OUTLOOK 2005

A number of new venture companies have recently gained attention with unique, competitive technologies. Some of those startups have raised funds by listing their stocks and others aim to join the ranks of listed companies in a few years.

Among the more high-profile ventures now flourishing here is Axell Corp., a fabless company that specializes in high-performance graphics chips. Axell listed on the Jasdac exchange in 2002, six years after its founding. IPFlex Co. Ltd., founded in 2000, is promoting dynamically reconfigurable processors based on its proprietary architecture. It intends to list within fiscal 2005.

ZyCube Co. Ltd. was established in 2002 to produce three-dimensional LSI circuits. The company owns its own production facility for the 3-D process, but depends on an existing foundry for noncritical processes, a business model that ZyCube describes as "semi-fabless." It aims at going public by 2007. For its part, Reytex Corp., listed on the Mothers Exchange last April, specializes in wafer inspection and metrology.

Following the collapse of the IT bubble economy, the Japanese semiconductor majors reorganized and now are focusing on the system-on-chip business. This move opened the door for venture-backed companies to enter into some fields those majors no longer intended to cover, industry watchers said.

Some of the founders of the new crop of Japanese venture companies have experience in Silicon Valley and were strongly impressed by its dynamic entrepreneurial spirit. Japan and Silicon Valley, however, offer different conditions for entrepreneurs, said Tetsuya Iizuka, founder and CEO of Thine Electronics.

Excellent technology might easily get financial support from venture capitalists in Silicon Valley. But in Japan, banking circles are not likely to risk investing in a brand-new business. If an engineer quits a major company to launch a startup, historically he has been treated as if he had been canned, and left to struggle alone against financial difficulties.

Iizuka established the Japan Semiconductor Ventures Association in 2000 because "engineers were treated unfairly and I wanted to change it," he said. Jasva functions as a communication network for startups already in business. It also invites individuals who are readying startups to join, and supports them as they develop their new businesses.

Jasva's membership increased from 115 at launch to 220 members four years later, including about 30 to 40 individuals who intend to launch new businesses. During that period, five member companies — Axell, JMNet Inc., North Corp., RealVision Inc. and Thine Electronics — went public.

After about four years as a voluntary organization, Jasva has gotten approval from the Ministry of Economy, Trade and Industry to become a "corporate juridical person" with the start of the new year. This means that Jasva can make contracts, "which enables Jasva to expand the range of its activities," said a Jasva spokesman.

The necessity of organic collaboration among industrial, academic and government sectors is well-recognized here, but not easy to realize. One instance of such collaboration is the System LSI Design and Development Center, which opened last November in Fukuoka Prefecture, Kyushu.

Kyushu, the southern island of Japan, is often called "silicon island," since many companies including Toshiba, NEC and Sony have established fabs and related operations there. To foster such an environment, Wataru Aso, governor of Fukuoka Prefecture, is promoting the Silicon Sea-Belt Fukuoka project, which aims to make the district the locus of semiconductor design and R&D in the Asian semiconductor belt that stretches from Japan, South Korea and Taiwan through China and Malaysia.

On the corporate side, meanwhile, Matsushita Electric Industrial Co. Ltd. intends to encourage entrepreneurial activity inside the company. Matsushita launched the Panasonic Spin-up Fund system in 2001, when the company's business plunged to a record loss, to stimulate employees' entrepreneurial minds, budgeting about $100 million for the first three years. In that period, 350 employees applied and 19 venture companies were launched and are in operation, Matsushita said. Venture spin-offs are expected to move into the black on a single-year basis within three years after startup and to eliminate cumulative losses in five years.

PERSON TO WATCH
Thine Electronics Inc. is often cited as the one of the chip industry's most successful venture companies. Established in 1991 and listed on the Nasdaq in August 2001, the fabless Toshiba Corp. spin-off specializes in such systems-on-chip as serial interfaces for flat-panel displays.

Thine founder and CEO Tetsuya Iizuka keeps his company focused on growing niche markets and has seen revenue more than double, to about $145 million, since 2001. Today, Thine holds an overwhelming share in the low-voltage differential-signal interface market, especially for flat-TV applications. It is the sole supplier of 30-bit LVDS interfaces for displays with 1,024 gray scales for each red, green and blue pixel.

Iizuka is also the founder and chairman of the Japan Semiconductor Ventures Association (Jasva). "I want to change the environment for venture companies," he said. "Japan is a really backward country in fostering new businesses." When he established Thine in 1991, the environment surrounding a new venture company was much more rigorous.

Iizuka founded Jasva in October 2000 as a voluntary association. Last month, it was approved as a corporate judicial entity. When the association was voluntary, Iizuka had personally guaranteed all its activities, supporting the association without compensation and working to improve conditions for new companies, including potential competitors. Now Jasva will be able to expand its activities.

Though Iizuka acknowledged the poor conditions for startups in Japan, he added that engineers tend to grow accustomed to the cozy atmosphere of large companies. Fewer real entrepreneurs with can-do spirit have emerged than he expected, he said.

COMPANY TO WATCH
A Japanese startup armed with a proprietary architecture for dynamically reconfigurable processors (DRPs) believes the market for this novel type of device is about to take off. "In 2005 to 2006, the DRP market should emerge," said Tomoyoshi Sato, executive vice president and CTO at IPFlex Inc. "By around 2008, DRPs will be available as a competitive IP [intellectual-property] core for system-on-chip LSIs of the 90- to 65-nanometer generation."

The fabless semiconductor venture, founded in 2000, began sampling what it called the world's first DRP product last May. Fujitsu Ltd. provided its physical-design and manufacturing capabilities for the chip and in January 2003 became IPFlex's strategic partner.

More than 10 companies including NTT have already begun designing systems using the processor, IPFlex said. The startup plans to go public within the next fiscal year, ending in March 2006.

AT A GLANCE
Population (estimate, Oct. 1, 2003): 127.6 million
GDP (2003): 523.1 trillion yen (about $5,049 billion at the exchange rate of $1=103.6 yen)
2000-2003 GDP growth: 1 percent
Major exports (2003): electronics, automobiles, machinery
Forecast share of world semiconductor market: 21.7 percent (2004), 21.8 percent (2005)
Leading technology: 90-nanometer CMOS process from Chartered Semiconductor
Top companies: Sony, Canon, Hitachi, Renesas Technology, Toshiba, NEC Electronics
Favorite pastime: karaoke sing-along
Favorite local dish: sushi
Sources: The Economist Intelligence Unit; EE Times, World Semiconductor Trade Statistics