Development Bank of Japan
Research Report
No. 57

Policies to Restore the International
Competitiveness of Japanese
Semiconductor Industry

August 2006

Economic and Industrial Research Department
Development Bank of Japan

This report was originally published in Japanese as Chosa No. 90
in May 2006.

Contents
Summary ........................................................................................................................................

iii

Introduction ...................................................................................................................................

1

I

Long-term Trends and Structural Changes in the World Semiconductor Market.........
1. What is a Semiconductor?......................................................................................................
2. Composition of Semiconductors by Use................................................................................
3. Long-term Trends in the Semiconductor Market ...................................................................
3.1. The Silicon Cycle and Slowdown in Growth .........................................................
3.2. Market Development by Region: Rapid Growth of the Asian Market...................
3.3. Market Trends for Major Products: Emergence of MOS Micro and MOS Logic..
3.4. Market Trends for General-Purpose and Application-Specific Products ...............

3
3
4
5
5
5
6
7

II

Analysis of Japanese Manufacturers’ International Competitiveness byMajor Semiconductor Product Segment ....................................................................................
1. Analysis of Japanese Manufacturers’ Competitiveness in General-Purpose Products...........
1.1. Processors.....................................................................................................................
1.2. Microcontrollers (MCUs).............................................................................................
1.3. FPGAs/PLDs ................................................................................................................
1.4. Memory ........................................................................................................................
1.5. Analog Semiconductors ...............................................................................................
2. Analysis of Japanese Manufacturers’ Competitiveness in Application-Specific Products.....
2.1. ASICs and ASSPs.........................................................................................................
2.2. SoCs (System LSIs)......................................................................................................

9
9
9
9
11
12
13
14
14
16

III Taiwanese Semiconductor Industry on the Move: Business Model of
Vertical Specialization .................................................................................................................
1. Concentration of the Semiconductor Industry in Hsinchu Science Park................................
2. Taiwanese Semiconductor Industry: Development of the Business model of Vertical
Specialization .........................................................................................................................
2.1. Two Business Models in the Semiconductor Industry .................................................
2.2. Business Flow in a Vertical Specialization Model .......................................................
2.3. Vertical Specialization Structure in the Taiwanese Semiconductor Industry ...............
2.4. Comparison of Profitability between Japanese and Overseas Manufacturers ..............
3. Factors behind the Emergence of a Vertical Specialization Business Model .........................
4. Increased Presence of Taiwanese Manufacturers in the World Semiconductor Market.........
4.1. Foundries......................................................................................................................
4.2. Assembly under Contract .............................................................................................
4.3. Fabless Companies .......................................................................................................
4.4. IP Providers ..................................................................................................................

20
20
22
22
23
24
25
25
26
27
28

IV Response of the Taiwanese Semiconductor Industry to the SoC Business:
Enhanced Partnerships between Fabless Companies and Foundries......................................
1. Evolution of Foundries from Contract Manufacturers to Solution Providers ........................
1.1. Large-Scale Investments in 300mm Wafer Fabs ..........................................................
1.2. Sources of Cost Competitiveness .................................................................................
1.3. Challenges in Developing Nano-Level SoCs ...............................................................

30
30
30
31
32

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Development Bank of Japan Research Report/ No. 57

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2.

V

1.4. Efficient Design and Manufacture through IP Libraries...............................................
1.5. Development into Prototype Services ..........................................................................
Growth of Taiwanese Fabless Companies in Partnership with Foundries .............................
2.1. Outline of Sunplus Technology ....................................................................................
2.2. Development of Efficient Design Techniques ..............................................................

32
33
33
34
34

Current Conditions and Issues Confronting a Stagnant Japanese
Semiconductor Industry ..............................................................................................................
1. The present Situation of the Japanese Semiconductor Industry:
Falling Share of the World Market.........................................................................................
2. Issues Facing the Japanese Semiconductor Industry..............................................................
2.1. Lack of Products with an Overwhelming Market Share or Unique Features ...............
2.2. Insufficient Business Investment..................................................................................
2.3. Delay in Response to Emerging Business Models .......................................................
2.4. Decline in Cost Competitiveness..................................................................................
2.5. Weak Sales and Marketing Ability in Overseas Markets .............................................
2.6. Financial Bases Vulnerable to Volatility.......................................................................
2.7. Slow Progress in Partnerships between Industry, Government and Academia ............

36
37
37
38
39
40
41
42
43

VI Policies to Restore the International Competitiveness of the Japanese
Semiconductor Industry ..............................................................................................................
1. Three Possible Directions of the Japanese Semiconductor Industry......................................
1.1. Memory ........................................................................................................................
1.2. Power Semiconductors and Sensors.............................................................................
1.3. SoCs .............................................................................................................................
2. Strategy to Enhance Competitiveness in the SoC Business ...................................................
2.1. Refocusing Business Operations on Design and Marketing.........................................
2.2. Active Involvement in Global Alliances ................................................................
2.3. Rebuilding Relationships with Final Set Product Departments ...................................
2.4. Overhaul of Corporate Management, Organization Control and Personnel Evaluation
3. In search of a New Business Model for Japanese IDMs ........................................................

45
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46
46
46
47
47
50
52
53

Conclusion.............................................................................................................................................

55

References .............................................................................................................................................

57

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Development Bank of Japan Research Report/ No. 57

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Policies to Restore the International Competitiveness of Japanese
Semiconductor Industry
Summary
1. As the global semiconductor market slows
from double-digit to single-digit growth, keener
competition among manufacturers is likely to
produce clear winners and losers. The world’s
largest semiconductor market has shifted fromJapan to the U.S. and then to Asia and the Pacific,
making it increasingly important for Japanesemanufacturers to introduce a global marketingstrategy by focusing on the Asian and Westernmarkets as well as its own market at home. An
increase in semiconductor demand is expected forautomobiles and consumer equipment, including
consumer electronics, as well as for computersand communications. To create their own markets,
therefore, semiconductor manufacturers must takethe initiative in developing new uses.
2. Securing an overwhelming market share fora general-purpose product is the best way to ensure profitability in the semiconductor business.
Likewise, successful operation in application-specific products depends on standardizing
to allow sales to as many customers as possible,
rather than clinging to a small number of specificclients. Despite their respectable position in microcontrollers and flash memory, Japanesemanufacturers have not always been able to secure an advantage in general-purpose products
such as processors, FPGAs/PLDs and analog
semiconductors. It is true that since their exitfrom the DRAM market, Japanese manufacturers
have been focusing on special purpose products
and hold a certain edge in application-specificintegrated circuits (ASICs). As regards application-specific standard products (ASSPs: a highly
promising application-specific product), however,the largest market shares belong to overseas
manufacturers – an indication that Japanesemanufacturers are falling behind in the competition for standardization.
3. Four categories of major semiconductor
manufacturers show high profitability both inJapan and overseas: (1) leading integrated device
manufacturers (IDMs), (2) fabless companies(specializing in design), (3) foundries (manufacturers under contract) and (4) intellectual property (IP) providers. Foundries reportedly produce
almost one quarter of the semiconductor productsin the world, of which about 60% is accounted
for by two Taiwanese firms, TSMC and UMC.
The strengths of Taiwanese foundries include:(1) cost competitiveness, (2) quality services, (3)leading-edge technologies, (4) broad productlineups and (5) provision of IP libraries.
Low-cost production under contract has
been the driving force behind the rapid growth offoundries so far. When it comes to nano-levelsystems-on-chips (SoCs: system LSIs), the complexity of design and the large amount of IP involved mean that a simple contract manufacturing system can no longer reconcile response tocustomer needs with profitability. In an effort toimprove overall efficiency in design, foundries
are now providing libraries of IP which is commonly used in a wide range of products, leaving
fabless companies to concentrate on development of the core design. Because clients are
placing orders on shorter notice, foundries aretrying to provide SoC solutions through global
collaboration with upstream partners such as fabless companies and electric design automation(EDA) tool vendors.
4. Traditionally, U.S. companies have held an
overwhelming edge in fabless operation, i.e. specializing in the design and development ofsemiconductors without a fabrication plant (fab).
Indeed, a vertical international specialization
model has developed between fabless companies
in Silicon Valley and Taiwanese foundries.
However, some fabless companies in Taiwan are
growing rapidly as they receive design contracts
from mainland China. Thus, Taiwan’s semiconductor industry is shifting to a tandem structure
comprising both manufacturing and designingcompanies.

Development Bank of Japan Research Report/ No. 57

iii

5. Against the benchmark of Taiwanese andother overseas counterparts, the weaknesses of
the Japanese semiconductor manufacturers include: (1) a lack of products with an overwhelming market share or unique features; (2)insufficient investment; (3) a delay in responding
to emerging business models; (4) a decline incost competitiveness (particularly in terms ofefficiency of sales, administrative expenses andR&D expenditure); (5) weak sales in overseas
markets; (6) financial bases that are vulnerable tovolatility; and (7) slow progress in partnerships
between industry, government and academia.
Japan’s share of the world market has been declining since 1985, when it reached a peak of
51%, to only 24% in 2004. The country’s semiconductor manufacturers have not been successful in halting the decline of their international
competitiveness.

semiconductor industry. It is difficult for a company to design and develop a SoC on its own
because of the huge volume of IP integrated on
one chip. Since the decision on “what to make”
is a major factor in differentiation, success depends not only on process technologies but also
on skills in designing, developing and marketing.
While improving the efficiency of user support
and product development – both of which tend to
be costly for application-specific products –Japanese manufacturers, if they are to enhancetheir competitiveness in the SoC business, must
redouble their efforts to: (1) refocus their operations on design and marketing, (2) participate
actively in global alliances, (3) rebuild their relationships with final set product departments and(4) overhaul corporate management, organizational control and personnel evaluation.
[by Makoto Shimizu (e-mail: report@dbj.go.jp)]

6. The SoC business, along with memory andpower semiconductors/sensors, is expected to
become one of the future pillars of the Japaneseiv

Development Bank of Japan Research Report/ No. 57

Introduction
In recent years, discussion has been heating up
over emerging business models in the semiconductor industry. An example may be found in the
SoC (system on a chip: system LSI) business,
which is expected to become one of the pillars of
the industry along with memory and power
semiconductors. Since SoCs require sophisticated design, marketing and manufacturing, evena small enterprise may enter the market if itcomes up with an original idea or business model.
New developments such as the sale of IP (intellectual property) licenses and the building of alliances involving various companies, ranging
from upstream design tool makers to downstream
foundries, remind us that competition in thesemiconductor industry is not only forstate-of-the-art manufacturing processes, but also
for innovative business models.
No single business model can be the absolute standard for application-specific products
like SoCs. Each company has to develop its own
optimum business model, depending on its
product structure, business relationship with major clients, the level of microfabrication achieved
in its plants, cost competitiveness and its skills indesigning hardware and software. The relationship between the set product and semiconductor
departments also comes into play for a generalelectronics manufacturer. Thus, trial and error isthe only way for a semiconductor manufacturer
to find its own SoC business model.
Taking into account the fact that developing
an SoC requires integration with the application
involved, it would be better, in terms of theoverall strength of the industry, to have a varietyof original business models rather than to have alarge number of domestic companies using similar business models. It is hoped that steady efforts by individual companies for business reform will create a common view on the necessityof cross-industrial partnerships and consolidation,
culminating in the realization of an optimal
structure for the industry as a whole.
Based on the perception described above,
this report aims to suggest some strategies to enhance the international competitiveness of theJapanese semiconductor industry along withconcrete policies to implement them, with spe-cial emphasis on SoC businesses.
Chapter I analyzes structural changes affecting the world semiconductor market. It demonstrates that the performance of semiconductor
manufacturers has come to depend on their success or failure in increasing shares in general-purpose product markets and in standardizing application-specific products, because the useof semiconductors has diversified, enhancing theimportance of a global marketing strategy that
focuses on markets in Asia and the West as wellas in Japan.
Chapter II analyzes the international competitiveness of Japanese manufacturers with major general-purpose and application-specificproducts. The analysis indicates that Japanesemanufacturers, since their exit from the DRAM
market, have been focusing on application-specific products and have thus gained aconsiderable edge in the ASIC (application-specific integrated circuit) market. They are,however, falling behind in the highly promising
ASSP (application-specific standard product)
market.
Chapters III and IV rely partly on on-site
research to provide an overview of the Taiwanese semiconductor industry, the recent development of which is largely attributable to a new
business model based on vertical specialization.
These chapters present some concrete cases toshow how Taiwanese manufacturers are responding to the challenges of the SoC businessby enhancing partnerships between fabless companies and foundries.
Chapter V examines issues facing the Japanese semiconductor industry as identified by aninternational comparison with Taiwanese andother overseas competitors. It argues that thoseissues are essentially related to the nature ofbusiness management.
Chapter VI draws on the above discussion
to suggest four strategies for restoring the international competitiveness of the Japanese semiconductor industry in the SoC business, alongwith concrete suggestions on how to put thesestrategies into practice.

