Japan Inc. is choking on semiconductors. The Land of the Setting Semiconductors is not alone and has lots of global company in the current chip malaise.
But the chip shakeup in Japan grabs more than its share of attention, since only a half-decade ago that country was still playing King of the Hill against the reinvigorated U.S. chip industry.
The semiconductor script turned as tragic as some Noh dramas. DRAMs, which fueled massive profits for Japan Inc. in the early 1990s, became a profit millstone at the turn of the century.
Companies then turned to system-on-a-chip (SOC) devices to offset the memory debacle. While SOC has been a much higher profit margin chip, the volume has never cranked up to the level to match the DRAM levels. And the big markets that Japan and all other SOC producers counted on -- consumer electronics and telecom -- all went south, taking System LSI orders with them.
Japanese chip makers are now biting the bullet in chip cutbacks, along with much of the rest of the world. Fujitsu is taking a staggering $2.1 billion special charge, much of it for sizing down its chip operations, and expects to report a $1.76 billion loss this fiscal year. NEC is closing fabs, consolidating almost a half dozen chip assembly plants, and cutting chip operation employment by 4,000 workers.
The financial pain is worse because most Japanese companies now include profitless flat panel display operations as part of their semiconductor divisions. South Korea and Taiwan, who were the culprits in destroying the Japan DRAM gravy train, followed up by flooding the LCD FPD market as well.
However, don't bury the semiconductor samurai yet. Japan still has a massive global position in the web-and-woof chip market of discretes, ASICs, components, analog, filters, and microcontrollers. Even while downsizing in the big memory market, four Japanese firms-No. 2 Toshiba, No. 3 NEC, No. 7 Hitachi and No. 10 Mitsubishi -- retained their overall semiconductor market standing among the top global players.
And SOC, although failing to spurt as quickly as Japan Semiconductor Inc. hoped, will inevitably grow as OEMs demand greater integration of more and more functions on a single piece of silicon. Veteran SOC fabricators in Japan are poised to ride the market up when the turnaround comes.
Then it's a new footrace with the rest of the world to see who comes out of the slump in the best form.