment of a new research centre for next-generation semiconductor packaging technology in Yokohama.
This suggests that Japan's technological capabilities are highly valued. In terms of geopolitics, Japan has astrong advantage as a production base because of its alliance with the U.S. Moreover, Japan has political andeconomic stability, in addition to many suppliers helping to manufacture chips. In particular, when Taiwanesemanufacturers consider regional diversification, Japan has a high affinity due to its proximity and culturalsimilarities. Several Taiwanese foundries are moving forward with the establishment of new bases in Japan. This
indicates that there is an excellent opportunity for Japanese companies as they align with the trends of thesemiconductor industry.
In addition to these unique characteristics, an essential element of the Japanese semiconductor industry isgovernment commitment. At SEMICON Japan, Mr. Amari, Chairman of the Promotion of Semiconductor
Strategy of the ruling Liberal Democratic Party of Japan, stressed the need for government involvement in theindustry. He stated, "In the coming era, the existence of a strong semiconductor industry for a nation can mean
the difference between life and death”. Furthermore, moves by the Ministry of Economy, Trade and Industry(METI) over the past few years have been astonishingly bold, and the Japanese government is providing a wide
range of national policy support to semiconductor production. On the production side, the construction ofTSMC's Kumamoto plant, subsidised by METI, is progressing at an unprecedented pace and is scheduled toopen in February. It is in contrast to a U.S. plant project, which will push back the launch of operations to 2025.
This recertifies how Japan can improve its reliability as a production base, and TSMC has already decided tobuild another plant. We believe Rapidus, a company established under a Japanese government directive, isthe key to establishing a purely domestic manufacturer of cutting-edge semiconductors. Although many wereinitially sceptical about the roadmap to manufacture "2-nanometer" semiconductors, it is now becoming morefeasible thanks to the collaboration with IBM and imec, the presence of equipment and materials companies,
and a new business alliance with a Canadian AI company. In terms of the materials industry, Japan has taken
the lead in the reorganisation of the resist industry and the government has offered subsidies to companies
such as SUMCO, a major producer of silicon wafers, and IBIDEN, a chip packaging provider. This can be taken
as a strong message of commitment by the government to protect and enhance technology.
Although Japan's semiconductor-related national policies are often cited as examples of past failures, the latest
initiative combines "industry trends," "Japan's strengths," and "government policy" at a previously unseen levelthat is leading to high expectations. At the same time, from an investment perspective, we believe that thispresents a set of attractive investment opportunities.

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About the Writer
Katsunori Ogawa, Chief Portfolio Manager of Sakigake HA
Katsunori Ogawa joined the firm in 1994. He was appointed client relationshipmanager for public pension funds in 1997. In 2002, Katsunori became aportfolio manager of a Japanese equity active strategy. He applies athematic/top-down approach in addition to a bottom-up stock picking togenerate alpha on a constant basis. He is one the first investors to capture Asian(especially Chinese) consumers’ demand for Japanese consumer durable
goods and was an early investor in companies like Unicharm (a paper diapermaker) and Yakult (a lactic fermenting beverages maker).
Katsunori received a BA in economics from Keio University. He is a Certified
Member Analyst of the Securities Analysts Association of Japan (CMA) and a
Certified International Investment Analyst (CIIA).
He won Japan Best Equity Manager by Asia Asset Management Country Awards
for three consecutive years, in 2022, 2021, and 2022, and recently he wasawarded the same prize in 2023.

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