Development Bank of Japan Research Report/ No. 57

1

I Long-term Trends andStructural Changes in the World
Semiconductor Market
What is a Semiconductor?

A semiconductor is a material with an electricalconductivity that is intermediate between that ofa conductor and an insulator. Silicon is one of thebest known semiconductors. A circuit composedof numerous discrete devices made from semiconductors, such as transistors, diodes and condensers, is known as an integrated circuit (IC).
When we say semiconductor, we usually refer toan IC. Unless otherwise specified, this report
uses the term “semiconductor” in this sense.
In terms of function, a semiconductor integrates one or more of the five basic elements of acomputer: input, calculation, memory, control
and output. Thanks to progress in microfabrication technology, a semiconductor can now perform huge amounts of data processing which
could previously be achieved only by a mainframe.
A central processing unit (CPU), which is at
the heart of a computer, retrieves an instruction

Operational unit

(LCD monitor, speaker, motor, etc.)

Control unit

Output unit

Input port

Central processing unit (CPU)Input unit

(switch, mouse, keyboard, etc.)

Microcontroller

Output port

1.

from program memory to execute arithmetic
processing, sending out data and controlling theoperation of equipment. These CPU functions
may be integrated on one chip, called a microprocessor unit (MPU). MPUs that perform
high-speed processing of large volumes of datawith an extended operating frequency range, are
now in wide use, particularly in personal computers (PCs), personal digital assistants (PDAs)
and consoles.
Programs needed by the processor arehoused in ROM memory (read only memory).
Unlike RAM (random access memory), which
temporarily stores the results of arithmetic operations, data stored in ROM do not disappear
when equipment is turned off. A microcontroller
unit (MCU), widely used in electronics, integrates various devices such as CPUs, memory ona chip and interfaces with peripherals (input/output ports). The MCU executes arithmetic
operations based on inputs from various parts ofthe equipment like switches, keyboards and sensors, and it controls the equipment by using outputs from those operations (see Figure 1-1).

MemoryROM

Source:RAM

Toshiba Semiconductor, “Microcontroller Interface”.

Figure 1-1. Functional Blocks of a Microcontroller (MCU)
Development Bank of Japan Research Report/ No. 57

3

2.

Military/
aviation
1.8%

Composition of Semiconductors by Use
Automobiles
7.2%

Semiconductors are most commonly used fordata processing, particularly in PCs and servers.
40.7% of the semiconductors marketed in 2005
(a preliminary figure) are used for this purpose(see Figure 1-2). Gartner Dataquest reports thatworld PC shipments in 2005 (a preliminary figure) reached some 220 million units, up 15.3%
from the previous year. This uptrend continues
with the surge of emerging markets, including
BRICs, and increased demand for equipment
replacement in developed countries (see Figure
1-3).
The second most common use of semiconductors is for communications, which accounts
for a quarter of semiconductors marketed. Global
shipments of cellular phones increased from 410
million units in 2000 to 670 million units in 2004
and seem to have reached the 810 million markin 2005, up 20% from the previous year (seeFigure 1-4). Although replacement demand will
surpass new demand in developed countries,
cellular phones will become increasingly popularin emerging markets, including BRICs. It is expected that cellular phones will require more so-

Industrial
8.6%
Consumer
16.2%
Communications
25.6%

Source:Gartner Dataquest (February 2006) GJ06044

Figure 1-2. Composition of Semiconductors by
Use1 (2005)
phisticated semiconductors as their communication functions are supplemented by various new
applications, such as camera, music and TV.
The semiconductor market for consumer use
will also expand, with growing sales of digital
home electronics such as flat-screen TVs andportable music players. Moreover, semiconductors for automobiles are receiving increased attention, as the popularity of car navigation systems and the sophistication of computerized con-(million units)
250.0
219
190

200.0
169
150

145

2000

2001

150.0

152

100.0

50.0

0.0

Source:

2002

2003

2004

Figure 1-3. World PC Shipments

Figures do not necessarily add up to the total due torounding. (The same applies throughout this report.)

4

2005 (year)

Gartner Dataquest (February 2006) GJ06075

1

Development Bank of Japan Research Report/ No. 57

Dataprocessing
40.7%

(million units)
900

812

800
674

700
600
500

520
415

413

427

2000

2001

2002

400
300
200
100
0

Source:

2003

2004

2005 (year)(forecast)

Gartner Dataquest (December 2005) GJ06047

Figure 1-4. World Cellular Phone Shipments
trol technology have led to an increase in thenumber of semiconductors mounted in vehicles.
The use of semiconductors has diversified.
Manufacturers must now take the initiative indeveloping new uses to create their own markets.
3.

Long-term Trends in the Semiconductor
Market3.1. The Silicon Cycle and Slowdown in
GrowthThe semiconductor market has experienced repeated booms and busts in a four- to five-year
cycle (“the silicon cycle”). Recent developments
indicate that the market stagnated for several
years after peaking in 1995, when it recorded a
substantial growth of 41.7% over the previous
year. Indeed, the silicon cycle is characterized by
its volatility: the market surpassed the $200 billion mark for the first time in 2000 because of
rapid growth during the IT boom, only to record
a substantial drop in the following year (see Figure 1-5).
Since the 1980s, the semiconductor market
has generally followed an uptrend, with some
ups and downs resulting from the silicon cycle.
However, growth seems to be leveling off.
Looking at the last 20 years, a significant average annual growth of 21.0% in the first 10 years(1985-95) slowed substantially in the latter half
(1996-2005) to only 6.2%.

According to the World Semiconductor
Trade Statistics (WSTS), the world semiconductor market will continue to grow reaching record
highs until 2007, but the annual growth rate willremain single-digit between 2004 and 2007:
8.4% on average. Although the volatility of thesilicon cycle will be somewhat subdued, largely
due to the diversification of semiconductor use
for non-computer purposes, market expansion
will be slowed. These developments indicate thatcompetition among manufacturers may intensify
further in the years ahead, producing clear winners and losers.
3.2. Market Development by Region:
Rapid Growth of the Asian Market
Substantial changes can also be seen in the regional composition of the world semiconductor
market. As shown in Figure 1-5, Japan was theworld’s largest semiconductor market from themid-1980s to the early 1990s. Then the U.S. took
over this position, which it held until 2000. Since
2001, however, the Asia-Pacific region has been
the largest semiconductor market, as more production facilities have been transferred to Asian
countries. This region’s share in the world market is expected to reach 47% in 2007, up from
29% in 2001.
Meanwhile, annual growth of the Japanesemarket between 2004 and 2007 is expected to be
3.5% on average, which is substantially lower
Development Bank of Japan Research Report/ No. 57

5Slowedgrowth($ billion)300

1996-2005
average annual growth: 6%

2005-07
average annual growth: 8%
(%)
60.0

250

40.0
213.0

200

20.0
51.3

150

0.0

1985-95
average annual
growth:
21%

100

88.8

46.7

29.5

45.8

39.7

42.3

28.2

50

39.4
64.1

47.0
1990

America

Source:Europe

1995

Japan

2000

Asia Pacific

-40.0

39.1

0
1984

-20.0

2004

-60.0
2007 (year)
forecast

Annual growth (right scale)

WSTS (World Semiconductor Trade Statistics)

Figure 1-5. Annual Growth of the World Semiconductor Market and Regional Trends

than the world average (8.4%). The slowdown of
the Japanese market, which recorded slightly
negative growth in 2005, is particularly remarkable when compared with other regions. This
makes it all the more important for Japanesemanufacturers to implement marketing strategies
that focus on the Asian and Western markets aswell as the market at home.
3.3. Market Trends for Major Products:
Emergence of MOS Micro and MOS Logic
The semiconductor market expanded more thantenfold from 1985 to 2005, from $21.5 billion to$227.1 billion. What changes in product composition have accompanied this expansion?
Figure 1-6 shows the rapid growth of the
MOS micro (MPUs and microcontrollers) and
MOS logic markets as bipolar semiconductors
have been replaced by MOSs (metal oxide
semiconductors). Used widely in computer peripherals, communication equipment and consumer electronics, logic has various processing
functions, such as control (including exchange
6

Development Bank of Japan Research Report/ No. 57

and handling of digital signals) of the system;
numeric calculation; logical operation; and comparative judgment. The expansion of these markets may be attributed to a substantial increase in
the demand for processors and logic semiconductors, as the multi-functionality andvalue-added of electronic equipment have improved with the advent of PCs, PDAs and digitalconsumer electronics.
Meanwhile, the share of MOS memory has
stayed in the lower 20% range in recent years
after exceeding 30% in the mid-1990s. Memory
is a semiconductor device that stores data andprograms. Typical memory includes DRAMs,
which are used in the main memory of a computer, and flash memory, which is used primarily
in memory cards for digital cameras.
Although still insignificant at the global
level, the opto-electronics market – CMOS sensors and LEDs, among others – seems to holdpromise as it continues to expand steadily.

