What Japanese Automakers Can Learn from the Semiconductor Industry

Since February 2008, Toyo Keizai Weekly magazine (東洋経済, in Japanese) has been running a thought-provoking weekly segment translated here as, “Major Transformations Following Economic Crisis—Choices for Japan” (経済危機後の大転換――ニッポンの選択) written by Yukio Noguchi^*. His column explores the changing economic climate facing Japan and how those changes are likely to impact various aspects of Japanese business going forward.

In the November 13, 2010, issue, installment 39 titled “The Decline of Japan’s Once World-leading Semiconductor Industry” (かつて世界を制覇した日本半導体産業の凋落, in Japanese), Noguchi looks at factors behind why Japanese companies NEC, Toshiba, and Hitachi are no longer ranked among the world's top four semiconductor manufacturers as they were back in 1990 (today Intel, Samsung, and Texas Instruments hold the top three spots). He notes that efforts to reorganize—such as in the form of Elpida Memory established by NEC and Hitachi, and Renesas Technology established by Hitachi and Mitsubishi Electric—did not fully address new demands posed by shifts in the market from the 1980s to the 1990s.

Going forward, Noguchi warns that Japan’s motor vehicle industry could meet a fate similar to that of its semiconductor industry. He points out that if Japanese industry fails to change, venture companies such as those based in Silicon Valley might be better suited to meet potential growing demand for electric vehicles in the high-tech segment, and demand in the low price category might be better met by Chinese automakers.

Finally, the article winds up noting that NEC and its 9801 personal computer lost out to Microsoft, and that software and Internet venture companies, such as those launched in Silicon Valley, ultimately did not emerge in Japan. As a result, Noguchi laments, Japan today lags decisively behind in the increasingly crucial IT and software industries.

* Yukio Noguchi, the author of the weekly series, is currently a professor of finance at Tokyo’s prestigious Waseda University. His background includes experience in Japan’s Ministry of Finance, a Ph.D. in economics from Yale University, and a stint as a visiting professor at Stanford University. He is regularly quoted in the English-language media on business and economic issues (see, In Toyota Mess, Lesson for Japan, The New York Times)

Electronic component manufacturers experiencing upturn

Fortunately, certain Japanese manufacturers of leading technologies are apparently seeing an upturn in business conditions. This, according to an article (in Japanese) by the Weekly Toyo Keizai business magazine.

Article title: "スマートフォンが電子部品需要を牽引、村田、京セラの意外な活況"

(Electronic component demand driven by smartphones yields unexpected benefits for Murata and Kyocera, Weekly Toyo Keizai, November 12, 2010)

Some key points of the article follow:

• Murata is increasing facilities investment in Japan and in China, particularly focusing on products such as ceramic capacitors and filter components. The company also plans to resume operations at previously closed facilities.
• Kyocera has a backlog of orders, and its factories that manufacture components for electronic devices are operating at full capacity. The company has plans to expand semiconductor manufacturing capacity at their Kagoshima prefecture plant.
• Nidec Corporation is building a plant in Guangdong province, China, that will produce miniature motors for optical disk drives and other components.
• The article notes that recent trends will result in winners and losers:
  – Those who are poised to benefit include manufacturers of components used in smartphones, tablet PCs and 3D TVs.
  – On the other hand, those who may face continued difficulties include: LCD component manufacturers, low-priced digital device manufacturers hit by increased competition from Korean and other overseas manufacturers, and Japanese manufacturers of general components who may face increasingly severe price competition.

• The article referred to an analyst's report issued by Goldman Sachs (related report here) stating that growing popularity of smartphones and other such devices will benefit manufacturers of capacitors and other passive components, but those manufacturing CPU packages and other such components may face calls for lower pricing.