This Key Apple Supplier Explores Japan Expansion As US China Tensions Aggravate

Taiwan Semiconductor Manufacturing Company Ltd TSM weighed expanding its production capacity in Japan to reduce geopolitical risk.

The Japanese government has allowed TSMC to expand in the country beyond a factory already under construction, the Wall Street Journal reported.

The critical Apple Inc AAPL supplier is building its first chip-manufacturing plant in Japan, located on the southern island of Kyushu. 

The plant will focus on less-advanced chips commonly used in autos and components like sensors and is likely to ship products in late 2024. 

The Japanese government subsidized the multibillion-dollar plant. If it expands beyond the current plan, TSMC will look at building more advanced chips in Kyushu.

The semiconductor industry has battled a widespread chip crisis since 2021, further fueled by the pandemic. 

At the same time, the U.S. and allies like Japan expressed concerns about the rise of the Chinese semiconductor industry and the concentration of chip-making in Taiwan, a self-governing island that Beijing claims as part of its territory.

Last December, Japanese lawmakers approved ¥774 billion, equivalent to $5.2 billion, in funding to rebuild the domestic semiconductor industry.

Rising Taiwan-China and U.S.-China tensions have brought "more serious" challenges for the semiconductor industry, TSMC Chair said Mark Liu voiced concerns at an annual convention.

While the chips sector is already bracing for sagging demand as red-hot inflation squeezes spending, Taiwan faces a stricter situation sandwiched between its largest export market China and its main international backer and arms supplier, the U.S.

"We do business on both sides of the Strait. So we can't listen to the U.S. and not do any business with mainland China. Then what would everyone eat?" Powerchip Semiconductor Manufacturing Corp chair Frank Huang said. "Our industry's position is to maintain our competitiveness."

TSMC, which makes most of its chips in Taiwan, cut its annual investment budget by at least 10% for 2022 and struck a more cautious note than usual on upcoming demand. 

Price Action: TSM shares traded higher by 0.85% at $64.21 in the premarket on the last check Thursday.