100%
19.2%

80%

4.1%
18.1%

60%

9.6%

8.7%

6.4%

6.6%

14.7%

13.9%

Discrete and others
Optoelectronics

0.1%

Analog ICs
23.1%

25.3%

Digital bipolar
MOS logic

17.3%

MOS micro

40%
12.4%

23.8%

24.2%

22.1%

21.3%

2004

2005

MOS memory

11.6%

20%

17.3%

0%
1985

Notes:

Source:(year)

1. 2005 figures are based on the WSTS Autumn 2005 Forecast.
2. For 2005, digital bipolar is included in MOS logic.
3. The products included in MOS micro and MOS logic have changed slightly over the years.
WSTS

Figure 1-6. Trends in the World Semiconductor Market (Year-on-Year Change by Product)

3.4. Market Trends for General-Purpose
and Application-Specific Products
The previous subsection focused on the functionsof semiconductors to examine market trends by
product. It is also important to analyze the same
trends at the level of versatility.
Semiconductors are classified into two maincategories, general-purpose products and application-specific products, according to whether
they were developed for specific purposes or for
applications. The market for typical general-purpose products like MPUs and memory
has expanded rapidly since the 1980s with the
spread of PCs. From the late 1980s to early
1990s, however, demand increased for the development of semiconductors customized to user
specifications, leading to the emergence of application-specific integrated circuits (ASICs). In
most cases, the design of an ASIC is integrated
into the development of the corresponding set
product. This process is known as “design-in.”Market trends for general-purpose and application-specific products, as shown in Figure
1-7, indicate that general-purpose products –ranging from memory to opto-electronics – represent the volume zone, accounting for two thirdsof the semiconductors marketed. Huge markets
exist for memory (including flash memory and
DRAMs) and for microcomponents (MPUs,
MCUs and DSPs) in particular. Most of theworld’s leading semiconductor manufacturers are
actually winners in those two markets.
Application-specific products are largely
classified into ASICs and ASSPs (application-specific standard products). For statistical
purposes, an ASIC is defined as a specific product developed for a single client, whereas an
ASSP is sold to two or more clients. In 2004, the
ASSP market exceeded the ASIC market by afactor of over 2.6. As this significant growth isexpected to continue until 2010, ASSPs are now
establishing a predominant status over ASICs.
Data indicate that the share of “standard
products,” comprising general-purpose products
and ASSPs, in the semiconductor market increased from 88.8% in 2002 to 90.4% in 2004. It
is expected that general-purpose products and
ASSPs will continue to hold more than 90% of
Development Bank of Japan Research Report/ No. 57

7

($ billion)
400*Average annual growth rates for 20052010 are shown in parentheses ( ).

Total

350

8.6

300
250

9.1

8.8
ASICs
10.6%

200

9.8
90.6

150
Generalpurpose +
ASSPs
88.8%

50

90.3

90.4

89.5

0
2002

Source:

2003

2004

2005
(forecast)(year)
2010(forecast)(7.9%)(11.3%)

ASICs(6.8%)

ASSPs(10.0%)

Applicationspecificproducts(8.7%)
Optoelectronics(e.g. CCDs/CMOS sensors)( 5.3%)
Discrete(e.g. transistors, diodes)

General-purpose analog

100

Note:

Sensors(6.6%)

General-purpose logic(e.g. FPGAs/PLDs, LCD
drivers, standard logic)(12.1%)

Microcomponents(e.g. MPUs, DSPs, MCUs)(7.1%)

Generalpurpose
products(6.2%)
Memory(e.g. DRAMs, flash memory)

ASICs: application-specific integrated circuits.
ASSPs: application-specific standard products.
FPGAs/PLDs: field programmable gate arrays/programmable logic devices.
Gartner Dataquest (February 2006) GJ06045

Figure 1-7. Trends in the World Semiconductor Market for General-purpose andApplication-specific Products

the semiconductor market.
Semiconductors are manufactured by thehundred in the form of wafers upon which circuits are constructed with a mask. Production
costs decline if more wafer chips can be manufactured from a single mask (the advantage ofscale). Securing an overwhelming market sharefor a general-purpose product is the best way toensure profitability in the semiconductor business. Likewise, successful operation in application-specific products depends on standardizing
to allow sales to as many customers as possible,
rather than clinging to a small number of specific8

Development Bank of Japan Research Report/ No. 57

clients. In other words, the success of a semiconductor manufacturer largely depends on it
increasing its share in the general-purpose product market and standardizing its application-specific products.
Have Japanese manufacturers been able tosustain their international competitiveness by
responding properly to the substantial structuralchanges described above? We need to answer
this question by exploring future strategies. The
next chapter examines the current position ofJapanese manufacturers in major segments of theindustry.

cellular phones. Again, U.S. manufacturers, led
by Texas Instruments (TI), have an overwhelming share of the market, with Japanese companies
trailing far behind (see Figure 2-1).
In a processor, logic operation software isembedded in the hardware. Because hardware isused for general purposes, a client may adapt a
processor to any specific use by rewriting thesoftware. The performance of a processor thus
depends heavily on software development capacity. The superiority of U.S. companies in processor manufacturing may be explained by their
excellent software development capacity and a
pro-active strategy to protect their software as
intellectual property.2
Once introduced, a processor requires its
own compilers (translation tools for programming languages) and software. Changing processors necessitates a complete rewrite of software. Thus, processors form the core of semiconductors and exert a substantial influence on
peripheral products. Indeed, the first processor
product to be popularized is likely to dominate
all related markets as the de facto standard.

II Analysis of Japanese
Manufacturers’ International
Competitiveness by Major
Semiconductor Product Segment
This chapter analyzes the international competitiveness of Japanese manufacturers of major
general-purpose and application-specific products. The current position of Japanese manufacturers will be identified with regard to typicalgeneral-purpose products including processors,
microcontrollers (MCUs), FPGAs/PLDs, memory and analog semiconductors, as well as for thetwo categories of application-specific products:
ASICs and ASSPs.
1. Analysis of Japanese Manufacturers’Competitiveness in General-Purpose Products
1.1. Processors
An MPU, a key device in a PC and server, integrates all functions of the central processing unit
(CPU) on one chip to execute arithmetic operations and control. The MPU market is virtually
duopolized by two U.S. manufacturers, Intel andAMD. Meanwhile, DSPs (digital signal processors) – another type of processor – are mainly
used for processing digital signals and moving
images in communication equipment, including
NEC Electronics(Japan)3%

1.2. Microcontrollers (MCUs)
A microcontroller is a semiconductor that integrates memory and input-output circuits aroundthe core CPU. These are used in all sorts of electronics, primarily as embedded controllers. MiOthers
9%

Toshiba(Japan)11%

Texas
Instruments(U.S.)
33%

Freescale(U.S.)
20%

AnalogDevices(U.S.)
24%(World market total: $1 billion)
Source:Gartner Dataquest (April 2005) GJ06046

Figure 2-1. Composition of World DSP Market by Manufacturer (2004)
2

Hiroyuki Itami, Japanese Semiconductor Industry: Why
Have the “Three Reversals” Happened? p. 180 et seq.

Development Bank of Japan Research Report/ No. 57

9crocontrollers range from 4-bit and 8-bit products used for the control of remotes, keyboards,
mouse devices and white goods, to 16-bit and32-bit products used in digital consumer electronics, printers and electrical components forautomobiles. There is a current shift towards
large-bit microcontrollers with the ongoing sophistication of electronics. Microcontrollers forautomobiles are in particularly heavy demand as
vehicles become increasingly electronically controlled to accommodate such popular features as
ABS, air-bags and navigation equipment.
Japanese manufacturers have maintained acompetitive edge in microcontrollers. The largest
share in world markets belongs to Renesas
Technology, established in April 2003 following

the merger of the semiconductor operations ofHitachi, Ltd. and Mitsubishi Electric Corporation.
Although microcontrollers are less susceptible tomarket fluctuation than memory, their average
unit price is lower than that of other semiconductor products. Figure 2-3 shows the average
unit prices of semiconductors manufactured inJapan. On average, the price of flash memory
exceeds ¥1,000 per unit. The unit price of
DRAM and semi-custom logic has stayed in the¥400-500 range. In contrast, the price of microcontrollers has not yet reached ¥300 per unit.
Japanese manufacturers can expect to faceserious competition from foreign companies inthe years ahead as the latter try to increase theirshare of the microcontroller market. Major chalRenesas
Technology(Japan)22%

Others39%

Matsushita(Japan)7%

Freescale(U.S.)
13%
NECElectronics(Japan)11%

InfineonTechnologies(Germany)
8%(World market total: $13.2 billion)
Source:Gartner Dataquest (April 2005) GJ06046

Figure 2-2. Composition of the World MCU Market by Manufacturer (2004)(yen / unit)
1,400
MCUs

1,200

Semi-custom logic

DRAMs

Flash memory

1,000
800
600
400
200
0
Ⅰ
02

II

Ⅲ

Ⅳ

Ⅰ
03

II

Ⅲ

Ⅳ

Ⅰ
04

II

Ⅲ

Ⅳ

Ⅰ
05

II

Ⅲ

Ⅳ

(year)

Source: Ministry of Economy, Trade and Industry, “Preliminary Report on Machinery Statistics.”

Figure 2-3. Trends in the Average Unit Prices of Major Semiconductor Products(domestic production)
10

Development Bank of Japan Research Report/ No. 57

lenges for microcontroller producers include theintroduction of microcontrollers with built-in
flash memory to facilitate program re-writing,increased sophistication of CPUs and the enhancement of peripheral functions.
1.3. FPGAs/PLDs
As mentioned earlier, advantages of scale operate in the semiconductor business: production
costs are reduced proportionally by the numberof wafers processed with a single mask. Increased customer preference for customized
products provides a profit opportunity for companies that can develop ASICs in ASSPs andthus increase sales. Another, more technologicalway, is to develop new chips.
A product called FPL provides an example.
FPL stands for field programmable logic. These
devices allow users to design various circuits byelectrically programming internal circuits. These
are also known as a FPGA (field programmablegate array) or PLD (programmable logic device).
Since ASIC circuits are tailor-made for individual clients, mask production usually involves substantial cost and a development periodof one to two years. Any last-minute change indesign, or any design defect found at the proto-typing stage, will entail redesigning the entire
circuit. Traditional ASIC manufacturers might
miss business opportunities in digital consumer
electronics and PDAs as these products haverelatively short life cycles and are subject to frequent specification or standard changes.
In contrast, FPGAs/PLDs, which allow users
to rewrite circuitries at will, have the flexibility toaccommodate eleventh-hour design changes andto speed up development time. Advances in low
power consumption and cost reduction in recent
years have expanded the use of FPGAs/PLDsfrom communication equipment and server storage to digital consumer electronics. Although they
are somewhat inferior in their degree of integration and processing capacity, manufacturers areattempting to meet this challenge by actively introducing advanced microfabrication processes.
U.S. manufacturers dominate the FPGA/PLD
business, with the top two companies, Xilinx andAltera, controlling more than 80% of the market
between them (see Figure 2-4). The powerfulpatents held by these two leading companies haveallegedly deterred other major semiconductor
manufacturers, including Japanese companies,
from making serious efforts to enter this market.3
Xilinx, Altera and Lattice are all U.S.-based fa-

Others9%
Lattice
Semiconductor(U.S.)
7%

Xilinx(U.S.)
52%

Altera(U.S.)
32%(World market total: $3.1 billion)
Source:Gartner Dataquest (April 2005) GJ06046

Figure 2-4. Composition of the World FPGA/PLD Market by Manufacturer (2004)3

For recent developments in patents related to FPGA/PLD
technologies, see Japan Patent Office, “Survey of Patent
Applications on Programmable Logic Device Technologies.”(http://www.jpo.go.jp/shiryou/pdf/gidou-houkoku/pld.pdf).

