Global semiconductor "joint venture" model opens: may help globalize semiconductors

Especially since the introduction of the US chip support policy and the Inflation Reduction Act, its ambition to shift the industry chain to the US mainland on a global scale has been known to all. Against this background, countries and regions around the world are cooperating with each other in such a way as to safeguard their respective interests through the binding of interests, but also to a certain extent to clamp down on each other, especially to prevent "one country from dominating" in order to have a relatively equal position in future economic interactions.

At present, in the global semiconductor industry development trend, we see a clear phenomenon: political wrestling has penetrated into the semiconductor industry, countries or regions of the "joint" intentions and forces are also becoming more and more obvious and strengthened. It can be said that this is the aftermath of the reverse globalisation of the semiconductor industry.

Recently, the Japanese government concluded a memorandum of understanding with the European Union (EU) to strengthen cooperation in the field of semiconductors. The aim is to stabilise the supply chain from the point of view of economic security, especially in the event of emergencies such as global epidemics of infectious diseases and natural disasters that cause disruptions in the semiconductor supply network, and to establish a mechanism for sharing information related to disruptions.

According to the memorandum, Japan and the EU will cooperate to establish an "early warning mechanism" for sharing information so that there will be no shortage of semiconductors even in the event of an emergency. The two sides will also collaborate in areas such as developing next-generation semiconductors, training human resources and creating new ways to use state-of-the-art semiconductors.

In a way, Japan and the EU, which had missed the boat on semiconductor strategy, are regaining confidence and coming together to realise their respective semiconductor development visions based on industrial complementarities, while promoting each other's industrial autonomy and control, and even promoting the "multi-polarisation" of the semiconductor industry.

Strategically missing out on semiconductor development

In fact, on the road to semiconductor development, both Japan and the EU have made strategic mistakes.

In the 1980s, Japan's semiconductor industry was in a dominant position in the world, with a peak of nearly half of the global market share, especially DRAM chips, which accounted for 80% of the global market share, and US computer manufacturers, led by Hewlett-Packard, used DRAM made in Japan.

However, under the suppression of the US and the influence of misguided industrial development strategies, Japan gradually went downhill in the 1990s, with its market share gradually declining to around 10% from 2014 to date, and no Japanese semiconductor manufacturer will be ranked in the top 10 globally in 2021. Currently, the technology process level of Japanese semiconductors is around 40nm, which is quite a big gap compared to the advanced 3nm technology.

In addition to the US semiconductor crackdown, the main strategic failures that have caused this situation are mainly in several areas: First, ignoring global technology trends. Japan ignored the changing needs in the PC era, i.e. the trend towards miniaturisation and popularisation in the computer sector, and instead continued to obsess over the continuous optimisation of DRAM performance. As a result, as technology shifted from analogue to digital, high-performance analogue products lost out to digital products in terms of cost, and Japan failed to keep up with the trend in areas where it traditionally excelled, such as consumer analogue semiconductor products like TVs and record players.

Secondly, the trend of horizontal division of labour in the industry was ignored. In fact, the original semiconductor industry developed from an 'IDM' type business model, including in Japan. At that time, the large Japanese semiconductor manufacturers had basically built an integrated production system from design to manufacturing, and lacked a deep understanding of the growth of semiconductors, especially when suffering from the US crackdown and the accelerated arrival of the horizontal division of labour in the semiconductor industry, which not only failed to effectively control manufacturing costs, but also made it difficult to respond quickly to market demand.

Thirdly, the Japanese semiconductor manufacturers' neglect and lack of software development has also prevented them from entering the virtuous ecological chain of "software upgrade leading to chip performance upgrade and hardware upgrade".

Fourth, the lack of digital investment. This is one of the core reasons for Japan's long-term economic growth. The goal of digital transformation is to create additional value-added at scale, not to reduce operating costs. However, as of today, still 80% of Japanese companies' IT budgets are mainly spent on business maintenance and reducing operational costs.

As one of the early developers of the semiconductor industry, Europe has long focused on two market segments, automotive and industrial semiconductors, as its key areas of development. Based on this, Europe has also produced giants in automotive and industrial semiconductors, with strong performances in traditional areas such as power devices, microcontrollers, sensors, RF technology, semiconductor devices and automotive chips. But at the same time, Europe has also missed out on several windy moments in the semiconductor industry by missing out on the fast-growing and popular areas of memory, foundry and smartphone chips. In the current 5G and artificial intelligence as the representative of the emerging frontier technology field, the European semiconductor is not much to build, especially the lack of advanced manufacturing has become its biggest "short board".

Since 2019, the Japanese government has focused on promoting "post-5G" technology, designating semiconductor manufacturing as a new priority area instead of 5G technology, and has also introduced a series of semiconductor support policies, including giving rise to TSMC's 22nm/28nm semiconductor production lines and supporting Rapidus in developing 2nm chip process.

In June this year, Japan's Ministry of Economy, Trade and Industry (METI) released a revised "Strategy for Semiconductor and Digital Industries". The document sets out a clearer development path for key industries such as semiconductors, information processing and advanced information and communications by reviewing the implementation since its release in 2021 and the current global macro environment. At the same time, Japan also plans a development goal of tripling sales in the domestic semiconductor industry to 15 trillion yen by 2030.

However, the only technologies that are still strategically competitive in the semiconductor sector in Japan are Armour Man's NAND-type flash memory and SONY's image sensors.

Of course, Europe has also increased the development of the semiconductor industry in recent years, the introduction of chip support policies, and strive to reach 20% of the global market share in 2030, but also face many difficulties, need to focus on solving the structural defects of the industry chain, support policies scattered, foreign dependence and other issues.

