Toppan has relocated equipment related to its factory in Kumamoto Prefecture, Japan, to its Shanghai factory, and has increased its production lines from five to seven, which are not subject to the United States' export restrictions on advanced chip manufacturing equipment to China.

According to reports, Toppan Holdings, a Japanese company, has shifted the production of CMOS image sensor components from Japan to China, with the goal of increasing local output by 40%, as China aims to strengthen the supply chain for related technologies.

CMOS (Complementary Metal-Oxide-Semiconductor) sensors convert light captured by camera lenses into electrical signals. Within CMOS components, Toppan manufactures on-chip color filters (OCF) that colorize the captured images and microlenses that enhance light-gathering capabilities. Without OCF, CMOS can only detect differences in brightness.

Toppan has moved the relevant equipment from its factory in Kumamoto Prefecture, Japan, to its Shanghai factory and has increased its production lines from five to seven. These are not affected by the United States' export controls on advanced chip manufacturing equipment to China.

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The Kumamoto factory will be used for research and development and will retain approximately 370 employees.

Data from the French research firm Yole Intelligence indicates that the global CMOS market size was about $21.2 billion in 2022. Sony Group leads with a 42% market share, followed by Samsung Electronics (19%) and the United States' Omnivision (11%).

China's share among top companies includes GCM (GalaxyCore Microelectronics) ranked seventh with 4% and SmartSens ranked eighth with 2%. Sony and Samsung can produce OCF in-house, but Chinese manufacturers mainly procure them externally.

In China, the demand for CMOS is continuously increasing in areas such as automotive, smartphones, and surveillance cameras. Toppan will strengthen its sales to local CMOS sensor manufacturers by producing closer to the demand regions.

The United States has imposed restrictions on the export of chip manufacturing equipment to China, fearing that these technologies could be diverted to military purposes, making it difficult for China to produce advanced chips.In commercially available chips, the most advanced level currently is 3nm. Generally speaking, the smaller the nanometer scale of a logic chip, the more powerful its functionality.

Under the restrictions imposed by the United States, China has focused on CMOS, which differs from logic chips in terms of manufacturing methods and the definition of advanced products. Most CMOS can be manufactured using mature technologies of 28nm or higher, and the production equipment is not subject to U.S. restrictions.

According to data from the research institution TrendForce, China's share of the global total capacity for all so-called traditional chips at 28nm or above is expected to reach 33% by 2027, an increase of 4 percentage points from 2023.

China's investment in mature technologies beyond CMOS is also increasing, and manufacturers of production equipment from Japan and the United States are also increasing their sales in this area.

According to industry organization SEMI, shipments of semiconductor manufacturing equipment to China in 2023 set a historical high, exceeding $30 billion, a 6% increase from 2022, making China the leader in imports over countries like South Korea.

Toppan Holdings plans to build a semiconductor packaging substrate factory in Singapore with production starting in 2026.

Toppan Holdings announced on March 14th its plan to construct a semiconductor packaging substrate factory in Singapore, with production scheduled to commence in 2026. The company, along with several other Japanese substrate manufacturers, will increase capital investment in response to the booming demand for artificial intelligence.

Toppan Holdings did not disclose the specific investment amount for the factory construction, but it is estimated to be around 50 billion yen (approximately 2.43 billion yuan). The factory is expected to create 200 jobs, and with future capacity expansion, the total investment is projected to exceed 100 billion yen.

Reports suggest that although Toppan Holdings will bear the majority of the initial investment, due to its main customer being the American semiconductor giant Broadcom, Broadcom may provide financial support for Toppan Holdings' future capacity expansion.

It is understood that Toppan Holdings currently only manufactures substrates at its factory in Niigata, central Japan. The planned Singapore factory is closer to semiconductor back-end processing enterprises such as Malaysia and Taiwan. Toppan Holdings hopes to increase its substrate production capacity to 150% of the fiscal year 2022 by the fiscal year 2027 through the expansion of the Niigata factory and the construction of the new factory.Encapsulation substrates are an essential material for semiconductor chips. According to a Techno Systems Research report, Japanese companies have a particularly prominent position in the high-performance FC-BGA substrate field, with a production capacity accounting for 40% of the global market.

There are reports that Toppan, a Japanese company, has received support from the Singaporean government and Broadcom in terms of factory site selection and recruitment in Singapore.

Japanese semiconductor exports driven by business with China

According to Japanese media reports, driven by the increase in exports to China, Japanese exports grew for the second consecutive month in January. Among them, automobile exports increased by 31.6%, and exports of chip manufacturing equipment increased by 27.5%.

"U.S. trade restrictions have stimulated the Japanese chip industry's business with China," the report said. Japan and the Netherlands have followed the U.S. government's pace in controlling the export of high-end chips. Against this backdrop, the Chinese government has vigorously promoted the development of the domestic chip industry. At the same time, since semiconductor equipment for mature processes has not been subject to export restrictions, many Japanese semiconductor companies have profited by exporting traditional semiconductor equipment to China.

Dainippon Screen, a semiconductor cleaning equipment company, expects that the proportion of sales in China will reach 44% in the fiscal year ending this March, far higher than the 19% in the previous fiscal year. Tokyo Electron, a wafer coating machine supplier, also stated that in the three months ending in December last year, its sales in China accounted for 46.9% of total sales, the highest level in the company's history. Dainippon Screen President Shoji Goto said that although the profit of the older generation machines producing traditional chips is relatively low, their coverage of the market segment is broader, and there is potential to sell more products, thus still generating considerable profits.

A Japanese semiconductor manufacturer with a component production base in China said in an interview that the company hopes to expand its R&D capabilities in China, as it sees opportunities for cooperation with local manufacturers. "We currently have no intention of withdrawing from China, and I believe we can make profits by continuing to lay out."

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