Development Bank of Japan Research Report/ No. 57

11bless ventures that were launched in the 1980s.
Specializing in product development, they ensurehigh profits by outsourcing production to foundries. For example, the market leader Xilinx increased its sales by more than 50% between
FY2001 and FY2004, from $1,015 million to$1,573 million, with a solid financial standing: anoperating margin of 24% and an equity ratio of
88% – both for FY2004.4
Faced with this offensive by FPGA/PLD
manufacturers, ASIC vendors are trying to stem
the tide by introducing a semi-customized product called “structured ASIC.” This product aims
to reduce the time and cost required for development and verification by adding the customer’s original logic circuit to verified design
assets (IP). Looking ahead, it is worth considering how far FPGAs/PLDs can affect the ASIC
market, which includes products for PDAs anddigital consumer electronics.
1.4. Memory
Memory is a typical general-purpose product,along with processors. DRAMs and flash
memory comprise significant shares of thememory market.
Japanese manufacturers held an overwhelming share of the DRAM market in the

1980s, but substantial market volatility and hugeinvestment burdens led to successive businessconsolidations and exits. The market is currently
dominated by overseas manufacturers, including
Samsung Electronics (Korea), Hynix (Korea) andMicron Technology (U.S.). Elpida Memory is
the only Japanese company specializing in
DRAMs, supplying products for PDAs and digital consumer electronics in particular.
Unlike DRAMs, which are volatile, flash
memory is non-volatile: i.e. it can retain data
even when the equipment is turned off. Flashmemory is classified into two types: NOR and
NAND. With a high writing speed, NOR memory is mainly used for housing programs,
whereas NAND memory is suitable for storinglarge volumes of data.
In addition to its traditional use in memory
cards for digital cameras, NAND memory is now
being used for new purposes such as portablemusic players. Moreover, it is increasingly being
used in cellular phones, which now require
greater data capacity for images and sound. Toshiba reported that the NAND market would exceed ¥1 trillion by the end of FY2005, to be followed by a substantial growth of 28% per annum
until FY2008.5
Only a handful of manufacturers supply
NAND flash memory, with Samsung Electronics,
Samsung
Electronics(Korea)27%

Others26%

ST Microelectronics(France/Italy)
8%

Toshiba (Japan)
14%

Intel
(U.S.)
12%

Advanced Micro Devices
including Spansion (U.S.)
13%(World market total: $15.4 billion)
Source:Gartner Dataquest (April 2005) GJ06046

Figure 2-5. Composition of the World Flash Memory Market by Manufacturer (2004)

5
4

See Xilinx website.

12

Development Bank of Japan Research Report/ No. 57

Toshiba, materials presented at the briefing on management strategies, August 2005.

Toshiba and SanDisk (U.S.) taking up the lion’sshare of the market. Reportedly, Samsung Electronics uses the same production lines to manufacture flash memory and DRAM. This enables it torespond flexibly to market fluctuations, producing
more flash memory when the DRAM market stagnates and switching back to DRAM production
when the flash memory market weakens.
Among Japanese manufacturers, Toshiba iscommitted to flash memory production, regarding the product as one of its strategic items. Although many of the Japanese manufacturers anticipate reduced sales or profits, or even a deficit
for FY2005, Toshiba has revised its semiconductor business profit upwards, buoyed by thestrong sales of flash memory. In a joint venturewith SanDisk, Toshiba has invested some ¥270
billion to build a new 300mm wafer production
facility in its Yokkaichi Plant, to be completed
by the end of FY2006. As part of its effort tocatch up with the top-ranked Samsung Electronics, the company also launched volume production of flash memory using 90mm processing
technology in the second half of 2005.
Companies such as Hynix and ST Microelectronics have already entered the NAND market. Competition is expected to intensify as Intelannounced its entry to the market in a joint venture with Micron in late 2005. Since economies
of scale will lead directly to profitability in thememory business, each manufacturer is racing toestablish an efficient production system by introducing state-of-the-art equipment. Looking
ahead, success in the market will depend not
only on the yield of new facilities and the capacity of memory, but also on cost competitiveness.
1.5. Analog Semiconductors
While most semiconductors, including proces-

Source:sors and memory, perform digital processing using zeros and ones, analog semiconductors use
absolute values to control supply voltages or totransform analog signals to digital ones. Typical
products include operational amplifiers used tomagnify supply voltage and converters used for
digital transformation of analog signals, including sound and images. They are indispensable incommunication equipment and in digital consumer electronics.
In the case of a cellular phone, for example,
the speaker’s voice (analog signal) is digitized byan analog IC and transmitted, after being processed (compressed), by a digital signal processor(DSP). On the receiving side, the DSP decompresses (elongates) the signal to restore theoriginal digital signal, which is then transformed
into an analog signal by the analog IC to complete the conversation. In this way, high performance processors and analog ICs enablereal-time signal processing by performing a series of tasks efficiently and stabilizing the controlof supply voltages (see Figure 2-6).
The functioning of analog semiconductors
depends on the identification of absolute values
including voltage and signal strength. In designing a circuit, care must be taken to minimize external noise, variation and fluctuation that might
produce improper operating signals. Although
the production process does not necessarily require cutting-edge processing technology, it does
require highly atypical circuit design and production processes, with no established simulation
techniques. Clearly, much depends on the experience and expertise of individual engineers.
According to Gartner Dataquest, general-purpose semiconductors accounted for 6% of
the whole semiconductor market in 2004. This ratio
has changed little for several years. No matter how

TI Japan website (http://www.tij.co.jp/jcorp/docs/dsps/index.html).

Figure 2-6. Mechanism of Signal Processing in Cellular Phones
Development Bank of Japan Research Report/ No. 57

13

far digitization progresses in electronics, analog-to-digital conversion is always necessary to
reproduce sound and images in a form that is perceivable to human beings. Digital equipment always requires analog semiconductors.
The general-purpose analog market isdominated by U.S. manufacturers such as TI,
Analog Devices and National Semiconductor,
with the top five companies (all U.S. manufacturers) holding almost 60% of the world market(see Figure 2-7). In Japan, some smaller companies have specialized in analog production, including Rohm and New Japan Radio. Major
Japanese companies, however, have shifted thefocus of their design development and production technologies to digital semiconductors,
which they now consider to be their core products. Some argue that the shift has undermined
the strength of analog semiconductor manufacturers in Japan.
The progress of digital technology raises theimportance of the role to be played by analog
technology. For mixed signal products which
integrate analog and digital signal processing
technologies on one semiconductor, success depends on the availability of engineers who arecapable of blending analog and digital technologies. Analog oriented manufacturers, who seek toacquire expertise in digital technology by building on their considerable analog experience, willcontinue to hold a certain edge even as digitization makes headway.
2. Analysis of Japanese Manufacturers’Competitiveness in Application-Specific
Products
2.1. ASICs and ASSPs
Although existing general-purpose logic products
may be used in set products for data processing
and control, this will eventually limit flexibility
in customizing a system. The need for customization is increasing in parallel with the sophistication of electronics. In order to secure necessaryfunctions for the differentiation of their products,
semiconductor manufacturers have involved
themselves in design-ins to develop custom chips
in close coordination with their clients.
Raising the customization level ensures aproper response to the different needs of individual clients. However, manufacturing an everwider variety of products in small quantities
might undermine production volume efficiency.
Also, increased integration means that more circuits are constructed on one chip, thus necessitating more time and greater cost to develop
ASICs and to verify hardware requirements.
Under these circumstances, attention is now
focused on ASSPs (application-specific standard
products), which, unlike ASICs, are supplied to
Texas
Instruments(U.S.)
18%
AnalogDevices (U.S.)
13%

Others42%

LinearTechnology(U.S.)
7%

Maxim
Integrated
Products (U.S.)
9%

National
Semiconductor (U.S.)
11%(World market total: $13.2 billion)
Source:Gartner Dataquest (April 2005) GJ06061

Figure 2-7. Composition of the World General-purpose Analog Market by
Manufacturer (2004)
14

Development Bank of Japan Research Report/ No. 57

multiple clients. In developing ASSPs to be used
for radio communication, image enhancement andautomotive control, among others, manufacturers
intend selling these to a wide range of clients, ensuring compatibility with as many interfaces andstandards as possible. Increasingly, a productoriginally developed as an ASIC gradually becomes an ASSP as sales widen. Indeed, the ASSP
market is growing faster than the ASIC market.
In the ASIC market, Japanese manufacturers
hold a decent position compared to such Westerncompanies as TI, IBM and ST Microelectronics(see Figure 2-8). However, in the emerging ASSP
market, which already exceeds the ASIC market
by over 160%, the largest shares are held byoverseas manufacturers including Philips, Intel,
Qualcomm, Infineon and TI, with Japanese companies trailing far behind (see Figure 2-9).
In some cases, Japanese manufacturers actually took an early lead in the development of
ASICs for specific clients, but were progressively
overtaken by overseas manufacturers as the
Texas
Instruments(U.S.)
17%
IBM
Microelectronics(U.S.)
11%

Others45%

ST Microelectros(France)
11%
Fujitsu(Japan)7%

NECElectronics(Japan)9%(World market total: $19.4 billion)
Source:Gartner Dataquest (April 2005) GJ06046

Figure 2-8. Composition of the World ASIC Market by Manufacturer (2004)
Philips
Semiconductors(Netherlands)
7%

Others70%

Intel (U.S.)
6%
Qualcomm(U.S.)
6%
InfineonTechnologies(Germany)
6%
Texas
Instruments(U.S.)
5%(World market total: $51.5 billion)
Source:Gartner Dataquest (April 2005) GJ06046

Figure 2-9. Composition of the World ASSP Market by Manufacturer (2004)
Development Bank of Japan Research Report/ No. 57

15

ASICs turned into ASSPs through generalized use
and volume production. Thus, Japanese manufacturers need to develop their own approach to theapplication-specific product business.
2.2. SoCs (System LSIs)
Among application-specific products, special
attention is focusing on SoCs (systems on chips:
system LSIs). Gartner Dataquest defines a SoC
as an ASIC or ASSP that integrates one or morecomputer engines, such as ARM, MIPS, a DSP
core or a graphic engine, in addition to memory
and logic. Although most ASICs and ASSPs
contain memory and logic, SoCs are different inthat they also integrate one or more computerengines.6
Commercialization of an LSI like SoC owes
much to the progression of semiconductor circuit
miniaturization from 130nm to 90nm and then to
65nm, effectively allowing a chip to integrate
numerous semiconductor devices. By integrating<Memory>

Memory
メモリ
Flash
フラッシュ
フラッシュ
メモリ
メモリ
memorySRAM
SRAM<Radio communication><Processors>

DSP
DSP(baseband)（ベースバンド）

DSP
DSP(application)（アプリケーション）

メモリ
Memory
SRAM
SRAM
Flash
フラッシュ
フラッシュ
メモリ
メモリ
memoryall the devices that were traditionally combinedon a substrate on one chip, SoCs are contributing
to downsizing, improved performance, powersaving and cost reduction. In expectation of afurther expansion of the SoC market, semiconductor manufacturers are strategically concentrating their investment and R&D resources on
SoCs, regarding the product as a core device for
digital consumer electronics and portable communication equipment.
So, what kind of chip is it exactly? A SoC
integrates all, or a major part, of the system in anelectronic product. Let’s take an example of a
SoC used in a third-generation (3G) cellular
phone (see Figure 2-10). When cellular phones
were used mainly for voice communication, mostof them were equipped with a baseband processor. With the development of camera phones inrecent years, various applications have been attached to cellular phones including music distribution, global positioning system (GPS) and TV.
Due to this sophistication, most portable termi-SoundsourceCameraGPS

Terrestrial
digital TV

RF/IFBluetoothIP
第３世代携帯に必要なIP
required for 3G cell-phones
WCDMA/CDMA2000/GSM

DRAM
DRAM
DRAM

Bluetooth
WiFi, GPS
MPEG4/JPEG
MP3 etc.
MP3,
など

LCD
LCDドライバ
driverPower supply/
電源・周辺
peripherals

CMOS
sensorCMOS センサ
カメラモジュール
Camera module

Integrated on one chip (SoC)
Sources:Interviews and various data.

