Hokkaido has long been known for dramatic volcanic peaks, creamy dairy products and powder snow. These days, Japan’s northernmost major island is being touted by enthusiasts as the country’s next high-tech hub. “Hokkaido is the new Taiwan,” writes James Rini of Tokyo-based venture capital firm Coral Capital. Japanese officials, somewhat breathlessly, talk about the “Hokkaido Valley.”
Rapidus cites the “abundance of water” in Hokkaido, which is important for semiconductor manufacturing, as a key reason for choosing this region (PEXEL).
That approach hinges on Rapidus, a bold and risky endeavor in chip manufacturing. Launching in 2022, the company aims to bring Japan back to the forefront of advanced semiconductor manufacturing. Backed by the Japanese government and a consortium of large Japanese companies, Rapidus opened its first fab in September 2023 on a field near the international airport in Chitose, a suburb south of Sapporo, the capital of Hokkaido. Pilot production of state-of-the-art 2-nanometer chips for chip manufacturing technology is underway. The ambitious effort is seen as a model of the new age industrial policy championed by Japan’s Prime Minister Takaichi Sane.
Rapidus may have been established in the southern main island of Kyushu. TSMC, a Taiwanese semiconductor giant, has two fabs there, taking advantage of a strong local supplier network. (Officials there call Kyushu “Silicon Island.”) But the Rapides’ owners settled on Hokkaido. The island, which is home to the indigenous Ainu people, was once a Japanese territory, which was formally annexed in the late 19th century. Ota Yasuhiko of Hokkaido University says the new frontier focuses on leading semiconductors.
Rapidus cites the “abundance of water” in Hokkaido, which is important for semiconductor manufacturing, as a key reason for choosing this region. Furthermore, no other prefecture in Japan has as much offshore wind energy potential: Hokkaido is projected to produce one third of the country’s wind energy by 2040. The local governor agreed late last year to restart the island’s only nuclear power plant, which will provide carbon-free, stable baseload for Hokkaido’s electricity grid.
Hokkaido’s geography brings many other benefits as well. Large and sparsely populated by Japanese standards, the island offers ample space for new production facilities; Rapidus hopes to build several more fabs in addition to its first one. The cool temperatures make it a desirable location for data centers, which run hot; Japanese tech giant SoftBank recently began construction of a ¥65 billion ($400m) data center in Tomakomai, south of Chitose. Another largely unspoken benefit is geographic diversification: if conflict ever broke out around Taiwan, Japan’s southwestern islands, including Kyushu, could be at risk; In contrast, production facilities in Hokkaido would be far from any fighting.
Hokkaido would benefit if chip manufacturing picks up. The semiconductor cluster could add up to ¥11.2trn ($69bn) to Hokkaido’s GDP between 2023 and 2036, according to a regional development agency study. While Hokkaido won’t reproduce the dynamism of Silicon Valley’s startup ecosystem or the scale of Taiwan’s chip manufacturing base anytime soon, it has a good chance to become a key node in global semiconductor development and an important part of Japan’s nascent AI ecosystem. A more realistic guide might be Albany, New York, where Rapidus’ main technology partner, IBM, sits at the center of a thriving technology research and development center. The Governor of Hokkaido visited Albany in 2024 to study its model.
Yet despite all the enthusiasm, the Hokkaido Valley plan faces several major obstacles. The first is to develop the third essential resource for chip manufacturing: human talent. Hokkaido hopes to sell itself as a place where skilled engineers will want to live. True, it is bitterly cold in winter. But the island is home to world-famous ski resorts. And local culinary delights include delicious scallops and sea urchins as well as giant crabs sourced from the surrounding icy seas.
Nonetheless, there are few international schools in Hokkaido for the children of foreign recruits and salaries in Japan lag behind global standards. Although there are a lot of universities and colleges in the region, they tend to focus on agriculture, fisheries, forestry and service industries. Hokkaido University, the largest and oldest university, was established as an agricultural school; It is now preparing to train only semiconductor engineers. Rapidus has so far relied heavily on a cadre of experienced Japanese engineers.
The second major hurdle is the supplier ecosystem. Manufacturing accounts for less than 10% of Hokkaido’s economic output, compared to 20% nationally. Although dozens of semiconductor-related companies operate there, the industry is still small. Some of Rapidus’ partners have set up support offices nearby, but do not yet have a large manufacturing base of their own. Hokkaido Valley insiders acknowledge that it will take at least a decade to develop a thriving cluster.
Most important is the success of Rapidus. Although the company has made impressive technological advances, there is no guarantee of its commercial success. The real test will come when mass production begins, which is targeted for next year. TSMC produces standardized chips on a large scale; Rapidus, in contrast, plans to introduce smaller batches of rapidly manufactured, specialized AI chips. Given the shortage of companies capable of making cutting-edge semiconductors and the growing demand for them, the strategy is laudable. But even in the best case, Rapidas will need to rely heavily on public subsidies. The government has already pledged more than $15 billion in assistance for the project. This is a big bet on any one company. The Hokkaido Valley concept depends on its being successful.
