Japanese join hands with the Taiwanese to stay on top of chip making industry: an appraisal

20 Japanese companies which includes electronic component maker Ibiden Co. will join hands with the Taiwanese company Taiwan Semiconductor Manufacturing Cooperative (TSMC) to manufacture chips. The Japanese also look forward to develop semiconductor manufacturing technology in Japan, so that its semiconductor manufactures stand up to global competition. 

The Japanese government will be funding an estimated 47 billion yen. This money is being spent to make a research facility. TSMC will spend about one $78 million. This money will be used to open a material research subsidiary near Tokyo.

TSMC in a statement to Reuters said that they aim to use material expertise as a leverage to bring more value addition in industry. They also mentioned that they appreciate support from the Japanese government towards advancement of semiconductor technology.

The demand for chips and semiconductors has skyrocketed in the recent time. This is due to increased usage of data centres, autonomous driving, artificial intelligence and expansion of the 5G network. Also amid lockdown due to  COVID 19 pandemic per person usage of the internet has increased. During lock down with nothing to do on people’s hands they have turned towards OTT platforms in spare time. These OTT platforms need a fast speed internet. Work from home has become the new normal. 4.57 billion internet users exist as of January 2021. This is approximately 59% of the global population. Nearly half of this 59% i.e. 1365 million people exist in Asia alone. Hence the Japanese need not look for a market. Their home creates more than enough demand.

Why was the deal made in the first place? Seems like protecting the manufacturers was not the only motive-

Due to the fatal nature of Coronavirus, demand for vaccination or medicine that can cure this virus was highly coveted. After the vaccines were developed, the cost of silicon surged substantially because of mass production of vaccines. The silicon which is used to make vaccine vials is the same silicon which is used to manufacture chips. Hence the supply of silicon was shifted from gadgets to vials. The buyers of silicon couldn’t raise objections to this total diversion because the vaccine became a life saving drug. Any objection would have been a huge blow to their public relations and image. Also from economic point of view, the quicker everyone gets vaccinated, the sooner economy gets back on track. Because vaccination will help in breaking the chain and controlling the spread of corona virus, hence ending lockdowns.

Pandemic induced Lock down lead to freezing and shutting down of almost all the manufacturing units and inventory in hand ended up being a liability. Given the economic setbacks incurred due to lockdown automakers underestimated the demand for cars and downsized production. The COVID 19 protocols require social distancing and isolation. Due to which there was a sudden increase in demand for cars in 2020. This led to competition between car manufacturers and for procurement of semiconductor, chips. This can be called a classic example of the bullwhip effect. Small changes in one sector, mainly poor demand estimation    may lead to big inefficiency in supply chain sectors. 

The car makers have been hit the worst. Global car maker Ford motors is predicting a reduction of $2.5 billion of operating profit. Phone maker companies like Apple have delayed the release of iPhones to adjust to the reduced supply of semiconductor chips.

Naturally, whoever fills this titanic shortage of semiconductor first, is going to benefit the most. Hence the ulterior motive of the Japanese is to tap into the ever expanding semiconductor market. The ever increasing need for fast data processing, high speed internet, artificial intelligence and automatic cars will ensure high demand for chips and semiconductors. 

Why invest in a material research facility?

The reason to make a facility solely dedicated for research in semiconductor is the important role semiconductor plays in light interaction, electricity conduction etc. This feature enables mobiles, cars etc to function efficiently at high speed. semiconductors ensure advanced communication. It can also help in stepping up national security, military communication and advanced healthcare possibilities. Research and development in semiconductors can open countless possibilities and inventions in the world. Every single electronic equipment requires a semiconductor to function.

semiconductors are also costly due to high price of silicon and germanium (raw materials of semiconductor).  There may come a time when present semiconductor chips, circuit boards are not enough. Ever expanding digital world may one day demand for faster, smaller cheaper semiconductors. This research and development facility will take all these shortcomings into account and try remove hurdles. 

Now let’s look at how exactly chips work in smart devices- phones, laptops, smart cameras etc:

Semiconductors help in advanced communication, computation, transportation, clean energy and other applications.

Every smart device or laptop that we use is powered by some sort of artificial intelligence. It can be voice recognition (ok google), facial recognition cameras (face locks) etc. This isn’t magic and is done via the help of chips. All this processing is either done via cloud backed by vast data centres or on the device itself via an AI chip.

The Rise of personal computers in the 1980s gave rise to the central processing unit or CPU. In the 1990s 3D graphics arcades, gaming gave birth to GPUs or graphics processing units. GPU and CPUs were not adequate for AI processing.  Artificial Intelligence processing unit system on a chip (SoC) is made to execute machine learning algorithms. It uses predictive models such as artificial neural networks. It means for every permutations and combinations of commands that a user gives the response is pre recorded. Also these predictive models are upgraded regularly as per data collected by users. In simple language AI chips can help you achieve the dream of Internet of things.

The faster the data is processed by chips, the more intricate work is done by machines. 

The Taiwanese and Chinese dominate the market when it comes to hardware and software of electrical equipments. Taiwanese firms are the largest manufacturers of semiconductors in the world. Chinese have domination in market when it comes to phones and tablets. They ace because they have the best hardware as well as software. Japanese can now use this deal to move forward in the untapped market: mobile phones. Japanese as of now don’t have any successful multinational mobile manufacturing brand ex: Apple, Vivo, Oppo etc. If the research part of the deal (semiconductor material research facility) makes a breakthrough, the smart phone market will be taken over by the Japanese in no time.

Few things never change :

• Sun rises in east, sets in west
• Earth rotates once in every 24 hours
• The demand for research and development in electronic field will never vanish. Hence ensuring demand for dynamic semiconductors.

This Japanese partnership is a visionary step towards nailing the semiconductor market. They have very accurately assessed the needs of the electronic market, and have already tapped into the resources to provide the best quality of semiconductor. Given the short supply of semiconductors, this deal is going to be profitable in the present as well as in the future. In the capricious world that we live in dynamism is the only way. The deal with Taiwanese company will not only help them be one of the first sellers to fill the gap, but the research facility will ensure that they remain the best sellers.