Figure 2-10. Typical Composition of SoC for 3G Cellular Phones

6

Gartner, "SoC Market is Set for Years of Growth in the
Mainstream," Bryan Lewis, 17 October 2005, GJ06073.

16

Development Bank of Japan Research Report/ No. 57

nals are now equipped with an application control processor in addition to the traditional baseband processor. Moreover, further needs fordownsizing, higher performance, cost reduction
and power saving have initiated a trend to integrating the whole system, including processors
and memory, on a single SoC.
Thus, most functions of electronic products,
including cellular phones and digital consumer
electronics, are already being performed by core
semiconductors. These chips require intellectual
property protection of the technologies underlying moving and still images, voice compression
and radio techniques. In this sense, the value of a
product now depends on the quality of the embedded IP.
SoC production entails large-scale business
investments to introduce cutting-edge microfabrication processes. Among major Japanese companies, Toshiba invested ¥200 billion to build a

300mm wafer7 production line at its Oita plant,
introducing a leading-edge 65nm processing
technique. The production line became operational in the autumn of 2004. Other manufacturers are following suit. Fujitsu announced that it
would build a 300mm wafer fab for volume
production of logic LSI in Tado, Mie Prefecture.
Total investment in the fab, which is equippedwith two lines for 90nm and 65nm processing,amounted to ¥280 billion. NEC Electronics also
constructed a new facility in Tsuruoka, Yamagata Prefecture to produce LSI chips for digitalconsumer electronics and high-end computers.
Investment is clearly accelerating in the construction and expansion of 300mm wafer SoC
lines.
Profits from such SoC operations seem to be
insignificant so far. This is partly due to the huge
initial investment in state-of-the-art processes
that has resulted in considerable depreciation

Table 2-1. Trends in 300mm Wafer SoC Investment of Major Domestic Manufacturers
Plan announced
in

Plant

March 2004

Mie
(1 wing)

January 2006

Mie
(2nd wing)Toshiba

April 2003

Oita

NEC
Electronics

November 2003

Yamagata

Sony

April 2003

Isahaya, etc.

Matsushita
Electric
Industrial

June 2004

Uozu

Companyst

Fujitsu

Sources:

Description
Construction of a 90nm processing facility for volume
production of logic LSI: capacity of 15,000 chips/month(to be realized by the end of FY2006)
Construction of a 65nm processing facility for volume
production of logic LSI: capacity of 10,000 chips/month(to be realized by the end of FY2007)
Construction of a new 65nm processing production facility for leading-edge system LSI: capacity of 12,500
chips/month
Construction of a new 130-90nm processing production
line for system LSI: capacity of 11,000 chips/month (to berealized by mid-FY2006): primary focus on system LSI
for cellular phones and digital consumer electronics
Introduction of a 65nm processing semiconductor facilities: production of system LSI including a next-generation
general-purpose processor (CELL): capacity of 15,000
chips/month
Construction of a new wing for 65nm processing: production of system LSI required for DVD, digital TV, mobile
communications, networks, image sensors, etc. Capacityof 6,500 chips/monthAmountOperationalin¥160 billion

April 2005

¥120 billion

April 2007

¥200 billion

Autumn2004¥80 billion

End 2004¥200 billion(FY20032005)2005¥130 billion

October
2005

Company websites

7

The total silicon surface area of a 300mm wafer is 225%,or more than twice that of a 200mm wafer, and the numberof computer chips is increased by 240%. Using 300mm
manufacturing technology consumes 40 percent less energy
and water per chip than a 200mm wafer factory. According
to industry experts, bigger wafers lead to a spectacular increase in chip production while diminishing the cost of
manufacturing (see Intel website).

Development Bank of Japan Research Report/ No. 57

17expenses. Additionally, the retail prices of final
products such as digital consumer electronics
have been falling faster than expected, negatively
affecting profits by exerting downward pressure
on the price of SoCs which were originally intended as a high value-added product.
SoCs require substantial development cost
as most are custom made for a particular client.
At the same time, the life cycle of electronic
products is becoming shorter. For a SoC developed with a substantial number of man hours, a
return on investment will be hard to achieve if
the final product fails to find a market. Althoughmany Japanese manufacturers have turned to
special-purpose ASICs as a means of financial
survival, they have not always been successful inturning their efforts into profits. Immediate
measures should be taken in the SoC industry to
prevent history from repeating itself.
This chapter has analyzed the competitive
advantage of Japanese manufacturers in major
general-purpose and application-specific prod-

18

Development Bank of Japan Research Report/ No. 57

ucts. The result indicates that they are trailingfurther behind overseas competitors, as they havebeen unsuccessful in increasing their share ofgeneral-purpose markets and in standardizing
application-specific products. The challenge facing Japanese manufacturers of improving profitability in application-specific businesses should
also be a major issue for overseas companies. In
reflecting on policies to reactivate the Japanese
semiconductor industry, it is essential to understand, from a global perspective, how overseas
manufacturers are trying to develop their own
application-specific businesses.
In this regard, we conducted a field survey
on the Taiwanese semiconductor industry, which
has experienced significant growth in recent
years. By comparing the strategies of Taiwaneseand other foreign manufacturers, the following
chapters try to identify current conditions andfuture challenges that face the Japanese semiconductor industry.

– are semiconductor manufacturers, followed by
61 opto-electronic companies, 58 computer/peripheral device manufacturers and 52
communication companies. Thus, the Science
Park constitutes a major hub of electronic industries, with semiconductor devices at the core (seeFigure 3-1 and Table 3-1).
The Hsinchu Science Park is administeredby the Science Park Administration, placed under the direct control of the Executive Yuan.
Since its inception in 1980, a total of $1.68 billion (about ¥200 billion) has been invested ininfrastructure and facility development. The Industrial Technology Research Institute (ITRI),
located near the Science Park, not only facilitates
research in leading-edge technologies and technology transfer to private enterprises, but also
provides financial support, having invested in

III Taiwanese Semiconductor
Industry on the Move: Business
Model of Vertical Specialization
1.

Concentration of the Semiconductor
Industry in Hsinchu Science Park

Taiwan has three Science Parks: Hsinchu Science Park in the north (established in 1980),
Central Taiwan Science Park (2003) and Southern Taiwan Science Park (1996).8 Of these, theHsinchu Science Park is considered to be theTaiwanese version of Silicon Valley. With anarea of 632ha, the Hsinchu park accommodates
large-scale fabs (factories) and research facilities
for 384 enterprises (as of December 2004). By
industry, 164 companies – over 40% of the total
Lungtan Base (198)
Hsinchu Biomedical Base (38)
Hsinchu Science Park (632)

Establishedin 1980

Zhunan Base (118)Tunglo Base (353)

Yilian Base(Phase I: 600)

Establishedin 2003

Central Taiwan Science Park
Taizhong Base (332)

10 Science Parks in total

Yunlin Base (97)
Establishedin 1996

Southern Taiwan Science Park
(1,038))Kaohsiung Base (571)Note:
Source:Area is in parentheses (ha).
Science Park Administration

Figure 3-1: Science Parks in Taiwan (including those under consideration)
Table 3-1. Companies in Hsinchu Science Park by Industry(as of December 2004)

Integrated circuits
PCs/peripherals
Communications
Optoelectronics
Precision machinery
Biotechnology
Total
Source:No. ofcompanies
164
58
52
61
21
28
384

No. ofemployees
66,467
14,268
7,258
24,932
1,529
1,023
115,477

Sales($ million)
22,309
4,147
1,816
3,927
277
76
32,552

Change in sales fromprevious year (%)
32
3
10
39
60
39
27

Science Park Administration

8

Including those under construction or consideration, 10
Science Parks will be constructed in total.
Development Bank of Japan Research Report/ No. 57

19

(persons)
120,000
100,000
80,00060,00040,00020,00001990

Source:

1992

1994

1996

1998

2000

2002

2004
(year)

Science Park Administration

Figure 3-2. Number of Employees in Hsinchu Science Park
more than 40 companies operating in the Park.
As shown in Figure 3-2, the number of employees of the Science Park has grown rapidly
since the mid-1990s to reach a present level of
115,000. This number includes more than 4,000
who, having studied abroad, went on to create
116 enterprises over the 24 years since the opening of the Science Park. Indeed, people who havestudied abroad or returned from Silicon Valley
have played a key role in the development of the
Taiwanese semiconductor industry.
Generous public support measures are available to the companies operating in the Science
Park. In addition to exemption from business income tax (at a maximum rate of 25%), they canobtain loans from the Chao Tung Bank, a publicfinancial institution, with interest reductions of
2.15 to 2.5%. They are also exempt from importand freight taxes when importing semiconductor
manufacturing equipment, and from business tax
when exporting processed goods. An R&D grantof some 5 million Yuan (¥17.5 million) is also
provided to projects that qualify. It appears thatthese support measures are all the more effective
because they are implemented in conjunction withother measures such as technology transfer, human resource development and the provision of
infrastructure to facilitate partnerships between
SMEs, which are very common in Taiwan.
Moreover, Taiwan has made the development of
its semiconductor industry a clear priority. It iseasy to understand why such close collaboration
between industry, government and academia has
20

Development Bank of Japan Research Report/ No. 57

contributed substantially to the growth of the
Taiwanese semiconductor industry.
In Taiwan, as in many developed countries,
volume production facilities have been transferred overseas in recent years mainly due toconcerns about production cost. Under these circumstances, an increasing number of manufacturers are making design the core of their operations. The Science Park Administration also envisages measures to attract more R&D-oriented
enterprises, including fabless companies.
2. Taiwanese Semiconductor Industry:
Development of the Business model of Vertical
Specialization
2.1. Two Business Models in the
Semiconductor Industry
Two types of business model exist in the semiconductor industry: integrated device manufacturers (IDMs), which deal in the whole manufacturing cycle, ranging from upstream
logic/circuit design to downstream production
processes, and companies specializing in either
the upstream or downstream segment.
Most of the major Japanese semiconductor
manufacturers are IDMs. Moreover, many ofthem function as part of a general electronics
manufacturer. Each of the Japanese general electronics manufacturers is a group with diverse
business interests ranging from computers,
communication equipment, white goods and AV

General
manufacturers

Specialized
manufacturers

Specialized incomputers

Company F

Specialized incommunications

Company G

Consumer electronics

Specialized inconsumerelectronics

Company H

SoftwareSpecialized insoftwareCompany I

Communications

Source:Company D
Company D

Computers
Company C

Company E

Company B

Specialized insemiconductors

Company A

Semiconductors

Japan Electronics and Information Technology Industries Association, “IC Guidebook.”

