The earthquake hit Japan's semiconductors hard

On the first day of the first day of 2024, a magnitude 7.4 earthquake struck the north-central region of Japan, with the epicenter in the Noto area of Ishikawa Prefecture, mainly in Ishikawa, Niigata, and Fuji prefectures. The earthquake had a certain impact on Japan's semiconductor industry.

Japan's semiconductor industry is mainly concentrated in Kyushu, the Kanto and Tohoku regions of Honshu, and Hokkaido is the only company called Rapidus. Kyushu is home to the largest number of semiconductor companies, such as Toshiba, NEC, Renesas Electronics, Sony, and SUMCO, while the Tohoku region, which includes Sendai and Fukushima, has factories in Renesas Electronics, Katsuko, and Shin-Etsu Chemical.

Currently, companies that have factories in the earthquake area include the Kanazawa Murata Works of Murata, a major MLCC manufacturer, Toshiba, Ferrotec, SBTechnology, KEC, and Kokusai Electric. Among them, Kanazawa Murata Manufacturing is located in Ishikawa Prefecture, but the center of the earthquake is not located at Murata's main factory. Industry insiders said that the impact of the earthquake on Murata should not be large, because Murata has factories in many places in Japan, and the current capacity utilization rate is not yet full, so there is more redundant space.

Komatsu Murata Manufacturing Co., Ltd., located in Komatsu City, Ishikawa Prefecture, manufactures WiFi and Bluetooth modules for smartphones, and its main customers are iPhones.

Kanazawa Murata Manufacturing Co., Ltd. is located in Hakusan City, Ishikawa Prefecture, and mainly produces SAW filters with a frequency of 700MHz~3.5GHz, mainly used for mobile phones and GPS, although Murata Manufacturing still has a Sendai factory to produce 700MHz~2.7GHz SAW filters, but because the Kanazawa factory produces high-frequency products, and the intensity of the earthquake in Kanazawa City is 5, Murata Manufacturing's global market share of SAW filters is close to 50% The impact of the earthquake is unavoidable and will have a certain impact on the relevant supply chain.

Toshiba has built a new power device wafer fab in Ishikawa Prefecture, which is expected to start mass production in 2024, and it remains to be seen whether the earthquake will affect the production process.

Japan is a major producer of NAND and DRAM memories, and the production centers are located in Mie and Hiroshima prefectures, and the earthquake intensity in these two areas is 2 and 1, which will not have much impact on the fabs involved.

Ferrotec Material Technologies Corporation, a Japanese subsidiary of the Ferrotec Group, announced in 2022 the construction of the Ishikawa Third Plant in Kawakita-cho, Nomi-gun, Ishikawa Prefecture, which is scheduled to produce ceramic materials and processed products, and is scheduled to start operations in the summer of 2024.

In terms of silicon wafers, the earthquake intensity of SUMCO's Yamagata Prefecture plant is 2~3, and five plants in Kyushu and Hokkaido were not affected by the earthquake.

01

Impact on international cooperation plants

In recent years, more and more international manufacturers have set up joint ventures in Japan, and the earthquake has also had a certain impact on related companies.

In terms of wafer foundry, TSMC's 23A factory is located in Kumamoto, Kyushu, and currently plans 1 and 2 factories, of which 1 factory is expected to be mass-produced in the second half of 2024, mainly producing ISP, CIS and automotive-related chips with 12nm, 16nm, 22nm and 28nm processes. This time, the earthquake intensity in the area was 1~2, and the impact on the factories involved was limited.

UMC's Mie County 12-inch wafer fab USJC mainly produces logic ICs and power devices (IGBTs, MOSFETs) in 40nm, 65nm, and 90nm processes, accounting for about 9% of UMC's total production capacity. This time, the earthquake in the area had a magnitude of 4, which had a certain impact on the production of the plant.

In terms of packaging and testing plants, the Teraprobe Japan plant (Teraprobe) mainly produces MCUs, the plant is located in Kumamoto, Kyushu, and the ASE Japan packaging and testing plant is located in Takahata City, and the earthquake intensity is 4, and the impact is limited.

In Japan, TPSCo, a joint venture between Nuvoton and Tower, has a total of three production sites, located in Uozu City, Toyama Prefecture, Toyama City, and Myoko City, Niigata Prefecture, including 8-inch and 12-inch wafer fabs, all of which are located near the epicenter of the earthquake.

