Can cash and IBM collaboration put Japan into premier-league chipmaking? Rapidus is betting billions it can.
When Japan announced the creation of Rapidus in 2022, the news was met with a mix of enthusiasm and skepticism. The company would enter the market at a time of escalating demand for semiconductor fabrication capacity to power the build-out of AI/ML data centers worldwide, and amid international political pressure for each region to secure locally sourced production. Here was a government-backed consortium with a bold mandate: return Japan to the forefront of advanced logic manufacturing, producing 2 nm chips by 2027 and positioning itself for nodes beyond 2 nm with IBM’s support, (Atsuyoshi Koike CEO, Rapidus Corp. on August 26 at the Hot Chips 2025 Conference). For an industry dominated by TSMC, Samsung, and Intel, this looked like a geopolitical counterweight.
The model of commercial–government co-investment that catalyzed Taiwan’s semiconductor ascent was exemplified on February 21, 1987, with the founding of Taiwan Semiconductor Manufacturing Company (TSMC) in Hsinchu, Taiwan. In a 2005 speech at MIT Sloan, TSMC founder Dr. Morris Chang described the capital structure that launched the company: “Philips put up about 27 percent, the [Taiwan] government put up 48 percent, and I started a three- to four-month campaign to round up the other 25 percent.” This strategic alignment of public and private capital laid the foundation for what would become the world’s most advanced semiconductor foundry.
TSMC’s emergence coincided with the inflection point of the IBM PC era, as global PC shipments surged from roughly 20 million units in 1988 to over 100 million by 1998—a 5× volume increase. The company’s pure-play foundry model was uniquely positioned to capitalize on this demand, enabling fabless innovators to scale rapidly without the burden of fabrication infrastructure. TSMC didn’t just ride the wave—it became the foundation on which the PC boom was built.
Fast forward to 2025, and Rapidus has achieved several milestones—pilot 2 nm fab activity in Hokkaido (Rapidus, 2025), successful nanosheet transistor demonstrations with IBM (Koike, Hot Chips 2025), and ecosystem partnerships with Siemens, imec, and Tenstorrent (Rapidus, 2025 press release). But behind the scenes, an unusual element of their strategy is drawing attention in the industry: the company is reportedly offering substantial upfront payments to IP vendors to secure early support (SemiWiki, Jul 8, 2025). This approach diverges sharply from the traditional royalty-driven model used by TSMC, and it raises fundamental questions about sustainability, competitiveness, and whether money can substitute for ecosystem momentum.
TSMC Juggernaut
In the conventional foundry model, IP vendors—companies providing essential building blocks like memory controllers, I/O subsystems, or physical libraries—port their IP to a new process node based on expected customer demand. They absorb some upfront engineering cost in exchange for future royalties once customers tape out silicon at volume.
This model thrives at TSMC, where the scale is undeniable. Moving from N3 to N2, for example, was straightforward for many vendors because the ecosystem is already in place. The network effect here is powerful: customers prefer the node with the richest IP catalog, and IP vendors support the node with the largest customer base. It becomes a self-reinforcing cycle—what we might call the TSMC Snowball.
Morris Chang, TSMC’s founder, has emphasized that Taiwan’s long-term ascendancy in semiconductor manufacturing came not just from financial capital, but from structural advantages. As he noted in a recent MIT talk, success required a steady supply of well-trained technicians, low turnover among employees, and the benefits of co-location: “Learning is local. The experience curve works only when you have a common location.” TSMC thrived because it could build an ecosystem in one place, accumulating knowledge and lowering costs over time. This underscores the challenge Rapidus faces in Japan, where it must build not only fabs but also a cohesive ecosystem that can replicate such learning-by-doing effects.
Silicon by Subsidy
Rapidus, by contrast, does not yet have that volume. Analysts estimate the company may only reach 25,000 wafers per month by 2026—a fraction of what TSMC and Samsung move through advanced nodes. From an IP vendor’s perspective, supporting Rapidus’s 2 nm node is a high-risk, low-return proposition under a pure royalty model. To bridge the gap, Rapidus is reportedly providing upfront incentives to IP vendors to ensure critical libraries will be available for early customers. This “pay to play” strategy provides immediate engagement, but it is an expensive way to buy credibility.
The question is whether this model can scale. If Rapidus spends heavily on upfront inducements while wafer output remains modest, the economics could become unsustainable—particularly given estimates that the company will need 5 trillion yen (~US $34–35 billion) to reach full mass production. IBM, for its part, is contributing R&D expertise, intellectual property, and engineering support. Roughly 150 Rapidus engineers have trained at IBM’s Albany NanoTech Complex, and IBM has provided nanosheet transistor designs and know-how. But IBM is not funding Rapidus directly.
That leaves the burden squarely on Japanese government subsidies (over 1.7 trillion yen committed so far) and corporate investors like Toyota, NTT, Sony, SoftBank, Kioxia, and NEC. With each new expense—construction, equipment, packaging, and now upfront IP agreements—the funding gap looms larger. In July 2025, Rapidus reached a key milestone: obtaining electrical characteristics in 2 nm GAA transistors at its IIM-1 fab according to Koike in his Hot Chips presentation. This underscores that IBM’s knowledge transfer is yielding tangible technical results, even as financial sustainability remains an open question.
