Why Japan's semiconductor consolidation is a wake-up call for India's chip ambitions

The world of semiconductor manufacturing may be interconnected, yet it remains primarily controlled by a select few nations. Japan has historically been a major player in this arena, still holding sway through its dominance in essential materials and equipment crucial for global supply chains. However, as new semiconductor hubs emerge and countries like India strive to establish themselves as serious competitors, Japan finds itself reevaluating its approach. In a noteworthy development, three major Japanese firms—ROHM, Toshiba, and Mitsubishi Electric—are in talks to integrate their semiconductor operations. Currently at the memorandum of understanding (MoU) stage, these discussions aim to consolidate their power device divisions to enhance cost efficiency. If this initiative comes to fruition, it could pave the way for a formidable entity that ranks as the world’s second-largest player in power semiconductors, trailing only behind Infineon Technologies. The urgency behind this consolidation underscores the rapid transformation of the global semiconductor landscape. Back in the late 1980s, Japan commanded over 50% of the global market share. Today, however, Taiwan stands at the forefront of manufacturing, China is making swift advancements backed by government support, and the United States is bolstering its domestic industry through subsidies and strategic realignments. In this newly structured environment, Japan's market share has consistently declined. According to Pareekh Jain, CEO of EIIRTrend & Pareekh Consulting, this decline stems from structural issues rather than technological shortcomings. He noted that Japan's integrated conglomerates, such as Toshiba and Mitsubishi Electric, viewed semiconductors as merely one division, leading to a lack of agility in adapting to the industry's shift towards specialized models dominated by firms like TSMC and Nvidia. Additionally, an overemphasis on domestic needs, such as chips for VCRs and TVs, resulted in over-engineering and a loss of competitiveness in the global market. Consequently, when the market underwent volatility, Japan’s capital rigidity hindered timely investments, allowing competitors from Korea and Taiwan to surge ahead. Now, Japan is taking steps to overcome its fragmentation. The proposed merger of ROHM, Toshiba, and Mitsubishi Electric signifies a move towards a more coordinated and competitive scale in the power semiconductor sector. A unified entity could capture approximately 10% of the market, while still lagging behind Infineon’s more than 20%, yet being a significant improvement over the current fragmented situation. For India, the implications are strikingly relevant. After years of missed chances, including setbacks with SCL Mohali and Intel's packaging plant, the country is finally making strides in semiconductor development. Initiated in December 2021, the India Semiconductor Mission has seen two chip testing and packaging facilities reach the commercial phase, including those by Micron and Kaynes Semicon. However, the overall ecosystem remains uneven, with only one mainstream silicon fab—operated by Tata Electronics—and a silicon carbide fab with packaging by SiCSem, in addition to eight testing and packaging units from firms like CG Semi and HCL-Foxconn. Experts caution that India must avoid overextending its resources. Manish Rawat, a semiconductor analyst at TechInsights, advises that India should carve out a defined focus in the semiconductor value chain, opting for either a long-term foundry approach or a quicker path via design and packaging. He emphasizes the importance of supporting two to three national champions with aligned policies to ensure global competitiveness. While cutting-edge chips often steal the spotlight in the semiconductor race, India’s immediate opportunities may lie elsewhere. As Sanchit Vir Gogia, chief analyst and CEO at Greyhound Research, points out, significant value resides in segments like power semiconductors, which are vital for renewable energy, electric vehicles, and industrial systems. This is the very area Japan is now concentrating on through its consolidation efforts. For India, the alignment with domestic priorities, such as clean energy and electrification, is clear. Although technological challenges remain, they are less daunting than those at the cutting edge. Nevertheless, India will face competition from established players like Infineon, who already possess scale and customer trust. Japan’s restructuring serves as both a warning and a guide. It illustrates how swiftly dominance can diminish without scale, specialization, and ongoing investment. However, it also shows that recovery through strategic consolidation and focused efforts is achievable. For India, the path ahead is unlikely to be an immediate leap into advanced manufacturing; instead, it will require a gradual approach, building capabilities in targeted segments, fortifying the ecosystem, building customer relationships, and progressively advancing up the value chain.