The latest plan from Japan Inc., to merge the semiconductor interests of three companies, has signs of a top-down driven reactive disaster waiting to happen, according to Peter Clarke.
So is this one more step in the belated ending of vertical aggregation in Japan?
In most other parts of the world, in the U.S. and Europe, disaggregation happened long ago, separating the chip companies from the equipment companies they serve, but despite a number of changes in Japan over the last decade, the Japanese chip company landscape has remained behind the curve.
Renesas is itself the result of a two-stage merger. Renesas was established on April 1, 2003, as a joint venture of between Hitachi Ltd. and Mitsubishi Electric. This was joined by the semiconductor operations of NEC in April 2010. That did create the world's fifth largest chip company. Elpida Memory Inc. is the memory-making equivalent of Renesas which started combining the memory making interests of Hitachi and NEC in 1999 and added in Mitsubishi DRAM business in 2003.
Other factors count against this merger. The involvement of INCJ suggests a top-down Japanese government inspired move and the alignment of FujiPanaRene with Globalfoundries. Globalfoundries has a sovereign wealth fund as its supporter, but has its own technical problems. After its own disastrous 2011 some observers consider Globalfoundries to be on a suicide watch list.
Indeed the splitting of a combined Japanese entity into separate design and manufacturing operations is strikingly reminescent of the splitting of Advanced Micro Devices Inc. whcih happened in March 2009. It marked the birth of Globalfoundries. It seemed radical at the time but now even the $10 billion that Abu Dhabi is prepared to pump into the project does not seem enough to ensure success. Succss in chip manufacturing requires large amounts of money and faultless execution.
I am not saying a Japanese re-organization cannot work. Pasquale Pistorio famously took Franco-Italian national chip interests and turned them into a vibrant disaggregated force in the semiconductor industry. But I see no equivalent figure driving this Japanese merger.
And the cost of involvement in chipmaking has changed. In essence Elpida, Fujitsu, Panasonic and Renesas cannot afford to stay in semiconductor manufacturing at the leading edge. They have been out-run and out-spent by Intel, Samsung and TSMC and they must go fabless. They are already on the back foot and it then becomes a question of how they package up the people, the fabs and the intellectual property and to whom they are given. Right now Globalfoundries is the only player in town.
If the move cannot work as a whole then perhaps it can work in part, allowing a FujiPanaRene fabless company to prosper. But this is an unfamiliar culture for Japanese management and workers. There are very few fabless chip companies in Japan. It is a case of; to get there you wouldn't start from here, or you would have started in more radical vein ten or more years ago.
And if FujiPanaRene ends up fabless then it does it really need the scale of a conglomerate to compete with Qualcomm, Broadcom, Mediatek and Marvell. I would argue that multiple, application-focused Japanese fabless chip companies would be more agile and do better - as well as dividing the financial bet amongst more runners. Although clearly the mobile device system chip is the key application right now.
Can such a radical move make economies of scale for both Japan and Abu Dhabi, or is it too late and not radical enough; two people afloat clinging to each other hoping each can save the other from drowning?
This plan may not come to pass, or it may be refined in the light of criticism, but there is not doubt that these are challenging times that need the right plan, a load of money, an energetic outwardlooking business leader and faultless execution.
The plan is risky but they clearly have to try something. Aligning with Abu Dhabi makes sense for me. Part of the problem is that companies in Japan are too much inward looking, they have to become truly international...Kris
I agree to the opinion that Sony had the wrong CEO of the last few years, in particular the latter years. Without the deep understandings of technologies like you and me, Sony failed to rally its troups together to offer "connected" products which can break most consumers' (except us) imagination. But, I believe that outsource is one of tools that can help Sony, and everyone else, to achieve prosperity. It should be a matter of how and when and to what extent.
