Why Japan Dominates Chipmaking
Better service, not unfair trade practices, propelled Japanese firms in front of US competitors. ELECTRONICS
TWO years ago the National Security Agency decided to reduce its dependence on semiconductors from Japan, and asked the National Semiconductor Corporation to construct a special chip plant near the agency's Ft. Mead, Md., headquarters. But the plant exposed another problem - the weak state of United States firms that supply materials and equipment used to manufacture semiconductors. To turn out the best chips, National Semiconductor had to use imported microlithography machines. During the 1980s, American leadership in the semiconductor industry steadily eroded. Most attention in government and industry has focused on the plight of US chip producers, which have lost ground to Japanese competitors. But the consequences of these setbacks for US equipment suppliers have been severe.Skip to next paragraph
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Just 10 years ago the world's top 10 equipment and materials makers were all American. US firms dominated the American market, and held 70 percent of Japan's market as well.
Today the picture is radically different. Four of the top 10 spots, including the first three, are now occupied by Japanese firms. In 1989, Japanese companies garnered 42 percent of the world market for semiconductor equipment, just behind the 47 percent won by American firms, according to VLSI Research, a Silicon Valley market research firm. In the critical field of microlithography, in which precision machines known as ``wafer steppers'' etch integrated circuits onto silicon, Japan's Nikon has eclipsed Perkin-Elmer and other American firms as the industry leader.
The US has also lost ground in critical materials used to make semiconductors. The bulk of high purity silicon used in the US is now supplied by Japanese and West German firms. Japanese companies also dominate the market for quartz plates, which are used to make the ``masks'' used when circuits are ``printed'' on to silicon, and ceramic packages, which house semiconductor devices.
The leadership shift in these fields to Japan could have big consequences for the world computer, electronics, and telecommunications industries, all of which depend on semiconductor devices.
Improvements in equipment and materials can help make chips faster and more powerful, and improve the performance of electronic products. Japanese advantages
In Japan, semiconductor producers have close corporate ties to equipment and materials suppliers, and thus have easy access to new production techniques. And, since big Japanese chipmakers like Hitachi and Fujitsu also make electronics products, they can quickly incorporate improved chips into final products like computers and stereos, winning customers before their American competitors can bring similar products to the market.
Several factors have worked in favor of Japanese equipment firms. Japan, with its huge auto and electronics industries, is now the largest market for semiconductor devices. Since both Japanese and American chipmakers tend to procure equipment from nearby suppliers, the growing market share for Fujitsu, NEC, and other Japanese chipmakers has meant a steady market for Japanese equipment. Moreover, since Japanese electronics firms are integrated, they can use profits from other business sectors to maintain capital investment in semiconductors despite volatility in the industry. Links with electronics firms also enables Japanese equipment suppliers to maintain large research budgets, which is crucial because innovative equipment is emerging every few years, rendering older product lines obsolete.