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On the first day of 2024, a 7.4 magnitude earthquake struck the central and northern regions of Japan, with the epicenter located in the Noto area of Ishikawa Prefecture. The disaster primarily affected Ishikawa, Niigata, and Shizuoka Prefectures. This earthquake has had a certain impact on Japan's semiconductor industry.

The Japanese semiconductor industry is mainly concentrated in Kyushu, the Kanto and Tohoku regions of Honshu, and there is only one company, Rapidus, in Hokkaido. Kyushu has the highest concentration of semiconductor companies, including Toshiba, NEC, Renesas Electronics, Sony, and Sumco; the Tohoku region includes the surrounding areas adjacent to Sendai and Fukushima, where Renesas Electronics, Sumco, and Shin-Etsu Chemical have factories.

Currently, companies with factories in the earthquake-affected area include Murata's Kanazawa Murata Manufacturing, Toshiba, Ferrotec, SBTechnology, KEC, and International Electric. Among them, Kanazawa Murata Manufacturing is located in Ishikawa Prefecture, but the earthquake epicenter is not in Murata's main factory area. Industry insiders say that the impact of the earthquake on Murata should be minimal, as Murata has factories in various locations in Japan, and the current capacity utilization rate is not full, leaving more redundant space.

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Komatsu Murata Manufacturing is located in Komatsu City, Ishikawa Prefecture, producing WiFi and Bluetooth modules used in smartphones, with the main customer being iPhone. Since there is no factory of the same type within the Murata Group, and the earthquake intensity at the factory location in Komatsu City is level 5, it may affect the supply of iPhone components.

Kanazawa Murata Manufacturing is located in Hakusan City, Ishikawa Prefecture, mainly producing SAW filters with frequencies ranging from 700MHz to 3.5GHz, which are mainly used in mobile phones and GPS. Although Murata Manufacturing still has a Sendai factory producing SAW filters with frequencies from 700MHz to 2.7GHz, the Kanazawa factory produces higher frequency products, and the earthquake intensity in Kanazawa City is level 5. With Murata Manufacturing's global market share of SAW filters approaching 50%, the impact of the earthquake is inevitable and will have a certain impact on the related supply chain.

Toshiba has built a new power device wafer factory in Ishikawa Prefecture, which is expected to start mass production in 2024. Whether the earthquake will affect the production progress remains to be observed.

Japan is a major producer of NAND and DRAM memory, with production centers located in Mie and Hiroshima Prefectures. This time, the earthquake intensity in these two areas is level 2 and level 1, respectively, and the impact on the related wafer factories is minimal.

Ferrotec Material Technologies Corporation, the Japanese subsidiary of Ferrotec Group, announced in 2022 the construction of the Ishikawa third factory in Kawakita-cho, Nomi District, Ishikawa Prefecture. The factory plans to produce ceramic materials and processed products and is scheduled to start operation in the summer of 2024.

In terms of silicon wafers, the earthquake intensity at SUMCO's Yamagata Prefecture factory is level 2 to 3, and the five factories in Kyushu and Hokkaido were not affected by the earthquake.The Impact on International Cooperative Factories

In recent years, an increasing number of international manufacturers have established joint ventures in Japan. The recent earthquake has also had a certain impact on related enterprises.

In terms of wafer foundry, TSMC's 23A factory area is located in Kumamoto, Kyushu. Currently, factories 1 and 2 are planned, with factory 1 expected to start mass production in the second half of 2024, mainly producing ISP, CIS, and automotive-related chips with 12nm, 16nm, 22nm, and 28nm processes. The earthquake intensity in this area was between 1 and 2, and its impact on the relevant factories was limited.

UMC's 12-inch wafer factory in Mie Prefecture, USJC, mainly produces logic ICs and power devices (IGBT, MOSFET) with 40nm, 65nm, and 90nm processes, accounting for about 9% of UMC's total capacity. The earthquake intensity in this area was level 4, which had a certain impact on factory production.

In the field of packaging and testing, Teraprobe, a factory of Powertech Technology in Japan, mainly produces MCUs, and its plant is located in Kumamoto, Kyushu. The Japan packaging and testing factory of ASE Technology is in Takaoka City. The earthquake intensity was level 4, and the impact was limited.

In Japan, the joint venture between New Tang and Tower, TPSCo, has three production bases located in Yuzuki City, Toyama Prefecture, Tonami City, Toyama Prefecture, and Myoko City, Niigata Prefecture, including 8-inch and 12-inch wafer factories, all of which are near the earthquake's epicenter.