Figure 3-3. Business Models: General Electronics Manufacturers and Specialized Companies
equipment to system development. Within agroup, the semiconductor department has traditionally developed semiconductors for thegroup’s set products (internal sales). In contrast,
most of the major foreign manufacturers, including Intel and TI, have specialized in semiconductors. Other companies, such as IBM and
Qualcomm, have also narrowed down their corebusinesses to a considerable extent, specializingin computers and semiconductors, or in communications and semiconductors (see Figure 3-3).
Major Japanese manufacturers tend to havefull lineups in their semiconductor departments,
ranging from memory and microcontrollers toanalog and discrete devices. Meanwhile, successful overseas manufacturers are concentrating
their managerial resources on specific products:
Korean manufacturers are still focusing on
memory as they expand their activities, while
U.S. manufacturers retain overwhelming market
shares in key products such as processors and
FPGAs/PLDs.
Most Taiwanese companies, which are relative newcomers in the market compared to U.S.
and Japanese manufacturers, have specialized in
specific areas through vertical integration, rather
than covering the entire business process fromdesign to in-house production. In particular,
Taiwanese companies specializing in manufacture under contract (foundries) have establishedglobal partnerships with fabless ventures in Silicon Valley which specialize in design, achieving
significant growth through the synergy effectgained from this division of labor (see Figure3-4). The business model of “vertical integration,” which emerged very rapidly in the 1990s,
has brought about radical changes in the world
semiconductor industry.9
Taiwan is also a global hub of PC and peripheral manufacturing under contract. In a sense,
the existence of PC and other supply chains provided a growth opportunity for the numerous
Taiwanese SMEs, eventually consolidating thesystem of specialization and interdependence.
The development of a unique business model,
completely different from the traditional IDMs,
may be attributed to their effort to overcome theconstraints of market size in Taiwan by building
interdependent relationships in a framework ofinternational specialization.

9

In the vertical integration model, the relationship between
fabless companies and foundries differs from the simple
specialization scheme of “specialization in design/contracted
manufacture.” It should be noted that fabless companies andfoundries are deepening their relationship throughout thevertical business flow beginning with design and ending withproduct output. As will be described later, fabless companies
and foundries are seeking to enhance their complementary
relationship. This type of close partnership may be describedas “virtual integration based on specialization.”

Development Bank of Japan Research Report/ No. 57

21Vertical integration(IDMs)

Vertical specialization

Fabless
Logic design

Logic design↓↓

Circuit design

Circuit design
IP provider(IP core/softwaredevelopment)

Company D

Company C

Company B

Production: 1st stage

Company A

IP core/softwaredevelopment
Foundries
Contracted
manufacture

Production: 2nd stage(assembly → inspection)

Subcontractor
Contracted manufacture(2nd stage)

Testhouse
Inspection

Assembly → Inspection

Note:
Sources:

IDMs: integrated device manufacturers.
Japan Electronics and Information Technology Industries Association, “IC Guidebook;” interviews.

Figure 3-4. Vertical Integration and Vertical Specialization Business Models
2.2. Business Flow in a Vertical
Specialization Model
Typically, a vertical specialization model adopts
the following business flow. First, a fablesscompany, at the request of an end user, designs
and develops a semiconductor that meets theneeds of the client. Once the design is completed,the fabless company sends the design data to afoundry to outsource production. The foundry
usually executes the earlier production processes
in its own fab, but outsources assembly and inspection to a subcontractor or testhouse.
In the world of semiconductors, functional
circuit blocks and software are referred to as intellectual property (IP). Thus, companies thatspecialize in the development and external salesof IP are known as “IP providers.” In the verticalspecialization model, they design semiconductors by combining the IP developed by fablesscompanies with those retained by clients. If any
prevailing IP serves as a de facto standard, however, its use requires licensing from the provider.
2.3. Vertical Specialization Structure in the
Taiwanese Semiconductor Industry
Figure 3-5 shows the structure of the semiconductor industry in Taiwan. Needless to say, Taiwan has an advantage in the production department, where foundries play a key role. Many
22

Development Bank of Japan Research Report/ No. 57

manufacturers that specialize in the later production processes of assembly and testing are also
operating under contract for a wide range ofoverseas clients.
It should be noted that Taiwanese fablesscompanies have been growing very rapidly inrecent years. As of 2004, Taiwan had 260 fablesscompanies, an increase of more than 80% fromthe 140 companies that existed in 2000.10 Thus,
Taiwanese companies are increasingly making
their presence felt, in upstream design as well as
downstream production.11
The composition of sales by business category verifies this trend. Taiwanese foundries’
sales amount to $11.9 billion (2004), of which
the leading company TSMC (Taiwan Semiconductor Manufacturing Company) accounts for$7.7 billion. Although the figure does not reachthe level of Samsung Electronics ($17.3 billion)
or of TI ($10.9 billion), it is comparable to thesales figures of major Japanese semiconductor
manufacturers.
Non-foundry manufacturer sales figures
have almost reached those of foundries ($11.2
billion). Although these statistics include DRAM
10

Industrial Technology Research Institute, “Semiconductor Industry Yearbook 2005.”
11
Taiwanese fabless companies will be described in detaillater in this chapter.

Design 260 companies
Fabless

Mask 4 companies
Wafer production
8 companies
Production 13 companies
Chemicals
18 companies(of which 6 are foundries)

Assembly 35 compaines

Testing 34 companies

Source:Industrial Technology Research Institute, “Semiconductor Industry Yearbook 2005.”

Figure 3-5. Structure of Vertical Specialization in Taiwanese Semiconductor Industry
Table 3-2. Sales of Taiwanese Foundries(2004)
Company
TSMC
UMC
Others
Total
Source:Sales($100 million)
77
35
7
119

Gartner Dataquest (May 2005) GJ06003

Table 3-3. Sales of Major Taiwanese Semiconductor Manufacturers(excluding foundries: 2004)
Company
Nanya Technology
Media Tek
Powerchip Semiconductor
Others
Total
Source:manufacturers, leading fabless companies already have total sales figures comparable to major DRAM manufacturers. This points to thespectacular surge of fabless companies in Taiwan.
2.4. Comparison of Profitability between
Japanese and Overseas Manufacturers
The increased presence of Taiwanese manufacturers is clear, not only in terms of their sheer
scale, but also in terms of their strong earning
power.
According to the World Semiconductor
Trade Statistics (WSTS), the world semiconductor market grew by 28% from the previous year
to reach $213 billion in 2004, hitting a new re-Sales($100 million)
12
12
11
77
112

Gartner Dataquest (May 2005) GJ06003

cord high over the previous peak of $204.4 billion in 2002, at the height of the IT bubble. Annual market growth almost reached the previous
high recorded in 2000. The boom in the world
semiconductor market may be explained by newuses for semiconductors in fields like digitalconsumer electronics and automobiles, in addition to existing uses in PCs and cellular phones.
Against this backdrop, a substantial gap in
earning power has emerged between major
Japanese and overseas semiconductor manufacturers. To compare the performance of major
Japanese and foreign manufacturers in FY2004,
Figure 3-6 plots annual sales growth and operating profit ratio for the two categories. High operating profit ratios were attained by Intel (29.6%),

Development Bank of Japan Research Report/ No. 57

23

50

Operating profit ratio (%)

40

Samsung Electronics(large IDM)Media Tek(fabless)

TSMC(foundry)Intel(large IDM)

30

Xilinx
UMC (foundry)(fabless)
ARM (IP provider)
TI (large IDM)

20
RenesasTechnology

Toshiba
Philips10
Sharp

NEC Electronics

0-20Japanese manufacturers
Foreign manufacturers

0

ST Microelectronic

Freescale
Infineon

20

Sunplus(fabless)

Elpida Memory

Micron
AMD

40

60

80

100

120

Annual sales growth (%)

Note:Financial year ends in March for Japanese manufacturers and in December for foreign
manufacturers except for Micron (August) and Infineon (September).

Sources:

The Semiconductor Industry News; corporate closing statements.

Figure 3-6. Earning Power of Major Domestic and Foreign Semiconductor Manufacturers(FY2004)
TI (18.7%) and Samsung Electronics (41.1%),
among others. These companies also recorded ahealthy sales growth. Taiwanese manufacturers
also achieved high operating profit ratios: 36.1%
for SMC, 21.4% for United Microelectronics
Corporation (UMC), and 36.8% for fabless Media
Tek. In comparison, sales growth for most of theJapanese manufacturers stayed far below theoverall average. Their sub-par performance is also
apparent in single-digit operating profit ratios.
Highly profitable manufacturers may begrouped into the following four categories:
1) Leading IDMs (Samsung Electronics, Intel, TI)
2) Foundries (TSMC, UMC)
3) Fabless companies (Xilinx, etc.)
4) IP providers (ARM, etc.)
Among IDMs, only the top three companies
are reaping high profits. They seem to be enjoying the advantage of scale by maintaining an
overwhelming market share in their core products. In comparison, other IDMs have clearly
fallen behind the top group in terms of profitability. This second-tier group includes European
IDMs like Infineon and Philips, as well as Japanese manufacturers, who are all struggling to
24

Development Bank of Japan Research Report/ No. 57

make respectable profits. This trend continued
well into FY2005.
In the final analysis, overseas manufacturers
have seized market expansion opportunities toimprove their performance by responding
quickly to the new business model of verticalspecialization, while Japanese manufacturers
have failed to capitalize on emerging business
opportunities. If this trend continues, Japanesemanufacturers could be left further behind in theyears ahead.
3. Factors behind the Emergence of a
Vertical Specialization Business Model
The vertical specialization model which haschanged the semiconductor industry was bornout of the industry’s structural metamorphosis. In
the late 1980s and early 1990s, application-specific products gradually took center stage
from the once-mighty DRAM. Key differentiation factors for application-specific products included techniques to design logical and efficient
circuits in shorter time periods, as well as pro-

duction process technologies like microfabrication and yields. As a result, most of the added
value was created in the design department,
prompting successive design venture startups,
particularly in Silicon Valley.
In the meantime, widespread use of electronic design automation (EDA) tools, which
automate the plotting of transistor configuration
and wiring on silicon boards, enabled logic designers, who were not silicon specialists, to design circuit layouts. This also boosted the separation and independence of the design and production departments. Market entry became easier asprocess development expertise, traditionally accumulated in-house by semiconductor manufacturers, was integrated into manufacturing equipment. It became possible to manufacture semiconductors just by procuring technologically advanced equipment.
Among the first to detect these changes in thesemiconductor industry was Morris Chang, whofounded the world’s first foundry, TSMC, in 1987.
He thought that talented designers were likely tostart up their own fabless companies, now thatanyone could launch a semiconductor businesswithout a sizable initial investment by specializing
in design. He saw a golden opportunity in thefoundry business, operating under contract to thepotentially thriving fabless sector.12 Preoccupied
with their own brands, IDMs at that time could
not partner with fabless ventures.
Fabless companies find it difficult to outsource production to IDMs, which, with theirown design departments, could become directcompetitors. The advent of foundries provided
them with trustworthy partners. Thus, fablesscompanies began to develop in tandem withfoundries acting as their subsidiaries. This relationship created a win-win situation: the growthof foundries expanded the scope of activities forfabless companies and IP providers, which inturn brought further growth to foundries.
Even a venture business, without production
facilities, could commercialize self-developed
semiconductors with the help of a foundry. It
could even exert substantial influence on thesemiconductor industry if its superiority was
12

See Wu (2004), p.76 for developments leading to theestablishment of TSMC.

recognized. In the 1990s, innovative semiconductor ventures in Silicon Valley established abusiness practice of supplying their original
products to the market while contracting out the
production to foundries. Xilinx and Altera,
global leaders in the FPGA/PLD market, are twosuch Silicon Valley ventures which have growninto world-class fabless companies. Vertical specialization has freed semiconductor manufacturers from the risk of business investment and has
encouraged new entries.
Today, it is increasingly difficult for corporate managers to grasp the entire scope of thesemiconductor industry, and make unerringbusiness judgments, unless they are particularly
well-informed about the nature of the business.
Specializing in specific fields such as design,development of core IP, wafer production, packaging and testing allows companies to makeprompt business judgments from a professional
viewpoint. This may also serve to encourage adivision of labor.
A substantial degree of coordination between design and production is required in thesemiconductor industry. In order to compete with
IDMs, which retain both functions in-house,companies specializing in design or production
seek to adopt a comprehensive approach within
the framework of a vertical specialization modelby establishing complementary relationships
while sharpening their own business focus.
4. Increased Presence of Taiwanese
Manufacturers in the World Semiconductor
MarketThis chapter identifies the position of Taiwanesemanufacturers in the world semiconductor market.
4.1. Foundries
Worldwide foundry sales totaled $18.7 billion in
2004. This figure has almost doubled since 2001,
driven by the growth of fabless companies.
Foundries are reported to produce one quarter ofthe world’s semiconductors on a sales basis.13
13
Gartner Dataquest, "Foundries Enhance the Semiconductor Value Chain," James F. Hines, April 27, 2005,
GJ06062.

