Taiwan-based OSAT, ASE, signed a tentative contract with the government of Kitakyushu in Kyushu, Japan, to buy land in Kitakyushu's Wakamatsu-ku where they would attempt to expand production capacity.
Japanese media believe that to successfully convince ASE to expand production in Kitakyushu, three issues remain to be observed. ASE announced at the end of July 2024 that it had signed a contract with Kitakyushu through its subsidiary in Japan, ASE Japan. JPY3.416 billion (US$23.8 million) will be used to buy land within Wakamatsu-ku's Kitakyushu Science and Research Park.
This piece of land is about 160 thousand square meters, in a crescent shape, and situated on a small hill. It is the only industrial land left within Kitakyushu Science and Research Park. Research institutes have already been established there, including those under the University of Kyushu, the Kyushu Institute of Technology, and Waseda University.
Buying land in Kitakyushu is part of ASE's expansion overseas. ASE's CEO, Dr. Tien Wu, once stated in an interview after a shareholders meeting in June 2024 that to adapt to risks brought by geopolitical issues, ASE will be distributing its production sites to various locations overseas. Possible locations include Japan, the United States, and Mexico. In addition, these locations do not exclude the import of advanced packaging technology such as AI chips.
On Japan's end, ASE purchasing land in Kitakyushu in preparation to expand production is thought to be another foreign investment that would further complete Kyushu's semiconductor supply chain after TSMC's factory establishment in Kumamoto. If ASE establishes a factory in Kitakyushu, it could create a partnership with the front-end process foundry factory of TSMC's Japan-based subsidiary, JASM.
However, Nikkei believes that there are still three issues waiting to be solved for ASE to successfully expand production.
Lack of available construction companies
First, they need to find a company to build the factory. According to data compiled by MLIT, construction companies with their main quarters in the Kyushu and Okinawa areas have received an annual increase of 11% in order numbers for 2023 (April 2023-March 2024). In particular, investments in semiconductor facility construction have hugely increased since 2021 when TSMC announced plans to establish its Kumamoto factory. Within two years, investments increased by more than JPY1 trillion.
Due to various construction work happening at the same time including TSMC's stationing in Kumamoto and the reconstruction of Fukuoka's city center, it is very difficult to find large construction companies. In addition, businesses for the factory's electrical equipment and air conditioning are also busy with construction projects, including Rohm's new power semiconductor device factory in Kyushu which will begin operations by the end of 2024, and Taskawa Electric's main factory in Kitakyushu.
ASE expressed that it hopes to coordinate with the local government as local governments often have close ties with related businesses through public utilities.
Potentially small subsidy size
The second problem is the subsidy size provided by the Japanese government. The Japanese government gives large subsidies for the establishment of semiconductor front-end process factories. For example, TSMC's first and second foundry factories received subsidies totaling JPY1.2 trillion.
However, subsidies for back-end processes are comparatively smaller and mostly given towards advanced packaging relating to AI chips. For example, Rapidus, currently establishing its factory in Hokkaido, received a subsidy of JPY53.5 billion for research and development in advanced packaging. Whether ASE would be able to receive a bigger subsidy is dependent on whether it will bring in the advanced technology desired by the Japanese government.
Lack of expandable land
Finally, whether the industrial land purchased by ASE has expandable land is also very important. A government official of Kitakyushu revealed that the industrial land ASE has its eye on can be expanded to 10 hectares with four installments.
However, in this planned area in Kitakyushu Science and Research Park, almost all land has been sold or has tentative contracts signed. Meanwhile, the 68-hectare reserved area on the west side is made up of mostly wooded and hilly lands, there are many unresolved issues such as development restrictions and the presence of multiple landowners.