TPSCo mainly produces automotive chips, with products including RF, high-performance analog, integrated power management, CMOS image sensors (CIS), and other chips, with processes at 45nm and above, as well as packaging and testing services. New Tang stated that the actual impact of the earthquake is still being assessed.

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Overall AssessmentThe earthquake primarily affected cities along the west coast of Japan, while the main focus of Japan's semiconductor industry is located around the east coast of Japan, as well as in the Kyushu region. It is expected that the impact of the earthquake on Japan's semiconductor industry will be relatively small.

Some institutions believe that currently, the global overall capacity utilization rate of semiconductor wafer fabs is between 50-60%. In the worst-case scenario, if the Ishikawa semiconductor factory in Japan cannot operate, the global capacity of other factories can quickly make up for it, and there is still inventory in the hands of various manufacturers at present, so the impact on the overall industry is limited.

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Impact of past earthquakes

Japan is a country prone to earthquake disasters, and over the past 20 years, there have been multiple earthquakes that have had a significant impact on its domestic semiconductor industry, which is also a hidden concern for the development of Japan's semiconductor manufacturing industry, especially advanced processes below 16nm.

In 2011, a 9-magnitude earthquake occurred in Fukushima, Japan. At that time, Toshiba's factory in Iwate Prefecture, near the epicenter, was shut down, and Renesas Electronics' eight production lines were forced to stop work, which resumed production three months later. Fujitsu Semiconductor Factory and Motorola's semiconductor factory in Japan were also affected. Such a large-scale earthquake, with the shutdown of many analog chip and device factories, caused a wave of price increases at that time.

In April 2016, a 6.5-magnitude earthquake occurred in Kumamoto Prefecture, Kyushu. At that time, factories of Sony, Renesas Electronics, and Mitsubishi Electric were shut down, which had a noticeable impact on the global semiconductor market at that time, especially on CIS sensors, with many mobile phone manufacturers rushing to place orders with Sony's competitor, Samsung.

In February 2021, an earthquake occurred off the coast of Fukushima. Renesas Electronics has a factory in Ibaraki Prefecture, adjacent to Fukushima Prefecture, which had to stop production after the earthquake. The most impacted application segment by that earthquake was automotive chips, which added to the shortage at that time.

In March 2022, a 7.4-magnitude earthquake occurred in Japan, with severe damage in Miyagi Prefecture and Fukushima Prefecture. At that time, multiple factories of Murata Manufacturing, Sony, Renesas Electronics, Shin-Etsu, and others were shut down.Based on the process characteristics of semiconductors, resuming production after a halt requires re-setting production parameters. Therefore, all products that could not be completed before the shutdown are scrapped, which not only causes losses to the company but also exacerbates the shortage in the market, leading to skyrocketing prices.

At that time, companies in Fukushima Prefecture were mainly engaged in the foundry and storage chip production of 8-inch wafers, as well as the production of silicon wafers. The shutdown led to a shortage of these products, causing prices to rise, especially the production line of 8-inch wafers used for automotive chips, which was further exacerbated by the earthquake and led to a global shortage of automotive chips. Production at three factories of Renesas Electronics near the epicenter was affected, with two completely shutting down and one partially halting its production lines. After the earthquake, Toyota and Nissan Motor Corporation suspended operations at their factories in northern Japan.

The affected Naka factory was an important automotive chip production base for Renesas Electronics, with two-thirds of the chips produced at the Naka factory being automotive chips. The factory had also been idled in 2021 due to a fire accident, further worsening the global chip shortage.

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Will the earthquake have an impact on Japan's semiconductor development strategy?

In terms of semiconductor materials and equipment, Japan has strong competitiveness and influence globally.

According to SEMI statistics, Japanese companies hold a 52% share in the global semiconductor materials market, while North America and Europe each hold about 15%. Among the 19 main materials used to manufacture chips, Japan ranks first in the world in 14 of them, such as silicon wafers (Shin-Etsu, Sumco), photoresists (JSR, Tokyo Ohka Kogyo, Fujifilm), photomasks (DNP, Toppan Printing), bonding wires, compression resins, and lead frames.

In the field of semiconductor equipment, data from VLSI Research shows that among the top 15 global semiconductor equipment manufacturers, seven are from Japan, namely Tokyo Electron, Advantest, SCREEN, Hitachi High-Tech, Kokusai Electric, Nikon, and Daifuku.

