Taiwan Semiconductor Manufacturing Company (TSMC) is considering building its first chipmaking plant in Japan as the government there is urging companies to expand local semiconductor production, Nikkei reported.

TSMC is evaluating plans to build a plant in Kumamoto Prefecture, in western Japan, four sources told Nikkei Asia. The factory would be near one of key customer Sony’s plants and help meet growing demand for image sensors, automotive microcontrollers and other chips, the sources said.

“TSMC is considering a proposal by the Japanese government to build an advanced chip factory in Japan, though it has not yet fully committed and finalised [the plan],” one of the sources told Nikkei.

The plant would be the Taiwanese company’s first chip making facility in Japan whose companies accounted for 4.7% of TSMC’s revenue in 2020. It would mark a significant departure from the company’s decades long strategy of maintaining most of its production in its home market.

TSMC is building an advanced chip plant in the US in response to pressure from Washington, which, like Tokyo, has been urging companies to build semiconductor facilities locally, Nikkei noted. Around 62% of TSMC’s revenue came from North American clients in 2020.

According to the tentative plan for the Kumamoto facility, TSMC would build a 12-inch wafer plant able to switch between different process technologies, including 28-nanometer and 16-nanometer production tech.

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By GlobalData

“TSMC does not want to stick to only one process technology … as many of the tools are shared,” one of the sources told Nikkei Asia.

If built, the plant would be near Sony’s factory in Kumamoto, according to the four Nikkei sources “familiar with the matter”. However, the Taiwanese chipmaker will likely own and run the factory independently to avoid any conflicts of interest, two sources said.

“One of the key reasons for TSMC to pick this location is because its large Japanese client Sony has a plant there,” an executive-level source familiar with the plans told Nikkei.

Japanese news outlet Nikkan Kogyo Shimbun first reported last month TSMC was considering a chip facility in Japan.

TSMC declined to comment to Nikkei.