By and large, Japan has a reasonable size of population. Its domestic economy may be able to sustain Sony alike. With the aging population and less-than-ideal birth rate, Japanese companies like Sony and Renesas have to reach out of Japan. One thing working in their favour is "IP". Though US and Europe was used to accuse Japanese stealing IPs many years ago, they have gradually produced their own IPs over the years. For Renesas and other Japanese semiconductor companies to save themselves, they must take a step back, lay down a sure-win strategies as the core without fooling themselves, then they must execute ruthlessly for the next few years. To out-run the competition is a more sure bet than to wait for the competition to slow down or be hit by disasters. The aging leaders must be replaced by those who are willing to sacrifice themselves in terms of time and moeny, yet new thinkings must be injected from outside of Japan. I am sure that there are both good guns to be hired, or there are people who are willing to take challenges. If Japanese semiconductor companies keep on doing what they did in the past 30 years, keep treating non-Japaneses as outsiders, the end will only be a matter of time, a short one.
Since when is Apple vertically integrated? What products do they manufacture in-house as opposed to contracting out production? What components do they design, as opposed to buying off the shelf products?
All the tear-downs of Apple gear I recall seeing currently have off the shelf ICs, and manufacture is contracted out. Apple designs the complete systems using those parts, but that's not vertical integration.
Intellectually and strategically, it makes sense for Japan to combine Renessas, Panasonic and Fujitsu chip manufacturing into one entity. After all, it is difficult for individual companies (except Intel) to keep up with fab innovations due to costs. Organizationally, it seems it will be difficult...perhaps that is why they brought in Global Foundries into the deal. At best, it will take time to merge these manufacturing units effectively. I think this will make Japan IC chips more of a captive market within its own systems divisions. Steve Szirom, InsideChips.com
The Japanese are getting old and comfortable but mega catastrophe like last years Tsunami still brings out the old Bushido spirit.
Just look at how after some initial fumbling they have undertaken a massive clean up & rebuilding that would have daunted any other "mature/western" societies.
They can do the same for semiconductor as well and triumph over the combination of US Fabless wonders - TSMC / Samsung. With whatever system / OEM business Japan has left they can afford at least 2 state of the art 28 nm 300/450 mm Fabs / Foundries and keep them loaded.
What Japan cannot afford anymore is to repeat disastrous decisions like Sony's over the last few years - when led by a typically work - averse Anglo - Irish CEO they outsourced the manufacture of even LCD TVs etc. to Samsung and gave away IP to boot. Sony has finally realized the folly of appointing Anglophones at the top in the hope that their growing PR / cultural dominance in N. America, rather than any tech. / mgmt. cred will win market share. Sony has at last replaced this dude with a true - blue Nihon-jin who developed games.
Japan has double the population of Germany so cannot follow the strategy of the latter of exporting just BMWs and machine tools. Japan has to continue exporting mid-range consumer products as well.
So Japan can ill afford to abdicate the cost-driven but still enormous US consumer electronics / auto market to the So. Koreans as even low margins generate huge profit which is then inevitably recycled into new technologies that ultimately drive established but smaller competitors out of the market.
So Renesas is NEC+Hitachi+Mitsubishi. Panasonic is well Panasonic and Fujitsu is Fujitsu. Together all these have quite a lucrative business and I think that they can harvest the profits of having an integrated manufacturing (such as those enjoyed by Samsung and to a certain degree Intel).
In the end, changing fabs is not an easy task and if the tsunami and the floods in Thai and the rest of the recent physical (or not physical) disasters is proving it is bad business to rely on a single source. So, if all those companies with their high volumes go to TSMC, it is bad. Samsung is not an option as it is a direct competitor and well I'm not convinced that GlobalFoundries has the capacity to serve all those big players.
I understand that plan is for the FujiPanaRene manufacturing operation to buy Elpida's Hiroshima wafer fab. Which would leave Elpida as a fabless memory company that obtains chips from a suppliers in Taiwan.
I agree that vertical integration still exists at Samsung and Toshiba, but not really at Apple. I don't see Apple paying R&D for process technology or enormous capex to build and equip a wafer fab.
But Samsung is big enough to create "its own weather" around its vertical integration, but it still may put others off when it comes to using Samsung as a foundry.
Toshiba may not be big enough to create its own weather, but remains a significant chip maker. But one that is feeling the pressure.