Japan's semiconductor market became the world's largest last year, driven by demand from non-PC products, especially digital consumer electronics, mobile phones and car-related electronics. But this effervescent market is mainly served by homegrown suppliers-often the semiconductor arms of the same vertically integrated corporations that are building the new crop of consumer gadgets.
The latest forecast from the World Semiconductor Trade Statistics organization, announced last October, estimated that Japan grew 22.5 percent last year, to surpass the historical leader, the Americas market, in size. WSTS divides semiconductor markets into four regions: the Americas, Europe, Japan and Asia Pacific. As one country, Japan is now the largest market in the world, even though Asia Pacific as a region is bigger. That sector grew larger than Japan in 1998 and surpassed the Americas region in 2001.
There are no official figures available on foreign semiconductor sales in Japan, though the share was closely monitored in the mid-1990s when the semiconductor trade dispute was at its hottest. Gartner Dataquest estimates that the Japanese semiconductor market reached $41.7 billion
in 2003, roughly a 14 percent rise over its 2002 tally. The share of foreign semiconductors has remained stable at about 30 percent for the last two years, said Hiroyuki Shimizu, semiconductor analyst at Gartner Dataquest Japan. Therefore, as the overall market grows, so too do the sales of foreign chip manufacturers.
But the composition of this market is unique in the world. Whereas 2003 rankings from iSuppli Corp. show Intel Corp. as the leader worldwide-and tops in each of the individual regions except Japan-the U.S. chip giant doesn't even make it onto the Japanese top-five list. Instead, Renesas Technology Corp. was the top supplier in Japan last year, iSuppli said, with sales brisk enough to catapult the company to No. 3 worldwide-even though it doesn't appear in the Europe, Americas or Asia Pacific listings at all.
Similarly, Japan's No. 2-ranked supplier, Toshiba Corp., failed to make the top-five list in any other region. But again, the company's strength at home was enough to earn it the No. 5 spot in iSuppli's world semiconductor market share rankings. Like Intel, the No. 2 and No. 4 players worldwide-Samsung and Texas Instruments, respectively-do not appear on iSuppli's top-five list for the Japanese market. (Gartner Dataquest research, supplied to EE Times, shows Intel as No. 4 in Japan, Samsung as No. 9 and TI as No. 11.)
However the details of the rankings sort out, it's clear that Japanese-made chips by and large are the ones going into Japanese-made systems. To be sure, Japanese manufacturers have a strong position in digital consumer electronics, and consumer giants like Sony Corp. and Matsushita Electric Industrial Co. Ltd. are working hard to develop system-on-chip LSIs that function as the core engines of their own products. Sony's use of the Playstation 2 game box engine in a new product, the PSX hard-disk DVD recorder, is a typical example.
"For digital consumer electronics, especially digital TV sets that Japanese companies position as their strategic products, it is difficult for outside semiconductor suppliers-regardless of whether they are foreign or domestic-to enter," said Osamu Takiguchi, vice president of STMicroelectronics Japan, in charge of the consumer product group.
"Few foreign companies have entered into the core of digital consumer electronics, because Japanese companies such as Matsushita and Sony have high-level technologies themselves," said Hiroyuki Shimizu, semiconductor analyst at Gartner Dataquest Japan. "But the market is expanding and there are big opportunities in commodity chips like flash memories and analog ICs."
Indeed, "we are seeing our revenues in Japan approximately double this year compared to last year," said Jason Feinsmith, senior business director for the standard-memory products group at Silicon Storage Technology Inc. (SST), a Sunnyvale, Calif., flash specialist. "Japan is the world's largest consumer electronics manufacturer and their new digital consumer products require low-density flash." The increasing demand, Feinsmith said, "directly benefits SST's business in terms of unit volume and revenue."
Large chip companies like STMicroelectronics also see "wide areas" of opportunity, said Takiguchi. Strong as they are in core consumer technologies, he said, Japanese companies "cannot prepare all solutions for all regions and all price ranges, from low end to high end." When the business for, say, advanced TV sets grows, then "our business chances also expand," Takiguchi said.
Once foreign suppliers get a toehold with Japanese manufacturers, they bask in their tendency "to focus on long-term relations with partners and vendors. The result of these mutually beneficial relationships is credible, responsive interactions with our Japanese customers and partners," said Phil Bourekas, vice president of worldwide marketing for Integrated Device Technology Inc., which supplies devices for the 3G wireless and broadband infrastructures in Japan.
Communications is one of the areas most open to offshore vendors. "About 50 percent of semiconductors used in one mobile terminal are made by non-Japanese manufacturers. Without supplies of semiconductors from outside of Japan, Japanese mobile-phone makers cannot build mobile terminals," said Shuichi Moriizumi, secretary general and senior managing director of the Distributors Association of Foreign Semiconductors (DAFS). The organization (www.dafs.or.jp) consists of about 70 distributors of foreign semiconductors that, together, provide about 55 to 60 percent of the devices supplied by non-Japanese semiconductor manufacturers, Moriizumi estimated. The rest are sold directly from the Japanese units of foreign companies.
Some foreign manufacturers report that Japanese customers have strict, and often unusual, specifications. "Japanese companies sometimes have unique or custom manufacturing or qualification specifications," said Feinsmith of SST. "Japanese customers have unique voltage, temperature or other performance requirements, and sometimes they have elaborate vendor qualification criteria, which may vary even among different Japanese customers. But once those needs are met, Japanese customers can be very loyal and consistent customers."
Moriizumi of DAFS said the criteria are especially strict and demanding among carmakers. While Hitachi and Renesas are dominant suppliers of microprocessors used in Japanese cars, "to become a supplier for carmakers like Toyota or Nissan, a candidate vendor must clear strict specifications that Japanese carmakers request. It takes one or two years to reach a contract, but once a company becomes the supplier, the deal is big and lasts a long time."
Few foreign-made semiconductors, he said, "would satisfy the requirements and thus have success entering these highly demanding applications."