In October 2022, Socionext Inc. listed on the Tokyo Stock Exchange in what was the largest IPO Japan had seen in nearly two decades. The company, which designs and develops system on chip (SoC) solutions, attracts investor interest because it successfully rides the AI and smart car chips wave. Within a year, its share price surged five-fold to a market value of 700 billion Japanese yen, making it Japan’s hottest artificial intelligence (AI) stock.

The Yokohama-based Socionext was formed in 2015 when Fujitsu Limited and Panasonic Corporation consolidated their system chip businesses. The average age of the company’s top managers, all semiconductor industry veterans, is 50 while Chairman and President Masahiro Koezuka is 72 years old.

Upon arrival at Shin-Yokohama Station south of Tokyo on the way to the interview the CommonWealth Magazine reporters passed numerous old buildings with Fujitsu signs. Despite Socionext’s future-oriented name, the company headquarters are in a rather nondescript building. 

Early collaboration with TSMC on advanced processes

Koezuka, a law graduate of of the prestigious University of Tokyo, is a typical Japanese bureaucrat who once served as commissioner of the Japan Patent Office. He joined Fujitsu in 2008, where he was in charge of the strategy and semiconductor departments. Koezuka played a major role in the founding of Socionext, and eventually took the helm of the company in 2018 upon request by its principal shareholder, the Development Bank of Japan Inc. (DBJ).

Under Koezuka’s leadership, Socionext developed from a simple designer of application specific integrated circuits (ASIC) into the world’s second largest SoC company behind California-based Broadcom Inc. Japan’s supercomputer K, which was the fastest computer in the world until 2012, was built by Socionext precursor Fujitsu.

In October 2023 Socionext announced a collaboration with Taiwanese chip foundry TSMC and British semiconductor design firm ARM to develop 2-nm multicore CPU, using TSMC’s most advanced manufacturing process. The first samples are expected to be presented in the first half of 2025.

In the interview, Koezuka pointed out that Socionext has not yet reached its prime. “We are still growing fast with our globally sold products such as for automotive and data center applications.”

Socionext’s birth is a significant event in the history of the country’s semiconductor industry. Back in 2015 Fujitsu and Panasonic were both so-called integrated device manufacturers (IDC) carrying out all steps of semiconductor production from planning and designing to manufacturing and selling in-house. Under guidance from the Japanese government the two companies merged their semiconductor products and technical departments to create Socionext.

After the 1990s, Japan’s semiconductor industry languished for some 30 years. One after the other Hitachi, Sanyo and other large electronics companies let go of underperforming business units.

But Socionext did not follow the downward trajectory of its industry peers. After Koezuka took over, he spearheaded an extreme business transformation.

“You cannot bring about change from the inside, it would never work,” says Koezuka, noting that collaboration with important industry players and interaction with the industry ecosystem are necessary to change business and company culture.

“We needed to decide whether to be an industry leader or a follower,” he says.

In the beginning, Socionext generated more than 70 percent of its revenue in Japan with more than half stemming from TV sets, DVD devices and other consumer electronics that contain chips made with mature 40nm process technology.

A veteran financial analyst with a foreign firm who has observed chip makers for many years points out that “if a company does not change it will eventually be pushed out together with its outdated products.”

Ex-top bureaucrat Koezuka quickly sold off the TV business and other units involving mature process technologies, focusing activities on the design of products containing the most advanced chips.

First effects of Koezuka’s bold restructuring began to show when Morgan Stanley stock analyst Kazuo Yoshikawa said in a report that Socionext’s design win amount – the expected revenue contribution of new products after they have reached mass production – had markedly increased in 2019 and that they would generate profit growth when entering mass production around 2021. 

“Koezuka is a very atypical Japanese company top executive,” remarks a foreign financial analyst. “He is very interested in the advanced technology market outside of Japan.”

Going for EVs

Koezuka realized that demand for advanced custom SoC, using 7nm, 5nm and even 3nm process technology would increase substantially given the global trend toward AI applications and electric vehicles.

“Automobile companies and large internet service companies need custom SoC to diversify their products,” explains Koezuka. Therefore, Socionext needed to invest in advanced, more expensive processes.

With the rising of self-driving cars and electric vehicles, the automotive field has become Socionext’s most promising battlefield. 

With accelerating adoption, self-driving cars and EVs have become a promising new battlefield for Socionext.

Under the traditional ASIC business model, companies produce SoC based on specifications provided by the customer. All previous design steps such as how the SoC functions with other chips on the system must be done by the customers themselves.

Aiming to change this business model, Koezuka took the back-end design capabilities inherited from the semiconductor technology departments of Fujitsu and Panasonic and merged them with front-end system design. A custom project now involves discussions, testing, functional design, the system architecture, IP etc.

“We have professional engineers for all sorts of tasks ranging from SoC architecture, systems, software to thermal design and quality control,” says Koezuka. Panasonic and Fujitsu are both companies that were able to design system semiconductors and employed software engineers in the first place. By reassigning these valuable human resources Socionext was able to secure a level of competitiveness that industry rivals will find hard to achieve.

Since not every company is able to independently develop their own SoC as Apple does, Socionext offers so-called “Solution SoC”. In what is an upgrade of traditional ASIC services, Socionext provides everything from front-end system to chip design to specific customers who need advanced and innovative chips.

Presently, Socionext holds a 10 percent share of the global custom SoC market, which is worth around US$ 12 billion, making it the second largest player behind Broadcom.

A CTO at a Japanese AI company believes that “automotive will be Socionext’s biggest opportunity.”

In his low-key manner, Koezuka confirms that the company already serves automotive customers from North America and China.

Masahiro Koezuka, the CEO of Socionext. (Photo: Ming-Tang Huang)

According to the company’s financial report for fiscal year 2023, the automotive industry accounts for 34 percent of non-recurring engineering (NRE) costs from customer projects. “We believe that Socionext’s sales growth will surpass Renesas Electronic Corporation and Rohm Semiconductor in the medium term,” says analyst Yoshikawa. As he sees it, Socionext has already gained a competitive edge over its rivals because it has already landed several automotive customers from the U.S. and China who use advanced 3nm and 5nm process technology.

This can be attributed to Koezuka’s strategy during the past five years to always move into more advanced process technologies ahead of the competition.

Technology leader moving into R&E of 2nm technology

Five years ago, 80 percent of Socionext’s custom design projects were using mature processes above 10nm. By 2023, 5nm and 7nm process technologies accounted for 56 percent of projects. The collaboration with ARM and TSMC, announced last October, to develop a 32-core CPU only underlines Socionext’s global technology leadership. 

“TSMC is well aware that we are after the most innovative technology, we are always serving American carmakers, ADAS [advanced driver assistance systems], data center and Internet [firms] as well as Chinese startup companies,” says Koezuka. “They all hope to get innovative and the most advanced SoC.”

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Translated by Susanne Ganz
Uploaded by Ian Huang