New Japanese chip production company Rapidus Corp. is facing daunting challenges as it tries to catch up with Asian rivals in the technology development and investment race, leaving a shaky outlook for the country as it attempts to revive its once-thriving industry.

Created by Toyota Motor Corp., Sony Group Corp. and six other major Japanese companies with a total investment of 7.3 billion yen ($52 million), the next-generation semiconductor venture plans to mass-produce chips with state-of-the-art 2-nanometer technology in Japan in 2027. Such advanced chips can be used for 5G communications, quantum computing, data centers, self-driving vehicles and digital smart cities.

SoftBank Corp., Nippon Telegraph and Telephone Corp. are also among the participants in the project, along with Kioxia Corp., Denso Corp., NEC Corp. and MUFG Bank.

The Ministry of Economy, Trade and Industry will provide 70 billion yen in subsidies as part of its semiconductor strategy compiled last year.

The government sees domestic chip production as critical to its economic security, as dependence on major supplier Taiwan poses geopolitical risks amid rising tensions between the United States and China over the self-ruled island. A potential crisis in the region could lead to Japan losing access to semiconductor supplies.

Rapidus focuses on foundry operations representing a group of private-sector entities, while the government-backed Leading-edge Semiconductor Technology Center will serve as a research and development hub in cooperation with the United States.

This latest effort follows the country's failure to keep up in the investment race over the miniaturization of semiconductors that resulted in a years-long development hiatus in the 2010s.

Taiwan Semiconductor Manufacturing Co., a world leader in chipmaking, plans to mass-produce 2-nanometer chips in 2025, while Samsung Electronics Co. succeeded in mass production of 3-nanometer semiconductors in June. In contrast, the latest technology in Japan can only produce 40-nanometer chips.

Analysts are skeptical about the immediate success of the new company amid stiff global competition. The state financial support of 70 billion yen, compared with the much larger assistance of $52.7 billion set out by the U.S. government, raises questions about how committed the Japanese government is to reviving the chip industry. The European Union and the private sector will also offer assistance of 43 billion euros ($45 billion).

Hideki Yasuda, a senior analyst at Toyo Securities, said the 70 billion yen is "not enough at all" for the new company to be competitive in the global market.

"Around 1 trillion yen of annual investment is necessary for the chip industry," Yasuda said. "It's hard to force private companies to bear such a cost. So the question is whether the Japanese government is prepared to do that."

Rapidus Chairman Tetsuro Higashi said at a press conference last Friday that he believes the industry ministry is aware that long-term financial support is necessary and hopes more support will be provided to help his company to build a chip plant.

The government's financial aid should at least match the amounts offered by other countries for Japanese companies to stay competitive, Mitsuhiro Osawa, senior analyst at Ichiyoshi Research Institute, said.

Japanese chip manufacturers were once dominant players, taking half the global share in the late 1980s. But they came under pressure when frictions over trade with the United States led to export restrictions that allowed South Korean and Taiwanese chipmakers to make deeper inroads.

Spending by Asian rivals outpaced that of flagging Japanese companies in an industry where the development and mass production of cutting-edge products determines competitive advantage.

Japan has strived to rejuvenate its semiconductor sector through government initiatives over the past decades. In 2006, Toshiba Corp., Hitachi Ltd. and Renesas Technology Corp. set up a planning company for a government-backed joint foundry, but the project fell apart six months later.

Elpida Memory Inc., established through the merger of chip operations at Hitachi, NEC Corp. and Mitsubishi Electric Corp., filed for bankruptcy protection in 2012 despite government aid of 30 billion yen.

Rapidus President Atsuyoshi Koike, a former Hitachi engineer in the chip division and former president at the Japan unit of Western Digital Corp., says he has learned lessons from the past.

"In the past, Japan tried to seek solutions only in a closed world," Koike told a press conference last Friday. "We will collaborate with people and companies worldwide, including raw material companies and chipmaking equipment makers."

Rapidus is looking for more partners, including from overseas. The company, for example, is in talks with IBM Corp. over technology cooperation on 2-nanometer chips.

The technological vacuum of the past decade has allowed talented personnel to be recruited by rivals out of the country. Rapidus may find it difficult to look for skilled engineers and plant workers anytime soon in Japan, Masahiko Ishino, chief analyst at Tokai Tokyo Research Institute, said.

Japanese companies trying to catch up with global competitors are "like a high school student, who did not study at all in school, trying to get into the University of Tokyo," Ichiyoshi Research's Osawa said, referring to the most prestigious institution of higher education in Japan.

"The bar is extremely high" for Rapidus, which has no prior experience in mass-producing state-of-the-art semiconductors, to make 2-nanometer chips, Toyo Securities' Yasuda said.


Related coverage:

New Japan consortium on advanced chips to begin production in 2027