WSJ News Exclusive | Chip Maker TSMC Weighs Expansion in Japan to Reduce Geopolitical Risk

The Taiwanese company, which makes chips for a host of major electronics products including those of Apple Inc., is building its first chip-manufacturing plant in Japan, located on the southern island of Kyushu. The multibillion-dollar plant is subsidized by the Japanese government.

The semiconductor industry has been in upheaval since last year when widespread chip shortages snarled auto making and other industries. At the same time, the U.S. and allies such as Japan have grown concerned about the rise of the Chinese semiconductor industry and the concentration of chip making in Taiwan, a self-governing island that Beijing claims as part of its territory.

TSMC’s factory under construction in Japan is part of the response to these issues, boosting production capacity in a U.S. ally. The plant is set to focus on less-advanced chips commonly used in autos and components like sensors, and it is scheduled to ship products in late 2024. A company called Japan Advanced Semiconductor Manufacturing, majority-owned by TSMC, is building the plant.

If it expands beyond the current plan, TSMC would look at building more advanced chips in Kyushu, the people familiar with the matter said. A TSMC spokeswoman said the construction for the project in Japan is on track and declined to comment on possible expansion.

An official at Japan’s Ministry of Economy, Trade and Industry who oversees the semiconductor industry declined to comment.

Once a world leader in semiconductor manufacturing, Japan has fallen behind Taiwan and the U.S. Tokyo officials have called that a national-security concern and sought to locate more chip making in the country to support other manufacturers such as car makers that need chips.

Last December, Japanese lawmakers approved ¥774 billion, equivalent to $5.2 billion, in funding to rebuild the domestic semiconductor industry, part of Tokyo’s goal to increase domestic chip revenue to the equivalent of nearly $100 billion by 2030, roughly triple the 2020 figure.

The budget includes billions of dollars in subsidies for domestic cutting-edge chip manufacturing. The Ministry of Economy, Trade and Industry has said it will cover up to half of the construction cost of the TSMC factory, with the maximum commitment equivalent to $3.2 billion.

People involved in the TSMC project said the government subsidies helped overcome drawbacks to building in Japan such as tight power supply and the risk of earthquakes and other natural disasters.

Recently demand for semiconductors has eased, in part because of slower sales of personal computers and smartphones. TSMC pared back its investment plans for this year in response to the slowing demand and rising costs.

Still, over the longer term, TSMC and other chip makers are likely to face pressure to increase the proportion of production in the U.S. and U.S. allies. TSMC is also building a chip factory in Arizona.

Earlier this month, the U.S. imposed strict controls on the use of U.S. technology in China’s semiconductor factories. TSMC secured an exemption to keep its China facilities running.

—Chieko Tsuneoka contributed to this article.

Write to Yang Jie at [email protected]