30 Comments

Regarding building wafer fabs in Japan vs. the US, I have no reason to doubt your assertions about the regulatory climate in Japan being more favorable. You've convinced me that you know more about Japan than I. However, I must reserve judgement whether their bureaucracy is better than ours.

No matter. My comment has to do with your thesis that Japan is a solution for Taiwan's existential crisis. I'm reminded of the three little pigs. The straw house (Taiwan) offers no protection, but the wooden house (Japan) does. Your opinion is that building a brick house (US) is neither feasible nor cost effective.

The real issue is whether moving a strategic trans-Pacific supply line from Taiwan to Japan makes any difference, when the real peril is that the Pacific shows signs of becoming a Chinese lake. A slight overstatement, but one that China would endorse. As another reader has pointed out, Japan is worringly analogous to Finland.

After having spent my career in the semiconductor industry in the US and being familiar with the industries in Europe, Taiwan, Korea and Japan, I don't see a compelling argument that the US is uncompetitive in engineering skills, manufacturing equipment, semiconductor technology or supply infrastructure. Ditto for the large labor pool of fab operators and maintenance technicians. Japan, by comparison, is faced with shrinkage of the key labor demographics that drive this industry. Finally, the US is the World's engineering and physics classroom.

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Another subtle downside is interference from unproductive labor unions (supported by government) in both the US and Canada. A new fab plant in Arizona is getting some union blowback about hiring.

Yes, there's bad management and bad unions. But the incentives in US labor law make the latter 10x worse.

In the '80s, I grew up with extended family members in the US domestic auto sector, both management and labor. The myopia and entitlement mindset within both was stunning to a teenager told to always "work hard". As was the subtle racism directed at Japanese car brands.

It's better today, but there's still a large productivity gap between union and non union plants.

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I don’t know if Noah is right, but I hope so. Japan is a pretty wonderful place and it would be nice to see it regain its mojo. Tennoo heika banzai!

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There are 3 great non-military Optics companies:

Zeiss - they invented optics

Canon

Nikon

Nikons optical design and engineering skills are all the equal to Zeiss. Especially in optical lithography stacks.

Additionally, the most sophisticated mechanical and thermo-mechanical engineering is an absolute requirement. Zeiss and Nikon have these.

The 1st cousin to optical lithography with somewhat related genealogy is reconnaissance optics, but lithography has surpassed that technology.

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I think Canon’s cheaper chip fabrication will feed

a growing need. Given the real-world implications of AI, I think high-end chip production will need to double. The transformation (pun intended) of chips is an inflection point. Eventually, there will be niches for bespoke chips at scale that will fill. The one-size-fits-all chip won’t last, which is good for developers. Also, if the industry wants to claim it’s “green,” it will need to put fabs near large fresh-water sources and hydro- or solar-energy sources.

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Dec 19, 2023·edited Dec 19, 2023

One reason why they shouldn't: earthquakes. Even small shakes ruin the smallest fabrications. Taiwan isn't great for this, but Japan is even worse.

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Good article and a lot of valid points. Three factors on the other side. First, the language of business is English... except in Japan. China/South Korea...pretty much anywhere else in the world... it is possible to converse on business/technology in English. The second factor is culture... Japanese culture has great qualities, but it is quite a contrast to western culture....especially around role of individuality. Finally, the historical relationships between Japan and its neighbors (China, South Korea, Philippines..) is still a bit raw at the cultural level. US companies routinely fly support staff from mainland USA vs their Japanese operations because of the historical issues.

All of these factors create very real headwinds for deep partnerships. However, it does happen..and the newer generations are much more connected to the external world and the memory of Imperial Japan is fading... so who knows.

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I was about to ask why not South Korea because nominal GDP per capita is lower there (probably meaning lower labor costs) and there's already a semiconductor scene there. Furthermore, the country's young people are the most likely to hold a college degree in the world with 68% of 25-34 year olds holding a bachelors degree.

Though on the flipside, South Korea has been catching up to Japan in nominal GDP per capita (making labor costs higher in the long run) and as of 2023, is only a hair under Japan, making it all caught up. And with Japan's currency becoming weaker, I guess labor costs are now officially lower in Japan than in SK. Also, 59% of 25-34 year olds in Japan have a bachelors degree.

So maybe Japan is a better long term choice than SK.

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So warnings about the Japanese eating us alive were true, just 40 years early 🤔

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“Now Japan’s government finally realizes that the country needs to be a collection of valuable nodes in a production system that stretches all across Asia, Europe, and North America. And that means attracting FDI.”

FDI into China has dwindled. Money has to go somewhere, most likely into the moat of Southeast Asian countries surrounding China. Geographic diversification of chip fabs is an economic weapon China doesn’t have in the long-term big-picture. Xi’s blustering and bullying has caused long-term high-tech damage to China.

As a long-term investor in ASML (2013), it would be a mistake to underestimate Cannon and its CEO. If I were looking for another picks-and-shovels investment in the chip sector, Cannon would be my choice. Japan can compete with anybody and needs an electronics Renaissance.

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I had very productive collaborations within IBM Japan in the 1980s and early 1990s, then turned in other directions. What happened? Nowhere in your article do you mention Fujitsu or Hitachi, except as a source for poaching the remaining signs of life.

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When I first started working in the Semiconductor Equipment Industry, in the early 90s, Japan was the dominant player in the global market with 50% share of Semiconductor Revenue. See the Siemens blog here https://blogs.sw.siemens.com/cicv/2023/12/07/the-resurgence-of-japans-semiconductor-industry/

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This is overall good. But we need to also be doing everything possible to bring more manufacturing to the continental USA. Not just for economic reasons, but because too much is concentrated in an area prone to big earthquakes and other geologically localized potential problems between Taiwan and Japan.

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Why did Japan get left behind by ROK and Taiwan? One argument I’ve heard is that, despite Japan’s massive financing potential, its companies struggle with the enormous capital investments (and risk) that goes into doing huge fab projects.

But why? I think there are two related and interesting issues here. One is Japan’s risk appetite, which won’t be easy to change, especially with an aging population. It might go in the wrong direction.

Second is the role of trading houses. I have no doubt that Japan’s great companies would be much greater if they didn’t compete for talent, capital and policy influence with trading houses.

Noah, would love to see your detailed take on the role of trading houses.

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Related question: what do you recommend reading for the Japanese government/Emperor perspective on entering WWII and the empire growth that led to it.

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We have NEPA to blame but it helps species stay off ESA lists. That saves fortunes.

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