Semiconductor industry strengths and weaknesses in the Asia Pacific region

Tatsuya Yamazaki, VP of Business Development Asia-Pacific, Kilopass Technology Inc.
EETimes (6/24/2013 07:54 PM EDT)

As the semiconductor industry transitions to smaller process geometries, the transformation is affecting competitiveness of manufacturers in Japan, Korea, and China. The reaction of management at semiconductor companies in each region to this transformation is determining the nature of their business going forward. Japan’s consensus management style is in contrast to Korea’s style of rapidly following changing consumer preference and to China’s obsession with the highest performance at the lowest cost alternative.

For the last 40 years of the 20th Century, Japan’s electronics and semiconductor manufacturers were dominant players in their respective markets. Chip companies could rely on supplying their system customers who manufactured consumer electronics for both the domestic market and for export throughout the world. During this time, Japan’s semiconductor companies developed their business by fabricating chip designs as subcontractors to consumer electronics giants. They did not develop products with the end consumer in mind but rather followed the direction set by their systems customers. In addition, they did not build and market chips to customers outside of Japan, and they did not create their own value and differentiation.

With the rapid change that occurred in the consumer electronics market worldwide at the turn of the century, competition began eroding Japan system manufacturers’ market share.  As competition forced margins down and with no large customers outside of Japan to make up for the decline, Japan’s semiconductor manufacturers’ dependence upon these system manufacturers saw their margins likewise steadily decrease. In addition, the Logic LSI business model in the global market had changed from ASIC to ASSP. This meant that Japan’s semiconductor manufacturers could not mount a challenge in the global chip market against U.S./Taiwan fabless chip manufacturers because they had not created their own value and differentiation. Thus, Japan’s semiconductor manufacturers had to change their business model from integrated device manufacturing to a fab-lite chip manufacturing model to reduce their overhead. However, this direction accelerated the downward spiral for Japan’s semiconductor manufacturers.

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