Japan's $25 bln chip gambit is worth the wager

Taiwan Semiconductor Manufacturing Co

15/05/2026 03:38

The author is a Reuters Breakingviews columnist.  The opinions expressed are her own.

By Robyn Mak

HONG KONG, May 15 (Reuters Breakingviews) - On first glance, the odds are stacked against a four-year-old startup taking on a $1.9 trillion contract chipmaking Goliath. But Japan is bankrolling Rapidus to do just that against Taiwan Semiconductor Manufacturing 2330.TW. The bold gamble is worth the risk.

Just three companies can at present make cutting-edge processors vital to training artificial intelligence models: TSMC, with a near-90% market share, Samsung Electronics 005930.KS and Intel INTC.O.

But the AI compute crunch has prompted a rethink among companies and governments, building on efforts in Washington and elsewhere to develop domestic chipmaking capabilities. Since 2021, Tokyo has allocated some 5.7 trillion yen ($36 billion) to bolster the country's semiconductor and AI sectors. Key to those efforts is Rapidus, a government-funded startup that plans to mass-produce advanced chips in the so-called 2nm generation by the end of March 2028, more than two years behind TSMC.

CEO Atsuyoshi Koike is betting Rapidus can carve out a niche in bespoke AI chips. That's bold for an industry long ruled by economies of scale. Whereas TSMC's two dozen or more facilities globally can efficiently churn out billions of processors a year for giants like Nvidia NVDA.O and Apple AAPL.O, the Japanese upstart and its single factory in Hokkaido will cater to customers that want smaller volumes, more flexibility and ultra-quick turnaround times. Alphabet's Google GOOGL.O, Amazon.com AMZN.O, Microsoft MSFT.O and others are increasingly swapping out off-the-shelf processors from Nvidia and Advanced Micro Devices AMD.O for their own in-house custom silicon.

Rapidus' chief hurdle is funding: officials estimate the 2nm venture will need approximately 4 trillion yen ($25.2 billion) just to generate a positive operating cash flow by 2029. To date, the government has provided 2.6 trillion yen with another 168 billion yen coming from companies including Sony 6758.T, Toyota Motor 7203.T and Canon 7751.T. That implies an almost $8 billion shortfall.

Longer term, Rapidus will need at least 3 trillion yen more to develop the next generation of chips, which TSMC plans to start commercialising in 2028. The Taiwanese group is on track to spend a whopping $63 billion in capital expenditure next year, per analyst forecasts on Visible Alpha.

Rapidus reckons its AI-driven manufacturing process can design and deliver a 2nm chip in just 50 days, compared with the industry standard of some 120 days. Yet that's an unproven concept, making it difficult to judge the company's financial or commercial prospects. It's hard to see companies ditching TSMC or Samsung en masse. Still, Rapidus is tapping into the growing realisation that chips are no longer commodities but strategic assets. That alone makes the Japanese moonshot less far-fetched than it once seemed.

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CONTEXT NEWS

Japan on April 11 approved 631.5 billion yen ($3.97 billion) in additional subsidies for chipmaking startup Rapidus. With the latest funding, Rapidus' total research and development assistance amounts to 2.35 trillion yen.

 Founded in 2022, Rapidus aims by fiscal year 2027 to mass manufacture advanced chips referred to as "2nm".

TSMC's capital expenditure is on the rise https://www.reuters.com/graphics/BRV-BRV/xmvjywmyopr/chart.png

(Editing by Antony Currie; Production by Aditya Srivastav)

((For previous columns by the author, Reuters customers can click on MAK/ robyn.mak@thomsonreuters.com))