TPSCo mainly produces automotive chips, including RF, high-performance analog, integrated power management, CMOS image sensor (CIS) and other chips, with a process of 45nm and above, as well as packaging and testing services. Nuvoton said that the actual impact of the earthquake is still being counted.

02

Overall Assessment

The earthquake mainly affected cities on the west coast of Japan, and the main focus of Japan's semiconductor industry is located around the east coast of Japan, as well as the Kyushu region, and the impact of the earthquake on Japan's semiconductor industry is expected to be relatively small.

Some institutions believe that at present, the capacity utilization rate of the world's overall semiconductor wafer factories is 50~60%, if the worst happens, Japan's Ishikawa semiconductor factory can not operate, and the capacity of other factories in the world can be made up soon, and there is still inventory in the hands of various manufacturers, so the impact on the overall industry is limited.

03

The impact of previous earthquakes

Japan is an earthquake-prone country, in the past 20 years, there have been many earthquakes, the impact on its local semiconductor industry is still relatively large, which is also the development of Japan's semiconductor manufacturing industry, especially the advanced process below 16nm.

In 2011, when a magnitude 9 earthquake struck Fukushima, Japan, Toshiba's plant in Iwate Prefecture, near the epicenter, was shut down, and eight production lines of Renesas Electronics were forced to shut down, and production resumed three months later. Fujitsu Semiconductor Plant and Motorola's semiconductor plants in Japan have also been affected. Such a large-scale earthquake caused many analog chip and device factories to shut down, causing a wave of price increases at that time.

In April 2016, a magnitude 6.5 earthquake struck Kumamoto Prefecture in Kyushu, and at that time, Sony, Renesas Electronics, Mitsubishi Electric and other companies stopped production, which had a significant impact on the global semiconductor market at that time, especially CIS sensors, and many mobile phone manufacturers placed orders with Sony's competitor Samsung.

In February 2021, an earthquake struck off the coast of Fukushima, and Renesas had to suspend production at a plant in Ibaraki Prefecture, which borders Fukushima Prefecture. In that earthquake, the application subdivision that was most affected was automotive chips, which was even worse for the shortage at that time.

In March 2022, a magnitude 7.4 earthquake struck Japan, severely affecting Miyagi and Fukushima prefectures. At that time, many factories such as Murata Manufacturing, Sony, Renesas Electronics, and Shin-Etsu were suspended.

Due to the process characteristics of semiconductors, production parameters must be reset to resume production after the shutdown, so all products that could not be produced before the shutdown are discarded, which not only brings losses to the company, but also further exacerbates the shortage in the market, causing prices to skyrocket.

At that time, related enterprises in Fukushima Prefecture were mainly engaged in the foundry of 8-inch wafers and the production of memory chips, as well as the production of silicon wafers, and the shutdown made the supply of related products exceed demand, bringing prices up, especially the 8-inch wafer production line used to produce automotive chips, and the earthquake further exacerbated the global shortage of automotive chips. Production at Renesas' three plants near the epicenter was affected, with two completely shut down and one partially shut down production lines. After the earthquake, Toyota and Nissan Motor Company stopped operations at their plants in northern Japan.

At that time, the affected Naka plant was an important automotive chip production base for Renesas, and two-thirds of the chips produced at the Naka plant were automotive chips. The plant was also shut down in 2021 due to a fire accident, further exacerbating the global chip shortage.

04

Will the earthquake have an impact on Japan's semiconductor development strategy?

In terms of semiconductor materials and equipment, Japan has a strong competitiveness and influence in the world.

According to SEMI statistics, Japanese companies account for 52% of the global semiconductor materials market, while North America and Europe each account for about 15%. Japan ranks first in the world with 14 of the 19 major materials used to make chips, such as silicon wafers (Shin-Etsu, Katsuko), photoresists (JSR, Tokyo Oika, Fuji Materials), photomasks (DNP, Toppan printing), bonding leads, molded resins, and lead frames.

In terms of semiconductor equipment, data from VLSI Research shows that among the world's top 15 semiconductor equipment manufacturers, 7 are from Japan, namely Tokyo Electron, Advantest, SCREEN, Hitachi High-tech, Kokusai Electric, Nikon, and Daifuku.

