Micron Expands To Japan Amid China Tensions

US-based semiconductor fab Micron has revealed plans to establish manufacturing facilities in Japan. The strategic move involves an investment of up to $3.6 billion in the firm’s Hiroshima plant.

The announcement coincides with the closing of China's cybersecurity review, which resulted in a ban for Micron from crucial infrastructure projects in China. The result of the review is one of many consequences of the ongoing tech dispute between the United States and China. Recently, President Joe Biden implemented measures to restrict specific investments by US companies in the Chinese semiconductor industry.

While Micron remains committed to maintaining operations in China, with investments in its chip packaging facility in Xian, the difference in investment sizes underscores the company's focus. In contrast to the $3.6 billion allocated to Japan, Micron has disclosed a comparative investment of only $603 million in China.

Moreover, Micron finds itself at odds with the Chinese government while receiving direct support from the Japanese government for its expansion plans. Reportedly, Micron could potentially secure up to $1.5 billion in subsidies from Japan to enhance the project.

Significance of Tech

The expansion is important for the entire semiconductor industry. During the pandemic, Japan faced production challenges due to disruptions in supply chains, particularly in memory chips.

Production has been at over 80% capacity since the shortage began. Now, several countries are seeking to "re-shore" the production of critical components to ensure supply chain resilience. China has traditionally held a leading position in memory chip manufacturing, a less complicated process than semiconductor manufacturing.

Although processing and memory chips differ, they share technological advancements in manufacturing processes. The recent US move to curtail China's access to advanced semiconductor manufacturing technologies aims to target applications threatening national security, such as artificial intelligence (AI) and quantum computing.

However, they also play a vital role in producing advanced memory chips, integral to technologies like 5G and high-speed cloud storage.

Micron in Japan

Micron's strategy in Japan revolves around upgrading its current Hiroshima factory to manufacture using extreme ultraviolet (EUV) lithography, a technology used in the production of its 1-gamma DRAM chips, the smallest chips in the world. The development is geopolitically significant, as the US and its allies seek to limit China's access to EUV technology.

While China retains access to older deep ultraviolet (DUV) lithography, the demand for EUV remains high due to its energy efficiency. The technology has many applications in missile and communications production.

Japan's goals are driven by risk mitigation against US and EU sanctions on China. Micron, a supplier of one third of chips used by Japanese firms stands to enable cost reduction, speed up delivery times, and decrease supply chain bottlenecks through local production. This aligns with Japan's broader objective of enhancing its role in the semiconductor industry.

The expansion could further boost market share for Micron enabling it to compete against industry giants Samsung and SK Hynix. Additionally, reports suggest Micron intends to expand its production of 1-gamma chips in Taiwan, underscoring its broader global ambitions.

Future Implications

In the wake of the pandemic, the DRAM market experienced saturation resulting in short-term price declines. Economic uncertainties have led factories to exhaust supplies rather than ramp up production.

However, the recent surge in artificial intelligence (AI) and the widespread adoption of self-driving technology are expected to elevate demand for memory chips over the medium to long term. Around 50% of growth is forecast to come from the automotive and computation and data storage industries. The importance of using fast memory, particularly in AI applications, positions EUV memory chips as crucial components, given their ability to accelerate data processing.

Global Landscape and Future Outlook

Japan's semiconductor investments are not witnessed in isolation. Recently, the US reported significant interest from over 460 entities competing to gain access to up to $52 billion in subsidies to bolster domestic semiconductor production.

But Japan's investment in Micron echoes a broader trend of nations aiming to reduce dependence on Taiwan for chip supplies and attempt to address the expected surge in AI-related demand proactively. The SEMI World Fab Forecast for global equipment spending showed that Taiwan will continue to lead in 2024, with China in third place and the US in fourth.

However, the report highlighted China’s deteriorating position due to export controls, while it projected Japan’s spending would increase to $7 billion.

While Micron may have encountered short-term losses due to tensions and market restrictions, the ongoing global economic rebound could potentially outweigh these issues. Once capital expenditures tied with expansion projects cease, Micron could find itself well-positioned to thrive long-term.