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Electronics Industry Overview

11, 01. 2004

Current State

Reorganization of the Japanese Semiconductor Industry Completed; Business Performance Recovers

According to the Ministry of Economy, Trade and Industry (METI), the FY2002 value of production from semiconductors, a field that is representative of the Japanese electronics industry, was 3 trillion 971.3 billion yen. The total number of people employed in the semiconductor industry was 175,000.
 Five Japanese companies - NEC Corporation, Hitachi, Ltd., Mitsubishi Electric Corporation, Fujitsu Limited and Toshiba Corporation- used to be involved in the general-purpose dynamic random access memory (DRAM) business. However, in 1999 NEC and Hitachi created a joint venture company specializing in DRAM. (The current name of the company is Elpida Memory, Inc.) The three other companies retreated from the DRAM arena.

A Move toward Consolidated Production Also Seen in Areas Such as Flash Memory

Meanwhile, for semiconductors called system large-scale integration (LSI) which perform advanced processing, Hitachi and Mitsubishi Electric established a joint venture, Renesas Technology Corporation, in 2003. It is a major corporation that is among the world's top three companies in the semiconductor industry. NEC spun off its added-value semiconductor division, including that for system LSIs, into a separate company in 2002 and established NEC Electronics Corporation. Fujitsu, Toshiba, Sony Corporation and Matsushita Electric Industrial Co., Ltd. are manufacturing system LSIs within their internal business divisions. Furthermore, Fujitsu consolidated its flash memory (memory used in mobile phones, etc.) production with Advance Micro Devices, Inc. (AMD) of the U.S. and established FASL LLC as a joint venture of the two companies. Sony, Toshiba and America's IBM are currently jointly developing a next-generation microprocessor code-named Cell. Cell has superior image medium processing capabilities. The co-developers would like to design the Cell to outstrip, in image medium processing, the semiconductors for personal computers that are currently being provided by Intel Corporation. They plan to incorporate the Cell processor into digital consumer electronics such as flat-screen TVs and DVD recorders in order to enable ultra high-speed image processing.

Companies Launching Proactive Investments

The latest production lines of semiconductor of Renesas Technology Corporation
The latest production lines of semiconductor of Renesas Technology Corporation

Japan's semiconductor industry lost ground to overseas competitors and remained stagnant for a long time. However, in addition to the fundamental business integrations that have been conducted in the industry, there has also been a sharp increase in demand for digital consumer electronics since around 2003, and business performance is recovering. Recovery is especially pronounced for DRAM (a type of computer memory), and in the case of DRAM manufacturer Elpida, the company achieved a listing on the stock exchange. Furthermore, companies are launching proactive investments. Elpida will be making capital investments totaling roughly between 450 billion and 500 billion yen in the several years beginning 2004.
It plans to mass produce DRAM for use in digital consumer products and mobile phones.
   Mobile phones and DVD recorders with hard disk drives are like clusters of semiconductors; there are various semiconductors used within. Advanced parts-making - such as the technology for packaging multilayered system LSIs and bringing many semiconductors into one component - is especially required for mobile phones since there is a need to include cutting-edge functions.

Japanese Companies Strong in Fine Processing Technology

  Japanese semiconductor manufacturers are capable of meeting such needs. They listen carefully to requirements, utilize their fine processing technology to the utmost and make exhaustive improvements. Semiconductors produced through such efforts are actively being used in mobile phones and other products. The development of semiconductors with even narrower circuit line width will be progressing. The narrower the width of the circuit line, the smaller semiconductors will be. For this reason, companies are in fierce competition with each other to develop such smaller chips. Japan has strength in such fine processing technology, and it is a general assumption that they will have an edge in future competition.

Heading Towards the Development of New Markets, Including Automotives

 Meanwhile, Japanese semiconductor manufacturers are trying to open up new markets for themselves, such as in automotives, besides the consumer electronics field where there has traditionally been large demand. In recent years, a great amount of semiconductors are used to control automobile engines, wheels, etc. Renesas Technology and other companies see this as a favorable opportunity to expand their sales of automobile-use semiconductors. It is thought that there is an ample chance for Japanese manufacturers in this field because such products must be of a quality that is resistant to high temperatures. Furthermore, it looks as if there will be a future increase in demand for microscopic electronic parts. Hitachi developed the u-chip (mu-chip), an IC chip which, at is smallest, is only 0.3 mm square. Called IC tags, the attachment of such tags to various products makes it possible to get a grasp of the distribution history of the product.History

Parts Manufacturers Achieve Rapid Growth through the Spread of Television

Junk shops of DVD
Junk shops of DVD

 The Japanese electronics industry was originally fueled by the popularity of radios and television sets. The demand for radios increased after the end of World War II, and the demand for color television sets rose sharply upon the Olympic Games held in Tokyo in 1964. Industries manufacturing electronic parts grew rapidly accordingly.
  Radios and television sets require a great number of electronic parts which include, in addition to semiconductors, various other parts such as semiconductor elements and condensers. Companies such as Kyocera Corporation, TDK Corporation and Murata Manufacturing Co., Ltd., are known as companies of good standing.At times, they generate profits that are greater than those of set makers, such as Sony and Matsushita, which produce end products. However, because labor costs are higher in Japan than abroad, many companies are finding their means of survival by setting up production plants overseas in China and elsewhere.

Japan Accounted for about a Quarter of the Global Market in the Mid-1990s

  In the past, major Japanese electronic companies were involved in the semiconductor business, and they were competing against one another as in the age of rival warlords. In fact, Japanese companies were marking five of the ten top positions in the world, and the total sales of Japanese companies accounted for about one quarter of the global semiconductor market in the 1990s. However, they were hotly pursued by Asian companies, such as Samsung Electronics of Korea, and this business showed decline in Japan. Business mergers and withdrawal from this field continued one after another, and at present, the number of companies involved in semiconductors has become quite reduced.

Three Key Points towards the Future

Point 1
Can Costs be reduced at Length?

  With Samsung Electronics of Korea at the top of the list, there are many world-known companies in the DRAM industry. They are using their Asian bases, etc. to produce products at a thoroughly low cost. In order for Japan's Elpida to compete against them, it will need to lower costs significantly, such as by expanding its scale of production and achieving volume efficiency. It is the same for companies manufacturing system LSIs. The reduction of overhead costs, which is said to be higher in Japan than elsewhere, is also of urgent need. The improvement of profit ratios through cost reductions is also critical.

Point 2
Can Domestic Companies Maintain Solidarity through National Projects?

Discount shops of various electronic instruments at Akihabara, Tokyo
Discount shops of various electronic instruments at Akihabara, Tokyo

 While foreign manufacturers are marking a competitive edge in terms of cost, there is a need to stress that Japanese manufacturers can compete well against them not only in terms of cost but also in technical aspects. There are projects such as the Millennium Research for Advanced Information Technology (MIRAI), a national semiconductor development project led by the Ministry of Economy, Trade and Industry (METI), as well as the Advanced SoC Platform (ASPLA) project for the efficient utilization of semiconductor-related intellectual property currently ongoing in Japan. There will be a need for Japanese companies to unite and make such projects effective.


Point 3
Can Overseas Sales Channels be Increased?

  While Japanese semiconductor manufacturers are showing overwhelming strength in Japan, they are lagging behind in terms of overseas sales. In the United States, there will be a future increase in the sale of digital consumer products, and it is certain that the adoption of system LSIs for automobile use will expand. Japanese semiconductor manufacturers will need to secure a definite presence in the world market in such aspects.

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