However, Japan lags significantly behind the rest of the world's advanced regions when it comes to chip manufacturing, especially logic chip manufacturing. In recent years, Japan is vigorously developing its local chip manufacturing industry, especially in the construction of production lines below 28nm (mainly 12nm, 16nm and 22nm), as well as the most advanced process technology (2nm and below).

Japan's basic semiconductor strategy can be summarized as "three steps": 1) strengthening the existing semiconductor manufacturing base; 2) Xi advanced semiconductor technology through international cooperation and establishing a domestic production system; 3. Building a cutting-edge technology foundation through international cooperation.

In order to accelerate the establishment of advanced process chip manufacturing capacity in Japan, the Japanese government has added an additional 617 billion yen to the budget in fiscal 2021 and another 450 billion yen in fiscal 2022. As of September 2022, the Ministry of Economy, Trade and Industry (METI) has approved a total of three advanced process semiconductor manufacturing projects, including TSMC, Sony, and Denso's factory in Kumamoto Prefecture (JASM), Japan, which mainly produces 28nm, 22nm, 12nm, and 16nm process logic chips, KIOXIA and Western Digital's factory in Mie Prefecture, Japan, which mainly produces 6th generation 3D NAND Flash, and a joint venture with Micron to build a factory in Hiroshima Prefecture to produce 1β process DRAM.

In terms of mature manufacturing processes, the Japanese government also attaches great importance to the improvement of local production capacity, as well as support for peripheral manufacturers such as supporting materials and equipment. Among them, a total of 30 subsidies (with a total subsidy amount of 46.5 billion yen) have been approved for the decarbonization and renewal subsidy program for semiconductor production facilities, which are highly important to the supply chain, covering 27 of the 81 mature process fabs in Japan (with a coverage rate of 33%), and it is expected to increase the production capacity of mature process chips in Japan by more than 15% compared to 2019.

Based on these criteria, in April 2023, the Japanese government announced a total subsidy of 56.4 billion yen for the expansion plans of Renesas Electronics (mainly for automotive and industrial MCUs) and Ibiden (for FC-BGA substrates).

In terms of R&D and manufacturing of 2nm and more advanced processes, the Japanese government is also vigorously supporting, and the operating entity is Rapidus, a joint venture established by a number of domestic and foreign enterprises, whose main work is 2nm R&D, and to minimize the time from design to front-end + back-end manufacturing, the construction of wafer fabs, and the construction of technology research centers related to cutting-edge process design, materials and equipment (LSTC, Leading-edge Semiconductor Technology Center), as well as the construction of Rapidus pilot production and future mass production lines. Rapidus' semiconductor plant in Chitose City, Hokkaido, is scheduled to complete the construction of a pilot production line in 2025 and a mass production line around 2027.

In terms of power semiconductors, Japan should vigorously develop wide bandgap semiconductor materials and processes represented by SiC, GaN and Ga2O3. In the field of SiC, the Japanese company ROHM has strong competitiveness in the world, and the company's global market share of SiC semiconductors and substrate materials is 17% and 15% respectively, while other Japanese manufacturers are making slow progress in SiC. It is also necessary to accelerate the pace of development, and at this time, government policy and financial support are very important.

To sum up, in order to vigorously develop the local chip manufacturing industry below 28nm, Japan needs to build a number of wafer factories with a high level of hardware, and at the same time, the surrounding enterprises that provide construction, materials, equipment and service support for these factories will also develop in Japan. These will lead to more and more international cooperation, and frequent earthquakes will have an impact on international companies building factories in Japan.

Due to the high-precision nature of semiconductor production, the earthquake has become an uncertain factor for Japan to improve its local semiconductor supply chain. Semiconductor products have extremely high requirements for vibration environment control, small earthquakes may lead to a decrease in the yield of wafers on the production line, medium and large earthquakes will damage manufacturing equipment, lithography, etching, ion implantation and other chip manufacturing processes are very sensitive to vibration, related semiconductor equipment damping table can reduce the adverse effects of earthquakes on equipment, but multi-frequency, high-intensity earthquakes will damage equipment. After the earthquake, it is necessary to repair the equipment and debug the production line, and only after the work is done can production resume.