Japan's fragmented power chip industry struggles to meet China's challenge
Workhorse chips control current flow in power grids and EVs, but rivals catching up
TOKYO -- As Japan invests billions of dollars into manufacturing chips used for artificial intelligence, the country's less-recognized dominance in legacy power semiconductors is being challenged by emerging Chinese companies. And despite the tough times, local producers have been slow to form a united front.
A major power chip alliance between Toshiba and Rohm has struggled to produce tangible results beyond a co-manufacturing project. According to sources briefed on the situation, discussions on deeper collaborations, initially announced in early 2024, have "stalled."
The lack of visible progress highlights the difficulties in significantly restructuring Japan's power chip industry, which boasts five major players: Mitsubishi Electric, Fuji Electric, Toshiba, Rohm, and Denso, each of which has less than 5% of the global market.
Power chips are less glamorous than the logic and memory ones that have been in the spotlight thanks to the AI boom, but they are vital components in everything from power grids to electric vehicles. Their function is to manage current flow, much like an electric tap. Advanced power chips, moreover, can significantly boost energy efficiency, a crucial consideration for an island nation that imports around 90% of its energy.
Toshiba and Rohm have been involved in two partnership talks on power chips. One, announced in December 2023, is for manufacturing collaborations, where one company uses its factory to make products designed by the other to reduce investment costs. The second is a broader partnership bid announced by Rohm a few months later for "strengthening collaboration across all business activities" related to power chips, including research, sales and procurement.
Rohm invested 300 billion yen ($2 billion) in Toshiba in 2023, as part of a 2 trillion yen acquisition led by Japan Industrial Partners and other, mainly domestic, companies and banks that took Toshiba private. This move was seen at the time as a push by Rohm to deepen its ties with Toshiba, as the two companies had complementary strengths: in EV chips for the former and industrial products for the latter.
Tangible progress on the broader partnership, however, has yet to materialize. Sources told Nikkei Asia that the negotiations have stalled, with one person saying that Rohm has "given up" on pursuing serious cooperation beyond co-manufacturing.
Rohm told Nikkei Asia that the co-manufacturing arrangement is making steady progress, and that talks for a broader partnership are still ongoing. Toshiba also said the co-manufacturing project is on track, but refrained from commenting on the broader collaboration, as they have in their previous responses to this issue.
During a general shareholders meeting in late June, Rohm CEO Katsumi Azuma said talks for a deeper collaboration were ongoing but that his company would "proceed with discussions cautiously to secure the most favorable outcome for Rohm."
The market has shifted considerably since Rohm broached the idea of a broad partnership with Toshiba. Rohm posted a 50-billion yen net loss in the fiscal year ending March 2025, its first full year in the red in 12 years. The Kyoto-based company has struggled to make its next-generation silicon carbide (SiC) power chip profitable, as the EV market -- the biggest user of the devices -- has slowed. Fierce competition from emerging Chinese companies has also eaten into earnings.
Rohm posted a net profit of 2.9 billion yen for the three months through June, a 14% drop from the same period last year. In May, it announced it was slashing underperforming manufacturing facilities and that it solicited voluntary retirements.
Renesas Electronics, another chip maker, exemplifies the struggles facing Japanese chip makers. The company announced in June that it had abandoned plans to enter the SiC market due to sluggish EV market growth and competition from China. It was also hit by the bankruptcy of U.S. company Wolfspeed, a maker of substrates for SiC chips that the Japanese company had a supply agreement with. This resulted in a net loss at Renesas of 175.3 billion yen in the first half of 2025, its largest ever for the period.
The biggest reason power chip makers are struggling is the price race with Chinese companies, according to David Dai, an analyst with Bernstein Research.
"Either they were too optimistic about the Japanese EV demand, or they were too optimistic about their ability to compete in a global market, and both turned out to be negative," he said.
Rohm and Renesas both tried to expand their power chip manufacturing capacity in recent years, in hopes that rising EV demand would boost the market for chips built on SiC, a compound of silicon and carbon. But Japan has been much slower than China or Europe to embrace fully electric cars, a blow for power chip companies closely connected with Japanese automakers.
The process of making a power chip can be categorized into two broad steps: growing a crystal to make the substrate, and then patterning and forming a circuit on that substrate.
Chinese companies have gradually built up the capability to manufacture more complex products and are now able to make end-to-end power chip devices on conventional single-crystal silicon. Some, such as TankeBlue and SICC, have even entered the market for making SiC substrates, which are higher grade than conventional silicon and primarily used in EVs.
China's cheaper energy is helping these companies produce substrates at competitive prices. According to Dai, energy accounts for 30% to 40% of the overall cost of making a substrate.
