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Sony to join TSMC on new $7bn chip plant in Japan

Toyota group parts maker Denso considers signing up

Sony is set to be an investor in -- and a major customer of -- TSMC's first chip plant in Japan. (Source photo by AP and Reuters)

TOKYO -- Taiwan Semiconductor Manufacturing Co., the world's largest contract chipmaker, and Sony Group are considering joint construction of a semiconductor factory in western Japan amid a global chip shortage, Nikkei has learned.

The total investment in the project is estimated at 800 billion yen ($7 billion), with the Japanese government expected to provide up to half the amount.

Japan's top auto parts maker Denso is also looking to participate through such steps as setting up equipment at the site. The Toyota Motor group member seeks stable supplies of chips used in its auto parts.

Sony may also take a minority stake in a new company that will manage the factory, which will be located in Kumamoto Prefecture, on land owned by Sony and in an area adjacent to the latter's image sensor factory, according to multiple people familiar with the matter. The factory will make semiconductors used in camera image sensors, as well as chips for automobiles and other products, and is slated to go into operation by 2024, the people said.

Plans for the facility -- which would be TSMC's first chip production operation in Japan -- come as the global tech industry grapples with unprecedented semiconductor shortages and supply chain disruptions. The Taiwanese tech titan confirmed in July that it was "actively reviewing" plans for the project. Nikkei Asia earlier reported that TSMC was finalizing its decision and was open to collaboration with Sony.

The Japanese government, which is increasingly concerned about maintaining supply chain stability amid the chip shortage and rising tensions surrounding the Taiwan Strait, will support the project with subsidies, Nikkei learned.

Japanese chipmakers had dropped out of the race for large-scale chip development by the 2010s and instead contracted out the production of cutting-edge semiconductors to companies like TSMC. By accepting direct investment from the Taiwanese company, Japan hopes to revive the production of advanced products in the country.

The planned investment comes as major economies like the U.S. and Europe are also racing to bring semiconductor production onshore for national security reasons. Washington earlier this year passed a $52 billion bipartisan bill to support the research and development as well as manufacturing of semiconductors.

TSMC and Sony declined to comment for this story.

Sony will also help prepare the factory site. Its aim is the stable procurement of semiconductors for its image sensors.

The company controls half of the world's market share for sensors used in smartphones and cameras, with manufacturing bases in Kumamoto and Nagasaki prefectures. The sensors are manufactured in-house, but the semiconductors that process images are procured from third parties, including TSMC.

Sony CEO Kenichiro Yoshida previously said that the ability to steadily procure semiconductors is important for maintaining Japan's international competitiveness.

As the global semiconductor shortage worsens, the presence of TSMC, which has the largest share of the global market in contract manufacturing, is growing. At the request of the U.S. government in 2020, TSMC decided to build a $12 billion factory in Arizona. And in February the company announced it would establish a research base in Tsukuba, Ibaraki Prefecture.

The Japanese government plans to subsidize about half of the project's total cost. The funding will be included in the supplementary budget for fiscal year 2021, which will be finalized after the lower-house election on Oct. 31. Mindful of economic security, the government decided it is essential to build domestic production capacity for advanced semiconductors.

In exchange for subsidies, the government will seek a commitment that chip supplies to the Japanese market will take priority.

As tensions between China and the U.S. mount, semiconductors are increasingly important to economic security as they form the foundation of various industries. Tokyo in June initiated measures to attract foreign companies amid China's escalating military pressure on Taiwan, a key supplier of semiconductors to Japan.

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