Taiwan Semiconductor Manufacturing Company is turning the small Japanese rural town of Kikuyo into a key hub in Asia’s chip supply chain.
TSMC, as the company is known, dominates the global semiconductor business. Headquartered in Taiwan, TSMC is at the center of a network of factories, suppliers and engineering companies. Now the same infrastructure, backed by billions of dollars from the Japanese government, is being built some 750 miles away in the grasslands and cabbages of Kikuyo in southwestern Japan.
In February, TSMC opened a factory, known as a chip “fab,” for manufacturer, on a ridge overlooking Kikuyo. It was his first outside of Taiwan since 2018.
The area around the plant is already busy with TSMC employees and suppliers. Chemical companies and equipment makers are vying for a slice of the semiconductor economy. Japanese electronics giants Sony, Denso and Toyota, major buyers of TSMC semiconductors, are investing heavily in TSMC’s subsidiary in Japan.
On roadsides and in malls and hotels, signs with traditional Chinese characters offer services for recent arrivals: real estate agents, lawyers and restaurants. The city’s foreign population has doubled in the last year.
The high-tech factory city being created in Kikuyo is a testament to the upheaval in the semiconductor industry. For years, the supply chain for the tiny chips inside smartphones, cars and fighter jets depended heavily on just a few factories in Taiwan, which China claims as part of its territory. Then the Covid-19 pandemic, Beijing’s increasingly hostile attitude towards Taiwan and the global chip shortage exposed the dangers of such concentrated production.
In response, governments have pledged to spend billions to bring chip manufacturing to their shores. TSMC has for the past four years committed to building new fabs in the United States, Japan and Germany.
On Monday, the U.S. Commerce Department announced up to $6.6 billion in grants to TSMC that the company will use to build a third plant in Phoenix, in addition to the two facilities it has already committed to building there, federal officials said.
TSMC’s US factories have been repeatedly delayed. And although construction on the first factory began a full year later, the fab in Japan is already up and running and will be fully operational by the end of the year.
Japan, once a chip powerhouse, has committed $26 billion to revive the industry, with a focus on chips used in cars. About a third of that money has been earmarked for TSMC’s operations. Japan’s plans to build its chip industry and supply chain will require tens of billions of dollars in additional public and private investment. Companies will need a wave of workers with the right skills and they will need housing.
“Everyone could see government support for the entire ecosystem, especially the supply chain, including factories, construction, transportation and airports,” said Ray Yang, director at the Industrial Technology Research Institute, a group funded by Taiwan that supports technology companies. . including TSMC, in their early stages. This top-down push to effectively set up the entire supply chain was necessary, Mr. Yang said.
During rush hour in Kikuyo one day last month, the train platform at the once-sleepy Haramizu station was packed with workers from TSMC suppliers such as Applied Materials and Tokyo Electron. Some carried hard hats in clear plastic backpacks as they waited for the train to Kumamoto, the nearest big city.
Ryuji Yamamoto was sent to Taiwan for six months of training last year and now works 12-hour shifts at the TSMC fab in Kikuyo. “At first I found it hard to get used to the long hours,” he said. “But speed is key in the semiconductor industry.”
For the past few months, thousands of workers have been working around the clock in Kikuyo to build the TSMC fab and prepare the machinery and materials for chip manufacturing.
On the day in February that the fab opened its doors, ahead of schedule, the government said it would invest another $4.85 billion in a second factory.
Sony, which has been manufacturing in Kikuyo for more than 20 years, helped local officials lure TSMC there, according to Takatoshi Yoshimoto, the town’s mayor.
TSMC brought in more than 400 workers from Taiwan and pays wages that are about 30 percent higher than those in other manufacturing jobs in the region, prompting other companies to raise wages. At the Kikuyo city office, flyers with dozens of classified ads invite people to work in semiconductor factories or with their suppliers.
In Taiwan, where TSMC has built 15 fabs over 37 years, the company relies on an established network of suppliers, manufacturing companies and skilled workers. It builds a new fab every few years to churn out smaller and faster chips.
Analysts said TSMC’s experience in Japan showed the company could recreate that pace outside of Taiwan, even though it struggled to do so in Arizona.
TSMC’s Phoenix plant has been under construction since April 2021. Next year, the company said it will also build another, bringing its commitment there to $40 billion. The first is expected to start mass production next year and the second in 2027 or 2028.
“Although we faced some challenges in Arizona for our first fab, we are still the fastest player, from pioneering to moving equipment,” said Mark Liu, president of TSMC. “We believe the construction of our second plant will be much smoother.”
The company said one challenge was a lack of skilled workers. Labor unions objected to TSMC bringing in foreign workers for jobs they said could be done by locals, setting off months of negotiations.
Many of the companies that supplied chemicals and materials to TSMC for years are located in Taiwan. For many, plans to set up shop in Arizona were on hold.
“Because it has announced delays, suppliers are not sure how long it will take TSMC to get up to speed,” said Lita Shon-Roy, managing director at Techcet, a chip hardware consultant.
Regardless of the outcome of TSMC’s foreign ventures, the company will keep its most advanced production at home, Mr. Liu said in an interview last year.
Securing a pipeline of skilled workers is also a concern for TSMC in Japan. To get the factory up and running, some Japanese Sony engineers were temporarily transferred to TSMC and sent to Taiwan for training. The local technical college in Kumamoto has increased its electrical engineering courses, and TSMC has hired 17 of its graduates.
On a recent night in a tatami-mat banquet hall in Kumamoto, the city 10 miles from TSMC’s new factory, visiting investors from Taiwan exchanged gifts with their hosts, a local chamber of commerce. Bottles of Kirin beer, miniature sake glasses, t-shirts, and key chains were passed around, and plates of sushi were placed in front of each person. “To all the money we make,” went the last toast.
All the spending has caused a real estate boom. Prices are already rising, causing concern among some local residents. Investors agreed to spend hundreds of thousands of dollars on land plots via video calls.
“There are no other places in Japan that develop like this,” said Shogo Okuda, an agent for housing developer Shichiro Kensetsu, who grew up in the area.
TSMC workers come to Kikuyo from cities near the company’s main manufacturing centers in Taiwan, such as Hsinchu and Tainan, which have some of the highest real estate values in Taiwan.
Many new arrivals called Cake Liao, a Taiwanese real estate agent, looking for a ready-to-move-in house, which is common in urban Taiwan but not in rural Japan.
“They say, ‘Just go to the Kumamoto area and find me something,'” Ms. Liao said at the dining room table in a model home. “This is the new Hsinchu.”
