Why a Rising TSMC Challenger Could Reshape the Chip Foundry Landscape

Detailed summary

Japan's state-backed Rapidus is promising cheaper 2-nanometer chips, but it still has to prove that it can manufacture them.

Taiwan Semiconductor Manufacturing (NYSE: TSM) has dominated the advanced chipmaking business for years. But a Japanese start-up is hoping to grab a piece of the third-party foundry business, and it's making some ambitious promises.

Rapidus, which is backed by the Japanese government and working with IBM, wants to begin mass-producing advanced 2-nanometer chips in late 2027 or early 2028. CEO Atsuyoshi Koike recently reaffirmed that timetable, although reports suggest the company is having trouble meeting important technical milestones.

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Rapidus also wants to compete on price. Earlier this year, the company indicated that it could charge approximately $21,000 per wafer for its 2-nanometer process, compared with reported pricing of roughly $30,000 for TSMC's 2-nanometer technology.

That's a potentially substantial discount. But can Rapidus actually deliver and cut into TSMC's overwhelming market share?

Rapidus has begun trial production at its facility in Hokkaido, Japan, and has reportedly held discussions with more than 60 potential customers. Japan has also committed billions of dollars to the project, hoping to rebuild its domestic semiconductor manufacturing industry.

However, manufacturing advanced chips is extraordinarily difficult, and Rapidus is already encountering problems.

Bloomberg reported this week that the company has yet to successfully produce functioning static random access memory cells, an important milestone it must achieve en route to a fully realized 2-nanometer manufacturing process. Japan's Jiji Press news agency also reported that a delay of approximately one year is being discussed. Rapidus says its timetable remains unchanged.

But even if the company meets that deadline, it will…

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