What a difference a few decades make! Back in early 1983, during my first few months as Associate Editor of FOREIGN POLICY magazine, a technology consultant named Victor Basiuk approached us with a draft article containing terms we’d never heard of – like semiconductors and DRAMs and industrial policy. It warned of a dramatically shrinking U.S. lead in key industrial and high tech sectors crucial to maintaining military strength and superiority, and the main threat to American predominance was Japan – especially in that semiconductor sector.
Although our staff only dimly understood what Victor was writing about, his findings – e.g., that Japan had overtaken America as a producer of what were then the world’s most advanced computer chips (64K RAM memory chips), and was determined to extend their leadership into next generation devices (256K RAM chips) – looked scary enough to justify publishing, and I’m glad we featured it in our Winter 1983-84 issue. (Unfortunately, the piece doesn’t seem to be available for free on-line.)
So a new EETimes article on the demise of the Japanese semiconductor industry couldn’t help but remind me of the trends Victor spotlighted so long ago, and how dramatically differently the world has turned out. Or has it?
To the experts, the woes of Japanese semiconductor makers are nothing new. Even I’ve recognized how, after years of pace-setting performance, they’ve fallen behind many competitors not only in the United States, but in Taiwan and South Korea as well. But the sectoral portrait painted by EETimes chief international correspondent Junko Yoshida, one of the best tech reporters around, is still jaw-dropping.
According to the author, “the single reality facing Japanese semiconductor firms is this: They no longer matter in the global market.” She supports the claim by noting that nowadays, only one of the world’s corporate semiconductor sales leaders is Japanese – Toshiba. And that one-time titan is so strapped with debt that some of its bonds have earned a junk rating. In 1990, by contrast, six of the world’s top ten semiconductor suppliers was Japanese.
Moreover, Yoshida demonstrates that all the steps taken by the Japanese government to reverse the decline have failed – because they were unable to offset the destructive impact of rigid and increasingly outdated Japanese management practices. Indeed, from 2010 to 2015 alone, these firms’ share of the global semiconductor market had been cut in half, from 14 percent to seven percent. As a result, “Japan as a whole has become a niche player” in the sector.
Yet there’s a crucial part of the story that Yoshida neglects: Japan’s continuing prominence in the advanced materials, equipment – and technologies – needed to manufacture semiconductors.
According to figures from the leading (international) association of the semiconductor sector summarized last year in a U.S. Commerce Department report, although the United States controlled the greatest share of the worldwide chip equipment and materials market (44 percent), Japan wasn’t all that far behind, at 32 percent.
Moreover, the Japanese hold a significant lead in many individual products. For example, the world’s only suppliers of large-scale lithography machines – the devices that use incredibly concentrated light beams to etch circuit patterns on semiconductor wafers – Japanese firms and a Dutch company (ASML) are literally the only games in town. In addition, that semiconductor manufacturers’ group (SEMI) ranks Japan as the world’s top supplier of semiconductor manufacturing materials – like silicon wafers themselves and photomasks – with more than half the global market. Indeed, half of the world’s top ten semiconductor manufacturing equipment companies ranked by revenue are still Japanese.
Semiconductors are commonly – and correctly – described as the building blocks of a modern, high tech economy, so Japan’s quarter century’s worth of struggles to remain a force, after years of worries that it might establish lasting supremacy, are certainly noteworthy. Nonetheless, because semiconductor manufacturing equipment and materials represent the building blocks of these building blocks, Japan still seems to have plenty of tech prowess left.