Sony (NYSE:SONY) and Toyota to boost Japan’s semiconductor industry with new joint venture

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Japan is poised to reclaim its lost glory in chip manufacturing, and the Sony Group (NYSE: SONY) with other companies, tries to make this possible. Recently, electronics maker Sony and automaker Toyota Motor were working on a new semiconductor venture with six other Japanese companies. This venture will accelerate the design and production of next-generation semiconductors in Japan.

Products from the joint venture, Rapidus, will hit the market later this decade. The process research center will be built this year.

When it comes to finance, Toyota, Sony, SoftBank Group (OTC: SFTBF), and Japanese chipmakers Kioxia Holdings and Tokyo Electron have each contributed about one billion Japanese yen (about $7 million) to the venture.

The development comes at a time when global shortages of semiconductors have led the world’s major economies to vie for a slice of the pie. This is due to the growing proliferation of artificial intelligence and quantum computing. However, Japan lagged significantly behind despite its vast technological resources.

Japan has been concerned about economic security since the United States, South Korea and Taiwan began leading the semiconductor race. Additionally, growing US sanctions against China are also fueling global chip supply delays and shortages, making it all the more necessary for nations to start working on self-reliance.

Why has Japan lost 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 doors for chip companies to outsource production to cheaper countries, Japan lost around 10% of its market share and was perpetually sidelined.

The main reason why Japan lost its competitiveness was the sluggish domestic sales of digital products, which led to a flow of capital from the chip manufacturing scene. This left very little to fund research and development activities, thus creating a vicious circle.

It’s important to note that Sony has taken significant steps to put Japan back on the semiconductor map. For example, the company began funding TSMC (New York Stock Exchange: TSM) semiconductor manufacturing subsidiary in Japan, earlier this year. Additionally, in February, the two companies teamed up to help auto component maker Denso build its first chip factory in Japan.

Wall Street is bullish on SONY stocks, with a strong buy consensus rating based on three unanimous buys. The $113.5 average price target also reflects street optimism, indicating a 41% upside potential for stock appreciation over the next 12 months.

Final Thoughts

The complexity of the semiconductor manufacturing process makes it difficult for any country to fully domesticate it. However, Sony and other global companies are working to reverse roughly two decades of underinvestment in the industry. It’s a big ambition, but a laudable one.

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