This surely cannot last forever:
Japan's Semiconductor Makers Passive in Investments As Oligopoly Forms
August 16, 1999 (TOKYO) -- Japan's semiconductor makers are being quite passive in their investments in the face of active investments by overseas competitors.
Japanese makers' investments are so passive that they look almost dead, except for Toshiba Corp. and Sony Corp. which are making preparations for producing microchips for the PlayStation2, said Tetsuji Tomokiyo, project manager of the Semiconductor Exposure Systems Business Unit of Nikon Corp., a leading maker of semiconductor manufacturing equipment.
At the same time, semiconductor makers in the United States, Taiwan and Korea are actively investing in their facilities.
United Microelectronics Corp. (UMC) said July 15 that it will invest US$3 billion in a new plant. Taiwan Semiconductor Manufacturing Co., Ltd. (TSMC), UMC's rival, is also investing in plant and equipment, as well as purchasing shares and gaining management rights of semiconductor makers from Mitsubishi Electric Corp. and Acer Inc., a leading maker of personal computers.
Micron Technology Inc. of the United States, also a leading semiconductor maker, acquired Texas Instruments Inc.'s DRAM business unit last year, and is also increasing its production capacity rapidly, investing US$1.2 billion annually.
The semiconductor manufacturing equipment industry in Japan, however, is becoming brisk after it suffered a substantial decline in the amount of orders received last year due to the sluggish semiconductor market.
Even unanticipated orders are pouring in, said Tetsuro Azuma, president of Tokyo Electron Ltd., a leading maker of semiconductor equipment. Although the company was battered by the amount of orders, which plunged to 40 billion yen in the fourth quarter of 1998, it rebounded in the second quarter of 1999 to 89 billion yen.
A survey of the Semiconductor Equipment Association of Japan (SEAJ) released on July 15 found that the total amount of orders received in Japan in April and May increased by 120 percent and 134 percent, respectively, from a year earlier, recording an increase for the fifth consecutive month.
The semiconductor market is expanding rapidly, and expected to sustain rapid growth. World Semiconductor Trade Statistics estimates a 12.6-percent growth for 1999, because digitalization in home appliances and information equipment is progressing very fast, and turn, world demand for semiconductors is rising.
Even so, many of Japanese semiconductor makers, which were severely battered with DRAM businesses that have been in the red year after year, stand in great fear of plant and equipment investments.
"The oligopoly by overseas makers will be accelerated rapidly, outriding Japanese makers that were left behind in the precision technology and production capacity," said Yoichi Akasaka, president of Applied Materials Japan Ltd., a subsidiary of the world's largest semiconductor equipment maker.
Japan's major semiconductor makers have not made huge investments, because they are a deficit-ridden business unit of comprehensive electric makers that have been promoting drastic restructuring.
It is impossible to persuade management, even if it is known that now is the time for investments, said an executive in charge of the semiconductor business at a comprehensive electric maker.
If these trends keep going, Japanese makers will be left behind overseas competitors in the precision technology. Japan is sliding down to be a mediocre country in semiconductor technology, he also said.
Can Japan's semiconductor makers increase plant and equipment investments? Yes, they can, observers said.
Japan's semiconductor makers tend to own equipment, too excessively.
"Almost all the equipment is procured on its own account," noted Yoshihide Fujii, strategic management chief of Semiconductor Corp., a company within Toshiba.
Overseas semiconductor makers, by comparison, lease equipment. Leased equipment is very common for semiconductor production lines, said Hisashi Kitagawa, vice president of Motorola Inc. The company plans to raise its leasing ratio for its semiconductor manufacturing equipment from the current level, which is a little under 20 percent, to 50 percent in the future, he added.
Efficient use of leasing systems can alleviate much of the burden of investments in plant and equipment. Tokuo Maruoka, Japanese representative for Comdisco, Inc., a U.S.-based major leasing company, said his company's leasing system will enable reduction of investments in semiconductor plant and equipment as much as 30 percent.
In the semiconductor industry, where precision technology has been rapidly innovated, manufacturing equipment becomes out-of-date quickly. Japan's semiconductor makers should throw away their practice of procuring the equipment on their own account as soon as possible, if they want to remain undefeated in the semiconductor market where an oligopoly by overseas makers is under way, observers say.
(Nikkei Business)
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