Japan's Chip Industry in Decline: A Study of Historical Shifts and Industry Strategies

Strategic Insights -

As the 1980s came to a close, Japan dominated the global computer chip industry, with its top three chip makers – NEC, Toshiba, and Hitachi – accounting for 51% of the world's semiconductors. However, the industry has since reversed its fortunes, with Japan's global market share dwindling to 23.4% in 2005, according to research firm iSuppli. The decline of the Japanese chip industry can be attributed to an overdependence on the domestic market, outdated factories, and a lack of focus on profitable products.

Key Takeaways:

  • Japan's global market share in the chip industry declined from 51% in 1988 to 23.4% in 2005, with the top three Japanese chip makers (Toshiba, Renesas, and NEC) accounting for 23% of the $237.3 billion global semiconductor market.
  • The Japanese chip makers' problems are not due to a lack of technology, but an overdependence on the domestic market, with 60% of their chip sales taking place within Japan.
  • Outdated and inefficient factories contribute to high costs, with many factories lacking new facilities and equipment, making it difficult for companies to keep pace with rivals like Intel and Samsung.
  • Analysts suggest that the industry needs to learn from American chip makers like Intel and Texas Instruments, which reinvented themselves by building strong overseas sales networks and focusing on profitable products.
  • Toshiba is a notable exception, focusing on specialized products like NAND flash memory chips, which are used in digital cameras and music players. Its chip revenue is expected to grow 7% in 2005.
  • Efforts to combine forces, such as the planned joint factory between Hitachi, Toshiba, and Renesas Technology, have yet to yield successful results, pointing to the industry's deep-seated problems.

Statistics:

  • Japan's global market share in the chip industry: 23.4% (2005)
  • Combined market share of the top 20 Japanese chip makers: 23.4% (2005)
  • Revenue of Japanese chip makers: $17.5 billion (2005)
  • Revenue of Intel and Samsung: $83.9 billion (2005)
  • Toshiba's chip revenue growth rate: 7% (2005)
  • iSuppli's projections for reduced revenue among Japanese chip makers: 12/20 (2005)

Sources:

  • iSuppli
  • Ministry of Economy, Trade and Industry
  • TOKYO -- report by Martin Fackler