Equipment ≠ Ecosystem
What Rapidus seems to recognize is that lithography scanners, deposition tools, and etchers—though expensive—are not the hardest part of launching an advanced node. The real bottleneck is the design ecosystem. If customers can’t access proven IP libraries, trusted design flows, and reliable EDA tool support, they won’t risk a tapeout at Rapidus. Upfront deals are a way to short-circuit that chicken-and-egg problem.
But it is also an admission that Rapidus lacks the organic pull that makes TSMC’s ecosystem self-sustaining. TSMC doesn’t have to offer inducements; vendors flock to TSMC because their customers demand it. Here Rapidus hopes to differentiate on speed, Koikede declared. Its All-Single Wafer Processing concept promises turn-around times as short as 15–50 days, compared to roughly 120 days for conventional batch processing. The company claims this “world’s shortest TAT” will give fabless customers faster iterations, a potential incentive to choose Rapidus despite ecosystem challenges.
The Foundry That Blinked
There is precedent here. GlobalFoundries, during its early 20 nm and 14 nm efforts, offered financial incentives to lure IP providers. The model was workable in the short term but failed to produce a virtuous cycle. Without sufficient customer pull, GlobalFoundries pivoted away from bleeding-edge logic to focus on specialty and trailing-edge nodes. Could Rapidus meet the same fate? Its government backing is stronger, and its partnership with IBM gives it world-class technical foundations. But the structural challenge—convincing IP vendors and fabless customers to bet on a low-volume node—remains.
It is important to distinguish between Rapidus’s ecosystem partners and its IP vendors. Companies like Tenstorrent are fabless design houses and potential customers, developing RISC-V CPU IP and AI accelerators. They may work with Rapidus to manufacture chips, but they are not IP vendors in the sense of providing standard cell libraries, memory compilers, or interface IP. The upfront incentives are aimed at traditional IP providers such as Arm, Synopsys, or Cadence—whose libraries are essential for enabling customer designs on a new node.
Rapidus’s strategy of relying on upfront arrangements introduces a set of structural risks that could undermine its long-term viability. While government subsidies may cushion the early years, the question looms: can the model sustain itself once Rapidus must operate without external funding? The reliance on pre-paid commitments also risks entrenching vendor dependency, potentially locking Rapidus into a narrow ecosystem of IP providers and limiting flexibility for future customers.
Perception is another challenge. If customers begin to view IP support as contingent on inducements rather than intrinsic ecosystem strength, confidence in the node’s reliability—especially for mission-critical tapeouts—may erode. And with every yen spent securing ecosystem buy-in, margin pressure intensifies in a market already defined by razor-thin profitability.
By contrast, TSMC has a more resilient model. It monetizes IP support indirectly through high-volume production that guarantees royalties for vendors, and directly through premium wafer pricing at advanced nodes. This approach reinforces ecosystem strength without compromising long-term margins or customer trust. Engineers, EDA developers, and foundry insiders understand that semiconductor competition isn’t just about transistors per square millimeter. It’s about design enablement, ecosystem health, and business model viability.
For TSMC, the story is straightforward: the ecosystem follows volume. For Rapidus, the story is more precarious: the ecosystem must be bought before volume can materialize. In his Hot Chips presentation Koike asserted that Beyond subsidies and IBM know-how, Rapidus is betting on Design–Manufacturing Co-Optimization (DMCO), integrating AI, advanced sensors, and partnerships like Keysight to improve yield and PDK precision. Combined with its “Rapid and Unified Manufacturing Service” (RUMS), Rapidus is pitching a foundry model built on speed and co-innovation, not just wafer starts.
The Payment Illusion
Rapidus deserves credit for attempting something few nations have dared in decades: re-entering the leading edge of semiconductor manufacturing. Its partnership with IBM has already yielded technical milestones, and its government and corporate backing give it a level of resilience GlobalFoundries never enjoyed. But money alone will not guarantee success. Upfront incentives may secure early IP availability, but they do not guarantee customer adoption or sustainable economics. In the end, Rapidus must find a way to transform these early arrangements into long-term ecosystem momentum.
Morris Chang’s reflections at MIT underscore the gap. Taiwan’s rise was powered by talent pipelines, co-location, and the experience curve—factors that compounded over decades and lowered costs through learning by doing. Rapidus, by contrast, is trying to buy time with subsidies and upfront deals. If it succeeds, it will validate Japan’s gamble. If it fails, it will reinforce why the TSMC juggernaut keeps rolling—and why competing at the bleeding edge requires not just technology and subsidies, but an ecosystem that grows organically from customer demand.
Also Read:
Revolutionizing Processor Design: Intel’s Software Defined Super Cores
TSMC’s 2024 Sustainability Report: Pioneering a Greener Semiconductor Future
Intel’s Commitment to Corporate Responsibility: Driving Innovation and Sustainability
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