But producing substrates is just half the battle. Printing circuits on them is much more technically challenging, especially for SiC, and China has yet to achieve the capabilities to make automotive-grade power chips, Dai said.
Still, given that China is the largest EV market, the country's up-and-coming chip makers have ample demand to feed, allowing them not only to mass-produce and reduce costs but also leverage client data to improve product quality, cautioned Jun Okamoto, partner at KPMG FAS in Japan.
Chinese companies are also challenging the vertical integration model of existing companies, Dai said. Chinese manufacturers are organized by process, while Japanese companies typically carry out end-to-end processes in-house. This means Chinese companies can focus their resources on specific production processes and improve efficiency.
"The Chinese basically already dominate the silicon carbide substrate market, which means that nobody makes any profits in substrate ... The vertically integrated model is having a lot of issues," Dai said.
The integrated model was regarded as the best option a few years ago, "but now it's totally the opposite," he added. "The entire substrate market is already disrupted by the business model of the Chinese."
Something similar happened in the cutting-edge semiconductor market. By the late 1990s, the dominant business practice in chip making had shifted from vertically integrated companies to process-specialized ones focusing on either manufacturing or design. This gave birth to Taiwan Semiconductor Manufacturing Co., the world's biggest contract chip maker. The change is also regarded as one of the reasons for the demise of major Japanese chip makers such as Fujitsu, NEC, and Hitachi, which were slow to adapt to the new business trend, and dropped out of the investment race to develop ever more advanced chips.
While today's Japanese power chip companies are profitable, typically with operating profit margins of around 10%, they each held less than 5% of the global market in 2024, according to Omdia. "For Japan, it will be difficult unless companies join forces rather than going it alone, to gain the cost competitiveness needed to counter Chinese players," said Okamoto of KPMG FAS.
Industry sources remain skeptical that significant restructuring will happen anytime soon.
"Outsiders largely drive talk of consolidation," said a long-term employee of one major Japanese chip maker. "Company survival hinges on the capacity to develop products that meet customer specifications. With each company holding a wide-ranging product lineup, coordination is anything but simple." The employee said that power chip makers are careful not to share their product specifications even with customers, for fear of their know-how being exposed. "Trust is important," he said. "This is something to be overcome through long-term relationships."
Another hurdle, according to Okamoto, is the lack of a clear industry leader. "With players holding comparable shares and distinct strengths, companies see no reason to give ground, which makes large-scale consolidation difficult," he said.
The Japanese government has tried to push collaboration in the industry. A subcommittee organized by the Ministry of Economy, Trade and Industry (METI) in 2024 argued that to nurture a competitive power chip industry, a policy was needed for "further expansion of collaboration and consolidation in design and manufacturing processes."
Tokyo has committed 70.5 billion yen to help build production capacity for an alliance between Fuji Electric and Denso, and 129.4 billion yen for the collaboration between Rohm and Toshiba Electronic Devices & Storage, a subsidiary of Toshiba. These amounts are far smaller than the commitment Tokyo gave to cutting-edge logic chip projects in Japan by TSMC or Japanese startup Rapidus.
Nikkei reported in late July that Denso had acquired around 5% of Rohm's shares in a bid for deeper cooperation. The two announced in May that they will move forward with "discussions on broader collaboration" in semiconductors, where the "two companies' strengths are highly compatible." Denso has also teamed up with Fuji Electric to produce SiC chips.
Denso declined to comment on the Nikkei report about its Rohm stake and on whether Rohm's relationship with Toshiba could affect Denso's partnership with Rohm. While some analysts are hopeful that Denso's move could ignite a new push for restructuring, another industry source told Nikkei Asia that he was still skeptical, citing fierce rivalry between companies and diverse company cultures.
Founded in Kyoto in 1954 as a manufacturer of resistors for radios, Rohm succeeded as a specialized component maker. This is a different background from its rivals, which are mostly part of a bigger group company in the electronics or auto industries.
Mitsubishi, meanwhile, has shown interest in forming partnerships of its own in recent years. In an earnings call in July, CFO Kenichiro Fujimoto said the company was "examining various possibilities, keeping all options on the table," but declined to elaborate on the specifics. Asked why no serious restructuring has emerged in the industry, Fujimoto said, "As any two parties will have their own circumstances to take into account, progress is unlikely to come overnight."
Okamoto of KPMG said the technological gap between Japanese and Chinese companies in silicon chips is likely one or two years and three in SiC chips, at the longest. That would mean there is little time for Japan to come up with a united front.
"Looking ahead to the challenge from China, Japanese companies will need to embrace a new type of pride and seek consolidation as the way forward," he said.