Development Bank of Japan Research Report/ No. 57

25

TSMC holds an overwhelming share in the world
market, followed by UMC, Chartered Semiconductor (Singapore) and Semiconductor Manufacturing International Corporation (SMIC:
China) (see Figure 3-7). The basic strategy of afoundry is to maintain competitiveness by concentrating managerial resources on production toincrease capacity and to use economies of scale
for cost reduction. Both TSMC and UMC havehigh ratios of business investment to sales (some30-40% in 2004), attesting to the foundries’commitment to maximize economies of scale.

4.2. Assembly under Contract
Most foundries focus their activities on the initialprocesses, outsourcing the later processes andtesting. The contracted assemblers, also known
as “subcontractors,” are mainly located in Asia.
Three of the five world-leading subcontractors
are in Taiwan: Advanced Semiconductor Engineering (ASE), Siliconware Precision Industries(SPIL) and ChipMOS. Those specializing in thetesting process, known as “testhouses,” are also
located in Taiwan for the most part.

TSMC(Taiwan)
40.9%

Others25.3%

IBM
Microelectronics(U.S.)
4.5%
SMIC (China)
5.2%

Chartered Semiconductor(Singapore)
5.9%

UMC
(Taiwan)
18.2%(Total: $18.7 billion)
Source:Gartner Dataquest (October 2005) GJ05446

Figure 3-7. Composition of World Foundry Sales by Manufacturer (2004)
ASE Group(Taiwan)
18.1%
Amkor (U.S.)
14.1%

Others49.0%

SPIL (Taiwan)
7.8%
ChipMOS(Taiwan)
3.3%

STATS ChipPAC(Singapore)
7.7%(Total: $13.5 billion)
Source:Gartner Dataquest (October 2005) GJ05446

Figure 3-8. Composition of World Assembly/Testing Subcontract Market by
Manufacturer (2004)

26

Development Bank of Japan Research Report/ No. 57

The labor cost ratio is considered to behigher in the later processes than in the increasingly unmanned initial ones. AEA, the leading
subcontractor, has a workforce of 34,000.14 For
this reason, even IDMs have traditionally outsourced wafer testing, packaging and final testing. In recent years, some manufacturers haveoutsourced the later processes in an effort to restructure their production system. For example,
NEC Electronics sold its NEC Yamagata’s Takahata plant to the ASE Group in 2004, in linewith its stated policy to outsource the productionof general-purpose products.
Foundries that used to receive orders primarily from fabless companies are increasingly
involved in production under contract with IDMs.
In the case of TSMC, orders from IDMs accountfor 28% of total production.15 Some IDMs are
actually adopting the “fab-lite” strategy, using
their own fabs in parallel with foundries. Thisbusiness model is expanding because it reduces
the investment burden yet maintains a flexible
production capacity.
4.3. Fabless Companies
Being specialists in design and development,
fabless companies do not have their own production facilities: production is contracted out tofoundries. Many ventures enter the fabless mar-ket as they do not need huge amounts of initial
capital to do so. Indeed, fabless companies forma major colony in Silicon Valley.
The market leader Qualcomm has developed CDMA technology, currently a global
communication standard for cellular phones. The
company also designs and markets de facto
standard products using this technology. nVIDIA
and ATI Technologies (Canada) excel in graphics processors (GPUs), while Xilinx has the edge
in FPGAs/PLDs. Most fabless companies concentrate resources on their core business area andretain an overwhelming share in a specific market, making effective use of the de facto strategy
and partnerships.
Recently, fabless companies have been
showing spectacular growth in Taiwan. The
number of fabless companies has increased from
160 in 2000 to 260 in 2004. On the back of significant improvements in design skills, substantial sales growth has been recorded by companies
such as Media Tek, VIA Technologies and Sunplus Technology.
The distribution of clients for Taiwanesefabless companies indicates that their share of
Taiwanese clients dropped from 59% in 2000 to
37% in 2004, while that of Chinese clientssoared from 22% to 55%.16 As production bases
continue to be transferred overseas, Taiwanese

Qualcomm(U.S.)
11%

Broadcom(U.S.)
8%nVIDIA (U.S.)
6%

Others64%

Xilinx (U.S.)
5%
ATI
Technologies(Canada)5%(Total: $29.1 billion)
Source:Gartner Dataquest (April 2005) GJ05447

Figure 3-9. Composition of World Fabless Sales by Manufacturer (2004)14

According to the ASE website.
Actual figure for Q4 2005 according to the TSMC website.
15

16
Industrial Technology Research Institute, “Semiconductor Industry Yearbook 2005.”

Development Bank of Japan Research Report/ No. 57

27

fabless companies seem to have achieved sustainable growth by securing the fast-emerging
Chinese electronics industry.
4.4. IP Providers
Semiconductor manufacturers develop the IP
required for differentiating performance or functions in-house, but procure de facto standard IP
from external sources to reduce development
periods and costs. “IP providers” develop thedesign assets (IP) that form the core of semiconductors and provide licenses to semiconductor
manufacturers. Since IP is legally protected,
semiconductor manufacturers enter into contracts
with companies that own the IP and pay licensing fees.
IDMs have accumulated numerous chip designs and IP in-house. Some even do without any
third-party IP and develop their own products.
However, leading IP providers issue IP licenses
to IDMs as well as to fabless companies. Apparently, IDMs have come to think that from thetime-to-market perspective, self-development of
all products is not worth the substantial costs andtime required.
Sales of semiconductor IP (to third parties)
totaled $1.3 billion in 2004, up 21% from theprevious year. In particular, substantial needs

exist for IP related to the processor core; this ispredominantly provided by ARM (U.K.) andMIPS Technologies (U.S.). As described in
Chapter II, a processor, once introduced, requires
its own compiler and software. The first productto be popularized is likely to become the de facto
standard. Indeed, processors form the core ofsemiconductors, exerting a substantial influenceon peripheral products. Failure to integrate IPthat meets the de facto standard on a semiconductor might eventually inhibit sales of the set
product. For example, ARM has set the de facto
standard for power-saving processor cores, currently used in a wide range of products including
cellular phones. Elsewhere, the need for interface
IP is also growing as interconnection via networks gains importance.
IP providers are under heavy pressure as
their businesses will not be viable unless theyacquire partners to spread their IP. The successof an IP provider depends on the development of
IP that can lead the pack in performance andprovide a proper support structure for building
partnerships and ensuring market penetration ona global scale. Without full logistic support for
setting a global standard, including software andthe design environment, no IP will stand the testof time and hence, no asset value can be expected from it.
ARM (U.K.)
24.5%

Others45.5%

Rambus (U.S.)
11.4%

TTPCom (U.K.)
8.2%
MIPS Technologies(U.S.)
Synopsys (U.S.)
4.5%
6.0%

(Total $1.3 billion)
Source:Gartner Dataquest (October 2005) GJ05446

Figure 3-10. World Sales of IP Providers (2004)

28

Development Bank of Japan Research Report/ No. 57

So far, Western IP providers have dominated the market, and no Asian companies, including those in Taiwan, are in a position tocatch up. Taiwanese manufacturers are trying tocompensate for their weakness in IP by making
the most of the international specialization model,
sourcing top-level IP from all corners of theearth. Enhancement of skills in semiconductor
design and IP development is also pursued
through industry-academia-government collaboration, including efforts to develop human resources and improve the design environment inuniversities.

Development Bank of Japan Research Report/ No. 57

29

seeking to improve design efficiency throughcloser partnerships with foundries.
This chapter outlines the steps taken by
Taiwanese fabless companies and foundries to
respond to the emerging SoC business.

IV Response of the Taiwanese
Semiconductor Industry to the SoC
Business: Enhanced Partnerships
between Fabless Companies andFoundries

1.
The previous chapter provided an overview of
the Taiwanese semiconductor industry, which
has achieved spectacular growth using the vertical specialization business model. The strengthsof Taiwanese foundries include: (1) cost competitiveness, (2) quality service, (3) leading-edge
technology, (4) broad product lineups and (5)provision of IP libraries. In addition, Taiwanesefabless companies have also been growing rapidly, gaining recognition as new outsourcing
partners for semiconductor design.
With the progress of semiconductor miniaturization to the nano-level, collaboration between the design and production departments has
become increasingly important in recent years tosolve problems resulting from the integration ofmultiple functions on one chip. Against thisbackdrop, foundries are taking various steps toevolve from mere manufacturers under contract,
to solution providers. Fabless companies are also

Evolution of Foundries from Contract
Manufacturers to Solution Providers

1.1. Large-Scale Investments in 300mm
Wafer Fabs
The strength of Taiwanese foundries lies in theirpro-active investment stance. Figure 4-1 shows
the amount of business investment in the world
semiconductor industry by region. 17 Total investment reached $48.3 billion in 2004, with asimilar amount expected for 2005. Investment in
the Asia-Pacific region largely exceeded that inNorth America, which demonstrates that Asia
has now become the global hub of semiconductor production. Above all, investment in Taiwan
surged to $8.25 billion in 2004, surpassing thatof Korea and equivalent to three quarters of investment made in Japan. This substantial increase is due to large-scale investments made by
the two major foundries, TSMC and UMC, forthe construction of 300mm wafer fabs (see Table($100 million)
483.6

500

466.2

44.5
400

101.7

46.3

Europe102.5

North America

296.6
300

200

35.0

78.9

35.3
40.7

0

109.5

79.3
70.1

100

Japan

111.5

36.3
2003

Source:64.5

56.3
AsiaPacific

82.5
2004

Asia-Pacific(excluding Korea andTaiwan)
Korea

77.0

74.6

Taiwan2005 (estimate) (year)

Gartner Dataquest (December 2005) GJ06004

Figure 4-1. Business Investment of World Semiconductor Manufacturers by Region
1730

Development Bank of Japan Research Report/ No. 57

Based on the location of investment.

