Taiwan Semiconductor Manufacturing Company is transforming the small Japanese farm town of Kikuyo into a key node in Asia’s chip supply chain.
TSMC, as the company is known, dominates the global semiconductor business. At its home base in Taiwan, TSMC sits at the center of a web of factories, suppliers, and engineering firms. Now that same infrastructure, backed by billions of dollars from the Japanese government, is being built about 750 miles away in the cow pastures and cabbage fields of Kikuyo in southwestern Japan.
In February, TSMC opened a factory, known as a chip “fab,” for fabricator, on a ridge overlooking Kikuyo. It was its first outside Taiwan since 2018.
The area around the fab is already busy with TSMC employees and suppliers. Chemical companies and equipment makers are vying for a piece of the semiconductor economy. The Japanese electronics giants Sony, Denso, and Toyota, major buyers of TSMC semiconductors, are investing huge sums in TSMC’s Japan subsidiary.
On roadsides and in shopping malls and hotels, signs in traditional Chinese characters offer services for recent arrivals: real estate agents, lawyers, and restaurants. The town’s foreign population has doubled in the last year.
The high-tech factory town in the making in Kikuyo is evidence of the upheaval in the semiconductor business. For years, the supply chain for the tiny chips inside smartphones, cars, and fighter jets depended largely on just a few factories in Taiwan, which China claims as part of its territory. Then, the Covid-19 pandemic, Beijing’s increasingly hostile posture toward Taiwan, and a global chip shortage exposed the risks of such concentrated production.
In response, governments have pledged to spend billions to bring chip making to their shores. TSMC over the past four years has committed to build new fabs in the United States, Japan, and Germany.
On Monday, the U.S. Commerce Department announced up to $6.6 billion in grants to TSMC that the company will use to build a third factory in Phoenix, in addition to the two facilities it has already committed to build there, federal officials said.
TSMC’s American factories have been repeatedly delayed. And even though construction on the first factory began a full year later, the fab in Japan is already up and running and will be fully operational by the end of the year.
Japan, once a chip-making powerhouse, has committed $26 billion to revive the industry, with an emphasis on the chips used in cars. About a third of that money has gone to TSMC’s operations. Japan’s plans to build up the chip industry and supply chain will require tens of billions of dollars in additional public and private investment. Companies will need a surge of workers with the right skills, and they will need housing.
“Everyone could see the government’s support for the entire ecosystem, especially the supply chain, including factories, construction, transportation, and airports,” said Ray Yang, a director at the Industrial Technology Research Institute, a Taiwan government-sponsored group that supports tech companies, including TSMC, in their early stages. This top-down push to efficiently set up the entire supply chain was indispensable, Mr. Yang said.
At rush hour in Kikuyo one day last month, the train platform at once-sleepy Haramizu station was crowded with workers from TSMC suppliers like Applied Materials and Tokyo Electron. Some carried hard hats in clear plastic backpacks while they waited for the train into Kumamoto, the nearest big city.
Ryuji Yamamoto was sent to Taiwan for six months of training last year and now works 12-hour shifts at the TSMC fab in Kikuyo. “I found it tough to get used to the long hours at first,” he said. “But speed is the key in the semiconductor industry.”
In recent months, thousands of workers labored around the clock in Kikuyo to build the TSMC fab and prepare the machines and materials for making chips.
On the February day when the fab opened its doors, ahead of schedule, the government said it would invest another $4.85 billion in a second factory.
Sony, which has been manufacturing in Kikuyo for more than 20 years, helped local officials draw TSMC there, according to Takatoshi Yoshimoto, the town’s mayor.
TSMC brought over as many as 400 workers from Taiwan and is paying salaries that are roughly 30 percent higher than those at other manufacturing jobs in the area, prompting other businesses to raise wages. At the Kikuyo town office, fliers with dozens of classified ads call out for people to work in semiconductor factories or with their suppliers.
In Taiwan, where TSMC has built 15 fabs over 37 years, the company relies on an established network of suppliers, construction companies, and skilled workers. It builds a new fab every few years to churn out ever smaller and faster chips.
Analysts said TSMC’s experience in Japan showed that the company could recreate that pace outside Taiwan, even though it has struggled to do so in Arizona.
TSMC’s factory in Phoenix has been under construction since April 2021. The next year, the company said it would also build another, bringing its commitment there to $40 billion. The first is slated to begin mass production next year and the second in 2027 or 2028.
“Even though we encountered some challenges in Arizona for our first fab construction, we are still the fastest player, from groundbreaking to equipment move-in,” Mark Liu, TSMC’s chairman, said in a statement. “We believe the construction of our second fab will be much smoother.”
The company has said one challenge has been a shortage of skilled workers. Labor unions objected to TSMC’s bringing in foreign workers for jobs that they said locals could do, setting off months of negotiations.
Many of the companies that have supplied chemicals and materials to TSMC for years are in Taiwan. For several, plans to set up shop in Arizona were on hold.
“Because it has announced delays, the suppliers are not sure how long TSMC will take to come up to speed,” said Lita Shon-Roy, chief executive at Techcet, a chip material consultant.
No matter the outcome of TSMC’s foreign ventures, the company will keep its most advanced output at home, Mr. Liu said in an interview last year.
Ensuring a pipeline of skilled workers is also a concern for TSMC in Japan. To get the factory up and running, some Japanese engineers from Sony were temporarily transferred to TSMC and sent to Taiwan for training. The local technical college in Kumamoto has ramped up electrical engineering courses, and TSMC has hired 17 of its graduates.
On a recent night in a tatami-paneled banquet hall in Kumamoto, the city 10 miles from the new TSMC factory, visiting investors from Taiwan exchanged gifts with their hosts, a local chamber of commerce. Bottles of Kirin beer, tiny glasses of sake, T-shirts, and key chains were passed around and plates of sushi placed in front of each person. “To all the money we’re going to make,” went the final toast.
All the spending has set off a real estate boom. Prices are already going up, causing anxiety among some local residents. Investors have agreed to spend hundreds of thousands of dollars on plots of farmland via video calls.
“There aren’t any other places in Japan growing like this,” said Shogo Okuda, an agent at housing developer Shichiro Kensetsu, who grew up in the area.
The TSMC workers come to Kikuyo from cities near the company’s core production centers in Taiwan like Hsinchu and Tainan, which have some of the highest property values in Taiwan.
Many new arrivals have called Cake Liao, a Taiwanese property agent, looking for a home that is move-in ready and furnished, which is typical in urban Taiwan but not in rural Japan.
“They say, ‘Just go to the Kumamoto area and find me something,’” Ms. Liao said at the dining room table in a model home. “This is the new Hsinchu.”
