2 nm: Japan's Secret to Stealing the Chip Crown

Japan, once a dominant force in the global semiconductor market, is making an ambitious return to reclaim its position. In the 1980s, Japan held over 50% of the worldwide chip market, primarily through an integrated device manufacturer (IDM) model where companies managed everything from research to final product. However, it gradually lost ground to countries like Taiwan, which pioneered the foundry model, with specialized factories like TSMC focusing solely on manufacturing chips for others. By the time Japan realized its technological lag, it was producing chips at 40 nanometers (nm) while leaders were at 5 nm. The COVID-19 pandemic and the subsequent global chip crisis (exacerbated by events like a factory fire in Japan and a storm in Texas) highlighted Japan's vulnerability, as car production halted and even bank card manufacturing faced issues. This crisis spurred Japan to action, recognizing the critical link between chips and national sovereignty.

The 2 Nanometer Leap: Rapidus's Audacious Bet

In response to its declining influence, Japan has launched an audacious plan: to jump directly from 40 nm technology to producing 2 nm chips by 2027. This ambitious mission is spearheaded by Rapidus, a startup founded in 2022. Rapidus is backed by a consortium of Japanese industrial giants, including Toyota, Sony, NTT, SoftBank, NEC, Kioxia, and Mitsubishi UFJ, an unprecedented collaboration in a country known for companies traditionally competing rather than allying. The Japanese government has heavily invested in this project, providing over $6.5 billion in subsidies, emphasizing its status as a national endeavor to achieve technological sovereignty.

We will fully support semiconductor production in Japan.

These were the words of Prime Minister Fumio Kishida, highlighting the government's commitment. Construction of a Rapidus factory in Chitose, Hokkaido, began in 2023, with a pilot line expected to be operational by April 2025, utilizing EUV lithography machines, each costing over $300 million. This rapid progress has impressed even skeptics.

We started in 2023. In 2025, we are already producing the first tests, that's incredible.

Declared Henry Richard, president of Rapidus in the United States, acknowledging the remarkable speed of development. The technological backbone for this leap comes from IBM, which developed the first functional 2 nm chip in 2021 and is now sharing its expertise with Rapidus. Over 100 Japanese engineers are currently training at IBM’s Nanotech Center in New York, absorbing the knowledge required to implement next-generation transistor technology back in Japan.

Rapidus's Strategy: Agility Over Volume

Unlike TSMC and Samsung, which focus on mass production of identical chips for maximum efficiency, Rapidus aims to distinguish itself through agility and customization. The company targets clients who prioritize speed and bespoke solutions, such as startups, universities, and specific industries that cannot afford to wait six months for a batch of chips. This niche strategy focuses on high-value, time-sensitive orders. The factory in Hokkaido will leverage advanced technologies like sensors, artificial intelligence, and a digital mesh to transform each wafer into a controlled experiment, with real-time data feedback optimizing the production process. This approach, termed "design manufacturing co-optimization," ensures that design and fabrication evolve together, enabling rapid prototyping and instantaneous adaptation for smaller batches. While this model may be more expensive, it caters to clients willing to pay a premium for agility and flexibility rather than focusing on cost per chip.

A Unified Japan and Global Partnerships

Japan's new strategy is characterized by unprecedented unity among its key industrial players. Companies like Toyota (bringing manufacturing excellence), Sony (sensor expertise), NTT (6G infrastructure), and Softbank (AI vision) are collectively financing Rapidus, forming a "Team Japan" approach. This collaborative spirit extends internationally through partnerships with IBM in the United States, IMEC in Belgium, Fraunhofer in Germany, and research centers in Singapore. Beyond the Rapidus factory, Japan also plans to foster a local ecosystem around the new facility, creating a "tech city" with operations from ASML and Tokyo Electron, along with new laboratories, training centers, and infrastructure. This comprehensive vision aims to rebuild Japan's technological autonomy, extending beyond just chip manufacturing to creating a self-sufficient, innovation-driven hub.

Challenges and Opportunities

Despite its ambitious goals, Rapidus faces significant challenges. The estimated cost to reach mass production of 2 nm chips is around $35 billion, with a substantial portion yet to be secured from private investors. Another major hurdle is the scarcity of highly specialized engineers in Japan, a skill gap that Rapidus is attempting to address through training programs and international knowledge transfer. The technical complexity of manufacturing 2 nm chips at scale is immense, as even industry veterans like Intel and Samsung have faced setbacks with less advanced nodes. Rapidus's reliance on novel technologies like single wafer processing, AI integration, and automated transport networks introduces additional risks. Furthermore, the global race for advanced chips is relentless; while Japan aims for 2 nm by 2027, TSMC is already targeting 1.4 nm by 2028. This means Rapidus might be a step behind the leaders upon its launch.

However, Rapidus doesn't necessarily need to surpass the industry giants to succeed. The exploding demand for high-performance chips, driven by fields such as artificial intelligence, autonomous vehicles, 6G, and quantum computing, means that even if TSMC, Samsung, and Intel cannot meet all orders, there will be ample demand for other reliable manufacturers. Rapidus's focus on agility, flexibility, and local autonomy caters to a specific market segment, including medium-sized clients, AI companies, governments, startups, and deep tech firms, all of whom are willing to pay for customized, fast-produced chips. If Rapidus achieves its 2 nm production goal by 2027, Japan stands to regain not just an industry, but also national pride, geopolitical influence, and the ability to challenge the existing monopoly on cutting-edge chips.

Takeaways

Japan's Semiconductor Decline and Revival: Once a global leader, Japan lost market share due to its closed IDM model, while Taiwan and South Korea embraced the foundry model. The recent chip crisis spurred Japan to make an aggressive comeback with a 2 nanometer chip target.
Rapidus: A National Endeavor: The startup Rapidus, backed by major Japanese corporations and significant government subsidies, is spearheading the effort to produce advanced chips by 2027. This collaboration is unprecedented in Japan’s corporate history.
Strategic Partnerships and Unique Business Model: Rapidus is collaborating with IBM for technology transfer and is focusing on agility and customization rather than sheer volume, aiming to serve niche markets requiring quick turnaround and specialized chips.
Ecosystem Development: Japan is not just building a factory but also a comprehensive tech ecosystem around the Rapidus plant in Hokkaido, attracting other key players like ASML and Tokyo Electron, complete with research centers and training facilities.
Challenges and Outlook: Rapidus faces financial hurdles, talent shortages, and the inherent technical difficulties of advanced chip manufacturing. However, the surging global demand for high-performance chips, driven by AI and other emerging technologies, provides a significant opportunity for Japan to regain influence and sovereignty even if it doesn't become the absolute market leader.