Complementarity of the European and Japanese semiconductor industry chains

Although Japan and the EU have made some strategic mistakes in the development of the semiconductor industry, the two sides have come together because of their own industrial base and development vision, and are optimistic about the prospects of this cooperation. In this regard, Japan's Minister of Economy, Trade and Industry, Yasutoshi Nishimura, said, "We expect that by promoting cooperation that makes use of the strengths and insights of both sides, we can contribute to the strengthening of the semiconductor supply chain." European Commission Internal Market Commissioner Bretton also pointed out that Japan's cooperation with the EU "will bring benefits to the entire supply chain".

In terms of industry chain strengths, Japan has a relatively clear advantage in semiconductor materials and semiconductor equipment, particularly in semiconductor materials. In terms of equipment for the front-end process, Japanese companies account for a relatively high proportion of coating & developer equipment (92%), heat treatment equipment (also known as "vertical diffusion furnaces", 93%), single-chip cleaning equipment (63%) and batch cleaning equipment (86%) ), length measuring SEM (80%), etc.

In the field of semiconductor equipment manufacturing, Japan's Tokyo Electron is one of the world's top three companies in this field (the other two are Applied Materials (USA) and ASML (Netherlands)).

Likewise, Japanese companies have an extremely high share of silicon wafers, various CMP powders and various high-purity solutions, and are in a global monopoly.

The EU's semiconductor ecology, including semiconductor raw materials, equipment for manufacturing semiconductors, semiconductor research, design, manufacturing, testing, packaging and assembly also has certain development advantages. The EU has not only ASML, semiconductor design and manufacturers such as NXP, Infineon, STMicroelectronics and Bosch, as well as strong semiconductor R&D resources such as the Belgian Microelectronics Research Centre (IMEC).

It is the respective strengths that each other possess that have led to increased cooperation in the semiconductor sector. In recent years, both Japan and the EU have demonstrated their ambition to revitalise the semiconductor industry, with in-depth cooperation in the development of core technologies, the supply of key equipment and the training of human resources, such as the cooperation with IMEC on the 2nm chip process. Similarly, in the implementation of the EU's local "chip policy", especially the introduction of Intel, TSMC and other wafer fabs to build projects, the industrial chain resources of Japan and the EU will provide a full range of support for the implementation of these projects, including materials, equipment, design resources and end-use applications. Especially in the 2nm and other advanced chip process vendors, in-depth cooperation between the two sides will provide greater possibilities for large-scale mass production of technology.

In addition, it is worth noting that under the influence of the US chip policy, many countries and regions have launched corresponding semiconductor support policies to continuously enhance local semiconductor manufacturing capacity to ensure economic security, which will inevitably lead to excess semiconductor production capacity. And in this memorandum, Japan and the EU have also agreed to share specific information on public support in order to avoid oversupply.

Promoting the multi-polarisation of the semiconductor industry

In fact, in addition to Japan and the EU to strengthen semiconductor cooperation, the world's countries and regions have long been engaged in a "joint venture".

In March this year, India and the US signed a Memorandum of Understanding (MoU) to establish a cooperation mechanism in enhancing the resilience and diversification of the semiconductor supply chain.

In May this year, at the third round of negotiations on the US-led Indo-Pacific Economic Framework, the US and other participants discussed strengthening the supply chain of key minerals and semiconductors, claiming that a stable supply system should be established to move away from the so-called dependence on China.

In the same month, British Prime Minister Al-Sunak, who was in Japan for the G7 summit, also announced a "semiconductor partnership" with the Japanese government in a bid to reduce geopolitical risks by diversifying the UK's chip supply chain.

On 20 May, on the sidelines of the G7 summit, the leaders of the US, Japan, India and Australia held the Hiroshima Summit of the "Quadrilateral Security Dialogue" to discuss supply chain security and cooperation in the area of cutting-edge technology. The countries agreed to establish the Quadrilateral Investor Network, which aims to promote investment in strategic technologies, with a focus on artificial intelligence, semiconductors, clean energy and critical minerals, mobile networks and quantum information science.

On 21 June, Japan's Ministry of Economy, Trade and Industry and the Dutch Ministry of Economic Affairs and Climate Policy signed a memorandum of understanding on cooperation in the semiconductor sector in Tokyo to promote cooperation between Japan's Rapidus and Asmac (ASML) to procure key semiconductor manufacturing equipment.

On 22 June, US President Joe Biden and Indian Prime Minister Narendra Modi met at the White House and both sides said they would strengthen cooperation in the areas of semiconductors and supply chain, space, information and communications, and quantum technology.

On 27 June, the Japanese government decided to reinstate South Korea into the "export white list", ending the export control dispute between the two countries that began in 2019. The revised decree will take effect on 21 July ......

These governmental "partnerships" have also received enthusiastic responses from national semiconductor companies, such as Micron Technology, which is expected to receive about 200 billion yen ($1.5 billion) in financial subsidies from the Japanese government to produce next-generation memory chips in Japan, and Intel, which is expected to play an important role in promoting sustainable semiconductor manufacturing, quantum computing, and the entire manufacturing industry from infrastructure to packaging and testing. infrastructure to packaging and testing of the entire manufacturing ecosystem in three areas with Japan.

In this regard, some people have also commented that this strengthening of the relationship is the "aftermath" of the U.S. disruption of the division of labor in the global semiconductor industry. Especially since the introduction of the US chip support policy and the Inflation Reduction Act, its ambition to move the industry chain to the US mainland on a global scale has become common knowledge. Against this backdrop, countries and regions around the world are cooperating with each other in such a way as to safeguard their respective interests through the binding of interests, while at the same time keeping each other in check to a certain extent, especially to prevent "one country from dominating" in order to have a relatively equal position in future economic interactions.