Japan is on its way to reclaiming its lost glory in the chipmaking business, and Sony Group (NYSE:SONY) along with other companies, is trying to make that possible. Recently, electronic equipment maker Sony and automobile company Toyota Motor were reported to be working on a new semiconductor venture with six other Japanese companies. This venture will ramp up the design and production of next-generation semiconductors in Japan.
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The products from the joint venture, Rapidus, will hit the markets later in this decade. The research center for the process will be built this year.
Coming to the financials, Toyota, Sony, SoftBank Group (OTC:SFTBF), and Japanese chipmakers Kioxia Holdings and Tokyo Electron each contributed around one billion Japanese yen (around $7 million) toward the venture.
The development comes at a time when global semiconductor shortages have led major economies of the world to vie for a piece of the cake. This is because of the rising proliferation of artificial intelligence and quantum computing. However, Japan has noticeably been lagging behind despite having ample technological resources.
Japan has been concerned about economic security ever since the U.S., South Korea, and Taiwan started leading the semiconductor race. Moreover, the growing sanctions by the U.S. on China are also fueling the global chip supply delays and shortages, making it all the more necessary for nations to start working on self-dependence.
Why Did Japan Lose its Popularity in the Semiconductor Industry?
Japan was once the leader in this industry, producing more than 50% of the world’s semiconductor supply. Unfortunately, as globalization opened the gates for chip companies to outsource production from cheaper nations, Japan lost about 10% of its market share and was perpetually sidelined.
Japan’s primary reason for losing its competitiveness was stagnant domestic sales of digital products, which led to a capital flux from the chipmaking scene. This left very little to fund research and development activities, thus creating a vicious cycle.
Importantly, Sony has been taking major steps toward placing Japan on the semiconductor map once again. For instance, the company started funding TSMC’s (NYSE:TSM) semiconductor manufacturing subsidiary in Japan, earlier this year. Moreover, in February, both companies joined to help automotive components manufacturer Denso build its first chip plant in Japan.
Wall Street is bullish on SONY stock, with a Strong Buy consensus rating based on three unanimous Buys. The average price target of $113.5 also reflects the Street’s optimism, indicating a 41% upside potential to stock appreciation in the next 12 months.
Final Thoughts
The complexity of the semiconductor manufacturing process makes it difficult for any nation to domesticate it completely. However, Sony and other global companies are making efforts to reverse around two decades of underinvestment in the industry. It is a tall ambition, but a worthy one.
