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Story posted 5:15 p.m. EDT/2:15 p.m. PDT, 11/6/98
Japanese concede DRAM race
to Micron, South Koreans
By Jack Robertson
TOKYO -- Japan Inc. is downsizing, causing a number of embattled semiconductor manufacturers here to reluctantly concede that they are losing the DRAM production race.
In a series of interviews this week, most top chip executives agreed that Micron Technology Inc. and the Big Three South Korean memory-IC suppliers--Samsung Electronics Co. Ltd., Hyundai Electronics Industries Co. Ltd., and LG Semicon Co. Ltd.--will dominate the commodity DRAM global market that was once Japan's sole domain.
Instead, chip makers here will seek lower-volume-but hopefully higher-margin-value-added memory and logic products, according to Yasuhiko Fukuda, deputy general manager of Mitsubishi Electric Corp.'s semiconductor group.
"Only a few suppliers will be able to compete in commodity DRAMs against Micron," Fukuda said. "They will easily have the capability to produce more than 50 million 64-Mbit chips a month after they upgrade the [Texas Instruments] fabs they acquired. Samsung will be able to produce 30 million [64-Mbit] DRAMs a month, and the Hyundai-LG Semicon chip merger another 30 million a month. Basically, we're entering a new era, where most major players won't have the facilities to produce in these volumes."
Seiichi Aratani, president of Oki Electric Industry Co. Ltd.'s microelectronics unit, agreed that "Japan will probably fall somewhat behind in the global [semiconductor] market. Everybody is shrinking now, cutting back drastically on capital spending. When the market expands, the Japanese companies may not be in position to take advantage of the upturn quickly."
Plagued by plunging profits, device makers here have slashed their capital-expenditure plans to less than half the levels forecast at the start of last April's fiscal year.
"Everyone has stopped fab expansion completely," said Kazunari Shirai, president of Fujitsu Ltd.'s LSI Device group. "Considering the large overcapacity in the DRAM market, the decision of Japanese companies to stop investing in capacity is correct at the moment."
Japan's chip companies are husbanding their investment resources to focus on new ICs that they hope will be more profitable than DRAMs. The decision is forcing many companies to break from what for years has been a largely homogeneous business model, according to Shigeki Matsue, associate senior vice president of NEC Corp.
"It used to be that Japanese semiconductor manufacturers all followed the same course and went in the same direction," Matsue said. "For the first time, each company is now taking a different path. It can shake up the market."
NEC, as the country's largest electronics company and leading DRAM maker, is holding steady to its long-term strategy despite suffering an estimated $200 million loss in electronic devices for the first half of its fiscal year, which ended Sept. 30.
"We have the broadest mix of [IC] products of any Japanese manufacturer, and we believe the best course is to have a strong position in all of them," Matsue said. Even so, NEC cut its capital outlay by 25% this fiscal year, to about $1 billion.
NEC boosted its monthly output of 64-Mbit DRAMs from 7 million to 8 million units this fall, and will raise production to 10 million chips per month by the end of the year. The company is also quickly ramping up 128-Mbit DRAMs and expects to make 1 million chips per month by March to take advantage of the price premium associated with the new density.
Despite big losses in DRAMs in the past two years, NEC is counting on the memory market to stabilize and become profitable again in mid-1999.
About a year behind the process technology of rival Micron, NEC hopes to move DRAM processing to a 0.2-micron feature size next year and to 0.18 micron in 2000. Matsue said NEC will start making ASICs on a 0.18-micron process early next year at its Sajamihara logic fab.
Matsue is sanguine about Micron's claim of being a generation ahead of competitors in the race to shrink DRAM feature sizes. "There are many definitions of die-shrink size," he said. "I'm not sure how Micron defines their die shrink. NEC is certainly competitive in DRAM technology against Micron and any other supplier."
With less exposure to DRAM, Fujitsu Ltd. said it will move to 0.22-micron processing next year, although initially only at its Gresham, Ore., fab. Because next-generation equipment has already been installed in the U.S. fab under a previous capital-spending plan, Fujitsu can move into sub-0.25-micron feature sizes even as it cuts capital spending this year by 70%, to $650 million.
Fujitsu intends to hold 64-Mbit production steady at a modest 3 million units per month while it develops more profitable chips. Shirai said the transition "will take time; it won't be easy."
Hitachi Ltd. took one of the steepest capital-spending cuts of any Japanese chip maker, dropping its outlay from $1 billion for the fiscal year ended March 31 to just $130 million in fiscal 1999.
Takahiro Kajiwara, general manager of marketing for Hitachi's semiconductor group, said enough advanced production has been installed in Naka, Japan, and as part of a joint-venture fab with Nippon Steel Corp. in Singapore to allow Hitachi to remain competitive.
After ramping up 64-Mbit DRAMs from 5 million units per month last summer to 7 million per month by the end of the year, Hitachi expects to hit 8 million units by March. Kajiwara said Hitachi, like most Japanese producers, uses DRAM as its technology driver for other product lines.
"This will become increasingly important as we move more heavily into embedded DRAMs and system LSI devices," he said. Currently, embedded DRAM accounts for only about 10% of Hitachi's memory-chip revenue, but could equal discrete-DRAM sales as early as 2001.
Mitsubishi is also concentrating its semi- conductor spending on embedded DRAM, as well as on system-on-a-chip tooling. Having cut its capital budget in half, to $780 million, the company is de-emphasizing "plain vanilla" DRAMs, and shifting more than 50% its of production to foundry partners Powerchip Semiconductor Corp. in Taiwan and Seiko-Epson Corp. in Japan, Fukuda said.
The move includes a transfer of 64-Mbit technology to Powerchip, despite industry fears that giving advanced production know-how to Taiwan could bolster the island's global market position.
Mitsubishi had originally intended to ramp up its 64-Mbit production to 10 million units per month by March, but will now freeze output at 8 million units and shift capacity to embedded DRAM.
Oki Electric earlier this year was among the first Japanese producers to bite the bullet and back off plans to mass-produce 256-Mbit DRAMs. However, Aratani said R&D on leading-edge DRAM generations will continue for integration in ASICs and other single-chip logic devices.
Ironically, Oki suddenly finds itself doing much more business in older-generation 1- and 4-Mbit DRAMs as other chip makers drop their lines. Since the fabs making these trailing-edge chips have long ago been amortized, Oki's margins are much better than on higher-density 16- and 64-Mbit chips, Aratani said. As more producers discontinue their 16-Mbit programs, prices there may also improve, he added.
Toshiba Corp., meanwhile, cut capital investment this fiscal year to $900 million. However, the company said this will still allow it to move to a 0.22-micron process next year and to 0.18-micron production by 2000. To lower costs, Toshiba has shifted as much as 40% of its DRAM production to foundry partner Winbond Electronics Corp. in Taiwan.
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