The COVID-19 pandemic sparked the chip shortage, driven by its far-reaching repercussions, such as viral breakouts, labor issues, and geopolitical uncertainty. The entire global supply chain is still incredibly disturbed at every link. Regrettably, there are currently no indications of a recovery. Wafer foundries are largely affected by this persistent demand. The biggest bottleneck in the semiconductor supply chain is wafer beginnings. There are persistent shortages even at the largest chip manufacturer in the world, TSMC, which controls 28 percent of the world's semiconductor manufacturing capacity. Manufacturers, including Texas Instruments, Intel, and TSMC, are spending billions of dollars building new fobs to increase chip manufacturing. Launching these new facilities has already begun, and it won't be a comprehensive solution until at least 2023. However, when these factories were planned, demand was very high overall. Manufacturers of semiconductors now need to balance their supply in response to the risk of overcapacity if demand keeps declining.
Japanese Semiconductor Market
According to WSTS projections, the Japanese semiconductor market is predicted to rise in double digits in 2021 and 2022, mirroring the expansion of the global semiconductor market. Japan still holds a considerable market share and is internationally competitive in product categories like memory (NAND), sensors (CMOS image sensors), and power semiconductors despite no longer being the world's largest semiconductor market. The following chart illustrates Japan's approximate contribution to the world's supply of semiconductors and related machinery.
Governments are encouraging R&D in fields where each nation can capitalize on its strengths while optimizing supply and demand through localization and supply chain transparency. This happens as supply chain issues, and semiconductor shortages become more critical. Industry 4.0, smart factories, and manufacturing DX projects will also be required in the future to address supply chain concerns with semiconductors. The supply chain interruptions brought on by recent events like the COVID-19 epidemic and Russia's invasion of Ukraine brought to light the necessity for such initiatives, which has long been recognized by many industry observers.
Why does Japan Restrict the Export of Chip?
The government of Japan intends to impose export restrictions on 23 different types of semiconductor manufacturing equipment, aligning its technology trade restrictions with a US initiative to limit China's capacity to produce cutting-edge chips. According to a press release from the commerce and industry ministry, export restrictions would be placed on six categories of chip fabrication machinery, including cleaning, deposition, lithography, and etching. Equipment manufacturers must request export authorization for all regions, although it did not specifically name China as the target of those actions.
"We are fulfilling our responsibility as a technological nation to contribute to international peace and stability," the ministry says.
The equipment produced by a dozen Japanese companies, including Nikon Corp Tokyo Electron Ltd, Screen Holdings Co Ltd, and Advantest Corp, will likely be impacted by the export restrictions that will go into effect in July.
Japan's industry minister, Yasutoshi Nishimura, states, "We expect the impact on domestic companies to be limited. "We are not targeting any one nation in particular with these actions. To be sure, Tokyo's decision comes after the US imposed broad restrictions on chipmaking tool shipments to China in October, citing worries that Beijing sought to exploit cutting-edge semiconductors to boost its military might. To make those limits effective, Washington needs the Netherlands and Japan, two major exporters of such equipment, to join it.”
In order to avoid upsetting Beijing, Japan, and the Netherlands decided not to publicly declare their agreement to join the US in limiting chip manufacturing equipment exports to China that may be used to produce sub-14 nanometer semiconductors. Tokyo has never made the existence of the deal publicly known. A nanometer, or one billionth of a meter, is a unit of measurement used in the semiconductor industry. A device with fewer nanometers is typically considered to be more advanced.
What will be the Impact?
Six categories of equipment used in chip fabrication, including cleaning, deposition, lithography, and etching, will be subject to export controls by Japan starting in July. Further products made by Japanese businesses that develop machinery for producing chips will no longer be available to Chinese businesses. We'll have to wait and watch how this turns out because Chinese fans (chip plants) are currently mostly focused on mature nodes, which isn't expected to have an effect. Tokyo Electron, Advantest, and Screen said they would adhere to the new export regulations but did not address the potential effects on their companies.
The market share of Japan, which historically dominated chip production, has decreased to roughly 10 percent. It is still a significant provider of chipmaking equipment and semiconductor components. Tokyo Electron and Screen produce a fifth of the world's chip manufacturing equipment, and most silicon wafers are made by Shin-Etsu Chemical Co Ltd (4063.T) and Sumco Corp (3436.T).
The Netherlands too to Restrain Exports
The Dutch government also announced its intention to limit exports of chip manufacturing equipment in a letter to the nation's parliament this month. The market for lithography systems, which are used to construct the intricate circuitry of chips, is dominated by the Dutch business ASML Holding NV. China warned the Netherlands not to pursue export control measures by certain countries, accusing the Netherlands of being tech hegemony due to its export restrictions.
Japan is still a significant provider of chipmaking equipment and semiconductor materials, despite the country's once-dominant position in the chip industry having declined to about 10 percent of the global market. A fifth of the world's chip manufacturing equipment is produced by Tokyo Electron and Screen, and Shin-Etsu Chemical Co Ltd and Sumco Corp make the majority of silicon wafers.