One year after the earthquake: Disaster shows that Japan needs to revitalize the semiconductor industry

A year ago, the Japanese semiconductor industry was severely damaged by the earthquake and tsunami. But for the Japanese chip industry, the real disaster occurred a few years ago, when Japan lost its leading position in the global semiconductor manufacturing industry. The impact of the earthquake on the global semiconductor industry is limited, highlighting Japan’s status in the global chip industry. The country is in urgent need of revitalizing its semiconductor industry.

Among the major semiconductor manufacturing regions in the world, Japan has the fewest advanced 300-mm wafer fabs and the most mature 6-inch fabs. Japanese companies have always resisted closing down the industrial trend of mature factories, but either outsource manufacturing operations or transform existing factories into the most advanced factories. Japan was once one of the most advanced semiconductor producers in the world, but it has now declined relative to other regions.

What disaster?

After the earthquake, people were immediately worried that the semiconductor supply chain might be shut down. Some people predict that there will be a severe shortage of components and it may take up to a year to recover.

However, in many ways, the industry has now returned to normal. Of the damaged manufacturing facilities, only one facility operated by Freescale Semiconductor was permanently shut down after the disaster.

Freescale previously announced that it intends to close the plant in Sendai, Japan by the end of 2012, and the earthquake only accelerated the pace of the plant shutdown. This factory is an older 6-inch factory that was originally used to produce analog products.

It is now clear that the impact of the earthquake and tsunami on the global semiconductor market is much lighter than some people’s pessimistic forecasts.

Why is the initial forecast of some experts so outrageous?

For Japanese semiconductor companies, unfortunately, this disaster has exposed issues that we have long known but did not openly acknowledge: Japan has lost its leading position in the semiconductor component manufacturing sector. This problem that has long to be faced - the revitalization of the Japanese semiconductor industry, has finally surfaced.

A proposal made by mature Japan in February suggested that Japanese semiconductor giants Renesas, Fujitsu, and Panasonic merge their respective manufacturing operations. The program divides design and manufacturing into two separate companies. In addition, the plan requires substantial capital injections to revitalize the manufacturing company.

Sadly, the program is actually a disguised roadmap for drastically reducing the semiconductor chip manufacturing business. Can the program really bring revival to the Japanese wafer manufacturing industry? IHS thinks highly unlikely.

With the major chip makers shifting to processes below 28 nm, the dilemma facing Japan is that currently there is no Japanese company capable of using such an advanced process for mass production. History shows that success requires the accumulation of experience. Without a powerful technology platform for Japanese companies to accumulate experience and move forward, Japan is very unlikely to transition to a process below 28 nm.

How does the semiconductor industry transform itself? Will Japan's focus shift to design? Only time will tell the answer, but as time goes by, Japan’s ability to successfully maintain its mature manufacturing engine is also decreasing.