A Shift in Semiconductor Investment Strategy

Japanese semiconductor materials manufacturer Sumitomo Electric Industries has canceled its plan to build a ¥30 billion ($200 million) silicon carbide (SiC) wafer factory due to weakening demand for electric vehicles (EVs). Originally announced in 2023, the project aimed to support growing needs in the power semiconductor market driven by EV adoption.

The company had planned to construct a new SiC wafer plant in Takaoka City, Toyama Prefecture, and add production lines at its Itami factory in Hyogo Prefecture. Combined, the facilities were expected to produce 180,000 SiC wafers annually, with operations set to commence in 2027. However, with EV sales growth slowing across Japan, Europe, and the U.S., Sumitomo Electric deemed the long-term demand recovery uncertain, prompting the cancellation of the project.

Impact on the Power Semiconductor Market

According to a report by Fuji Keizai, the global power semiconductor market is projected to reach ¥7.7 trillion ($55 billion) by 2035, more than doubling its size in 2023. Of this, the SiC market alone is expected to grow eightfold to ¥3.1 trillion ($20 billion), driven largely by EV applications. SiC-based power semiconductors are valued for their energy efficiency, durability, and ability to handle high temperatures, making them integral to EV powertrain systems and charging infrastructure.

However, recent trends indicate uneven growth in the global EV market, causing fluctuations in SiC demand. Sumitomo Electric's decision highlights the challenges semiconductor material manufacturers face in aligning investments with volatile market conditions.

Exploration of GaN Technology

In contrast to the SiC plant cancellation, Sumitomo Chemical, a related entity, has announced plans to develop production technology for 6-inch gallium nitride (GaN) on GaN wafers. This initiative, part of a New Energy and Industrial Technology Development Organization (NEDO) program, seeks to advance energy-efficient technologies for power electronics. GaN on GaN wafers, known for their high voltage resistance and energy-saving properties, are gaining attention for use in EVs, data centers, and power infrastructure.

A Mixed Financial Picture

Despite the project cancellation, Sumitomo Electric reported record-breaking consolidated sales for the first half of its 2024 fiscal year, reaching ¥2.25 trillion ($15.8 billion). Growth in automotive wiring harnesses, energy cables, and optical devices for data centers contributed to a 46% year-on-year increase in net profit. Yet, the company's inability to move forward with the SiC project underscores the ongoing challenges in balancing ambitious growth plans with market realities.

Looking Ahead

While SiC remains a critical material for next-generation EVs and renewable energy solutions, its demand is tied closely to the uneven development of the global EV market. This uncertainty has led companies like Sumitomo Electric to reassess their strategies. In parallel, efforts to develop alternative materials such as GaN could help diversify and future-proof the semiconductor industry.

Sumitomo Electric's decision reflects the broader complexities of the semiconductor sector, where rapid technological advancements must navigate shifting economic and market dynamics.