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Japanese Tech Concerns: 2011 left more than natural disasters


This week we were reminded of the tough times Japan has faced in the last 11 months.  It was, however, not solely due to the earthquake, tsunami and following natural disasters that wreaked havoc in March 2011.  The rise of the Japanese Yen in the wake of the troubled US Dollar and EU Euro created many foreign exchange (forex) problems of its own in a global economy that was already price shy.  Add to these two serious issues the decline in consumer and enterprise demand and purchasing through much of 2011, and then the ensuing HDD and optics disruptions that everyone, especially the hard-hit Japanese companies, is still recovering from due to the terrible flooding disasters in Thailand, and there was just too much to overcome for some in Japan.

Even titans like Sony are feeling the pinch and have put forth many changes, including a new CEO, to reinvigorate their market offerings and strategic approach as soon as possible (see this and this from EETimes Asia).  For example, the TV market, having reached LCD penetration highs, caused more trouble for Japanese companies, like Sony, which are traditionally strong in this market (see here for Sharp's recent LCD panel cut reported on by EETimes Asia).

On the semiconductor manufacturing end, this week we learned of the discussions between the Japanese government (Innovation Network Corporation of Japan (INCJ)), Renesas, Panasonic, and Fujitsu who are working on plans to engage in a merger that would consolidate these three tech titans with the Japanese state (see here from Financial Times, and here from EETimes Asia). While INCJ is the main sponsor to infuse capital into the three-way consolidation/merger, there is talk that Global Foundries will join in, possibly to head up the fab side, according to the EETimes Asia report.

At the core of the problem for these companies, and the Japanese semiconductor manufacturing sector, is redundancy, the travails outlined above, and the rise of cost-aware competitors from Korea and China.  Of course, Renesas, Panasonic, and Fujitsu have already undergone considerable mergers and spin offs along their path to this point, so the idea of internal cost reductions is unlikely to help much, therefore, consolidation is seen as the best outcome.

The idea behind the merger is that there would be one division for chip design and another for chip manufacturing.  As many are questioning from outside of the negotiating room (see here from EETimes Asia, here from EETimes), will there be strong enough leadership to steer such a massive undertaking of merger details, assets, and facilities?  Furthermore, will this consolidation be able to happen quickly enough to save Japanese semiconductor manufacturing in a time of intense competition globally, especially in the wildly competitive mobile SoC market?  Obviously, Intel, Samsung and TSMC have been able to outspend and outperform to the point of forcing even these Japanese tech giants to the point of a fabless alternative (see here for our MarketWatch Commentary on these three companies' CAPEX strategies for 2012).  Time will tell the answers, but change in the semiconductor industry is certainly afoot.

Lisa Ann Cairns, Ph.D.
Written on Friday, 10 February 2012 12:30 by Lisa Ann Cairns, Ph.D.

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