However, in chip manufacturing, especially in the manufacturing of logic chips, Japan is significantly behind other advanced regions globally. In recent years, Japan has been vigorously developing its domestic chip manufacturing industry, particularly in the construction of production lines for processes below 28nm (mainly 12nm, 16nm, and 22nm), as well as the most advanced process technologies (2nm and below), with the government providing substantial policy and financial support.

Japan's basic semiconductor strategy can be summarized as a "three-step approach": First, strengthen the existing semiconductor manufacturing foundation; second, learn advanced semiconductor technologies through international cooperation and establish a domestic production system in Japan; third, establish the most cutting-edge technological foundation through international cooperation.In order to accelerate the establishment of advanced process chip manufacturing capabilities in Japan, the Japanese government has allocated an additional budget of 617 billion yen in the fiscal year 2021, and another 450 billion yen in the fiscal year 2022. As of September 2022, the Ministry of Economy, Trade and Industry has approved three advanced process semiconductor manufacturing projects, which mainly include: TSMC, Sony, and Denso's factory in Kumamoto Prefecture (JASM), primarily producing 28nm, 22nm, 12nm, and 16nm process logic chips; KIOXIA and Western Digital's factory in Mie Prefecture, mainly producing the 6th generation 3D NAND Flash; and a joint venture with Micron to build a factory in Hiroshima Prefecture, mainly producing 1β process DRAM.

In terms of mature process technology, the Japanese government also places great emphasis on enhancing domestic production capabilities and supporting peripheral manufacturers of supporting materials and equipment. Among them, the decarbonization and renewal subsidy project for semiconductor production facilities, which is highly important for the supply chain, has approved 30 subsidies (with a total subsidy amount of 46.5 billion yen), covering 27 of the 81 mature process wafer factories in Japan (a coverage rate of 33%), and is expected to increase Japan's mature process chip production capacity by more than 15% (compared to 2019).

Based on the above criteria, the Japanese government announced in April 2023 the funding for the expansion plans of Renesas Electronics (mainly for automotive and industrial MCUs) and Ibiden (producing FC-BGA substrates), with a total subsidy amount of 56.4 billion yen.

In the research and development and manufacturing of 2nm and more advanced process technologies, the Japanese government is also strongly supporting the efforts. The operating entity is the Rapidus Corporation, a joint venture established by multiple domestic and international companies, whose main task is 2nm research and development, and to shorten the time from design to front-end and back-end manufacturing as much as possible, the construction of wafer factories, and the establishment of a technology research center related to cutting-edge process design, materials, and equipment (LSTC, Leading-edge Semiconductor Technology Center), as well as the construction of Rapidus's pilot production and future mass production lines. Rapidus's semiconductor factory is located in Chitose City, Hokkaido, with plans to complete the pilot production line construction by 2025 and to establish a mass production line around 2027.

In the field of power semiconductors, Japan aims to vigorously develop wide bandgap semiconductor materials and processes represented by SiC, GaN, and Ga2O3. In the SiC field, the Japanese company ROHM has a strong competitive edge globally, with the company's global market share of SiC semiconductors and substrate materials being 17% and 15% respectively, while other Japanese manufacturers have been slower in their progress in SiC. It is necessary to accelerate the development pace, and at this time, the government's policy and financial support become very important.

In summary, Japan's efforts to vigorously develop domestic chip manufacturing below 28nm process technology require the construction of a new batch of wafer factories with high hardware standards. At the same time, peripheral enterprises that provide construction, materials, equipment, and service support for these factories will also develop in Japan. This will lead to more international cooperation, and frequent earthquakes may affect international companies' decisions to establish factories in Japan.

Due to the high precision characteristics of semiconductor production, earthquakes have become an uncertain factor in Japan's efforts to improve its domestic semiconductor supply chain. Semiconductor products have extremely high requirements for vibration control in the environment, and minor earthquakes may lead to a decrease in the yield of wafers on the production line, while medium to large earthquakes can damage manufacturing equipment. Photolithography, etching, ion implantation, and other chip manufacturing processes are very sensitive to vibrations. Vibration isolation tables for related semiconductor equipment can mitigate the adverse effects of earthquakes on the equipment, but frequent and high-intensity earthquakes can damage the equipment. Post-earthquake, it is necessary to carry out equipment repair and production line tuning work before production can be resumed.