4-1). Investment by the leading foundry TSMC
reached $2.48 billion in 2005, thus exceeding theinvestment levels of most Japanese manufacturers.
Compared to Japanese manufacturers, Taiwanese foundries are characterized by a greater
production capacity per fab. They have been improving cost competitiveness by achieving
economies of scale derived from overwhelming
investment. Maximum flexibility is the mostcompelling criterion in selecting new equipment.
Meeting the various needs of clients is the key toa foundry’s survival. In this respect, it is essential
to increase the flexibility of products and tomaintain broad product lineups. It is reported that
TSMC has more than 300 active customers andmanufacturers for the 5,000 products in its fabs.18
Having multiple clients also leads to risk diversification. Since the client base of a foundry covers

a broad area including communications, consumer equipment and computers, it can expect toreduce volatility by offsetting a decline in one
segment against an increase in another.
With respect to microfabrication, Taiwanesefoundries have already achieved volume production with the leading-edge 90nm processing
method and are expected to launch prototypes for
65nm processing by the end of 2006. Although
there are some pending issues, including yields,
it is certain that they are catching up in the fieldof leading-edge technologies.
1.2. Sources of Cost CompetitivenessThis sub-section analyzes cost competitiveness,
one of the strengths of Taiwanese foundries,
from the financial aspect. As shown in Table 4-2,
the sales/cost ratio of the market leader TSMC
has remained at the extremely low level of 55%.

Table 4-1. Operation of 300mm Fabs by Taiwanese Foundries
Company/fab

Operational in

Maximum capacity

Minimum line(,000 chips/month)

width (nm)130Remarks

TSMC
12 A

2002

25

Fab 14A

2004

35

90

12B

2005

25

90

65 nm processing to be started in Q2/06.

UMC
Fab 12A

2001

40

90

65nm processing prototype to be launched in H1/06.

Fab 12 i

2004

40

130

Singapore

Sources:Industrial Technology Research Institute, “Semiconductor Industry Yearbook 2005;” company websites.

Table 4-2. Cost Advantage of Taiwanese Foundries (FY2004)
TSMC
Sales

UMC

NEC Electronics(¥100 million)

Ratio(¥100 million)

Ratio(¥100 million)

Ratio

8,323

100.0%

4,181

100.0%

7,080

100.0%

Sales cost

4,575

55.0%

2,988

71.5%

4,859

68.6%

Gross profit

3,748

45.0%

1,192

28.5%

2,221

31.4%

Operating cost

1,889

26.7%

810

11.4%

885

10.6%

485

11.6%

Sales & marketing expenses

109

1.3%

90

2.1%

General and administrative expenses

371

4.5%

157

3.8%

405

4.9%

238

5.7%

1,079

15.2%

Operating profit

Research and development expenses

2,863

34.4%

706

16.9%

332

4.7%

Pre-tax profit

2,976

35.8%

1,027

24.6%

264

3.7%

Net profit

2,987

35.9%

1,030

24.6%

160

2.3%

Notes: 1. The financial year ends in December for TSMC and UMC and in March for NEC Electronics.
2. Exchange rate (2004 average) T$1＝¥3.236.
Sources:
18

Corporate annual reports.

See “TSMC 2004 Business Overview.”
Development Bank of Japan Research Report/ No. 57

31

Foundries have achieved growth by specializing
in production and concentrating managerial resources on capacity enhancement to realize theeconomies of scale that reduce costs. Japanesemanufacturers need to identify any potential toreduce production cost by conducting a thoroughreview of their operations against the Taiwanesestandard.
In addition to high profit margins, Taiwanese manufacturers have achieved substantial
profitability by curtailing sales/marketing, general/administrative and R&D expenses, measured
against sales. The lower level of R&D expenses
may be natural because foundries and fablesscompanies have specialized in contract manufacturing and product design/development, respectively. However, it should not be overlookedthat sales/marketing expenses and general/administrative expenses, as percentage ofsales, are also lower in Taiwan than in Japan.
The large sums of money invested by Japanese
IDMs in sales and R&D have not necessarily
resulted in improved profits. Without doubt, thisfact reflects some of the serious problems facing
Japanese manufacturers.
1.3. Challenges in Developing Nano-Level
SoCs
As manufacturing processes shift to thenano-level (below 90nm), foundries have beenrequired, in recent years, to deal with chips withextremely high degrees of integration, such as
SoCs. A nano-level SoC requires a highly com-plicated system design and is fraught with technical problems, including time delays, due to thecomplexity of wiring and the noise arising fromthe interaction of neighboring circuits (crosstalknoise). The design department and the production department need to collaborate closely to
manufacture this type of chip. Manufacturing
processes have changed radically from the established process used to produce previous-generation chips.
Taiwanese manufacturers were once thought
to rely on their cost competitiveness to gain profits, focusing on the volume zone rather thanventuring into high-tech fields that require coordination of design and production. The recent
entry of foundries into the SoC business may be
explained by their awareness that a simple contract manufacturing model, which only prescribes a strict division of labor between fablesscompanies (design) and foundries (production),
is not sufficient to meet the new challenge of
SoCs.
1.4. Efficient Design and Manufacture
through IP Libraries
How are foundries responding to the SoC business under these circumstances?
Because various IP is integrated on a single
SoC, it is impractical for a company to develop
all the IP from scratch. This would take too longand cost too much, affecting profitability andpossibly even leading to the loss of clients. For
this reason fabless companies have to focus their

Table 4-3. Challenges in Designing/Developing Nano-level SoCs
Challenges in developing nano-level SoCs (less than 0.09µm=90nm)(i) Complexity of system design(ii) Solution of issues related to timing, crosstalk noise, etc.
(iii) Improvements in design efficiency through effective use of EDA tools(EDA: electronic design automation)(iv) Increases in mask cost(v) Development/procurement of optimum IP
x It is difficult for a company to develop any SoC on its own.
x It is important to develop optimal chips in a prompt manner by combining in-house IP with other IP developed aroundthe globe.
→ Increased international specialization and interdependence
Source:32

Development Bank of Japan

Development Bank of Japan Research Report/ No. 57

operations on core design. They need to build asystem of international specialization to ensure
the speedy supply of proper SoCs to their clientsby combining their own design assets with othercompanies’ resources.
In developing a SoC for image processing,for instance, the fabless company dedicates itself
to the time-consuming development of graphic
design, while the foundry prepares an IP libraryfor input-output circuits, peripheral circuits related to memory and power supply. This dual
mechanism serves to reduce total design time,
because foundries create in advance libraries of
essential IP that is commonly used on manychips. Foundries are also recruiting design engineers in an effort to develop the bare minimum
IP for memory and peripheral circuits in-house.
Thus, foundries have now extended their operations upstream to support design activities,
working closely with fabless companies from theinitial stages of chip development. By enhancing
their partnerships with fabless companies, foundries are attempting to supply clients with theirown SoC solutions.
IP manufactured on a foundry’s production
line is verified before being included in its library. Chips designed in this way are therefore
likely to function properly. Since multiple IP is
combined on a single SoC, many chips do not
function properly at the production stage, even if
problems were not detected at the design stage.
By disclosing their IP libraries to the clients,
foundries aim to win production contracts fortheir own fabs. IP libraries are also essential forfabless companies to improve design efficiency,
as smooth production will be ensured on foundrylines if they use verified IP. IP libraries also
benefit IP providers: they can ensure a wider useof their IP by licensing large-scale foundries toinclude this in their IP libraries.
In recent years, alliances have also been developing with vendors of EDA (electronic design
automation) tools used in the development of IP.
The U.S. vendors’ share in the EDA tool market
is so overwhelming that it is almost impossible todesign a semiconductor without the help of a tool
marketed by them. Indeed, IP providers and fabless companies are strengthening collaboration
with EDA tool vendors to improve design efficiency. Foundries have also entered into part-nership with EDA tool vendors in an effort toexpand business opportunities by facilitating orders from clients using the same design tools.
The three players in the vertical specialization model – fabless companies, foundries and IP
providers – are enhancing their partnerships andcontributing potential standard IP and required
production capacities to expand the area that may
be covered by the model. It is worth reiteratingthat “standardization” is a key term that defines
the success of the vertical specialization model.
1.5. Development into Prototype Services
Foundries are also providing support services forchip prototyping. One of the aims of supporting
chip development from the prototyping stage
may be to retain prospective clients in view of
the upcoming volume production stage. Although revealing chip prototypes might result inleakage of design information, foundries are introducing rigorous information management
systems to eliminate concerns about possible
divulging of IP in the process of contract manufacturing.
Some IDMs have entered into the foundry
market. However, fabless companies see IDMs
as potential competitors who manufacture theirown brands. For this reason, they need to be cautious about outsourcing production to IDMs. In
contrast, fabless companies can easily contract
out production to dedicated foundries such as
TSMC and UMC, because these firms do nothave their own brands. In a sense, the penetrationof foundries into prototype services attests to thetrust relationship that they have developed with
their clients.
2.

Growth of Taiwanese Fabless Companies
in Partnership with Foundries
Emerging Taiwanese fabless companies havebeen gaining the attention of world semiconductor manufacturers as alternative candidates totheir U.S. counterparts for design outsourcing.
This section outlines the efforts of Taiwanesefabless companies to reconcile their response to
the various needs of clients with efficient design
techniques, as reflected in a case study on Sunplus Technology – a company committed to thedesign and development of consumer ICs.

Development Bank of Japan Research Report/ No. 57

33

2.1. Outline of Sunplus Technology
Established in 1990, Sunplus Technology is afabless venture based in the Hsinchu Science
Park. The company initially focused on audio
semiconductors for toys, but its rapid expansion
started in the late 1990s, when it became involved in the development of semiconductors forimage processing. The company’s sales reached
T$18.9 billion (about ¥61.2 billion), up 180%from 2000. Its operating profit amounted to
T$2.9 billion (about ¥9.4 billion), with an operating profit margin of 15%. The company employs approximately 1,150 workers, 75% ofwhom are employed in the R&D department
comprising chip design and system design sections.19
The semiconductors marketed by the company for toys and consoles are very application-specific, and typically need to be developed
specially for individual clients. The final products have short life cycles. Low-cost and speedy
chip development are required, as new models
are marketed every Christmas.
The increasing multi-functionality of toysand consoles in recent years has enlarged thescale of integration required of embedded semiconductors. In the past, semiconductors for toys

could be designed by a few engineers. At present,
the same task often requires dozens of engineers.
Efficient design and development of semiconductors represents the most serious businesschallenge facing the company.
2.2. Development of Efficient Design
Techniques(i) Re-usable IP
To meet this challenge, Sunplus Technology introduced the concept of “re-usable IP.” In designing a new chip, the company does not startfrom scratch but re-uses stable IP as much as
possible to speed up the process.
Even with this technique it still takes a lot oftime to integrate core blocks of different IP. In
response, the company uses the same IP for
hardware as often as possible and only modifies
embedded memory to meet the demands of different clients. This method substantially curtails
design time as it reduces the design workload.
Such design techniques are being applied to mostsemiconductors used in toys.
Nonetheless, client demand for early delivery is insatiable, with some toy manufacturers
complaining about “too much lead time.” Inother words, profits depend heavily on reducing(T$100 million)(T$100 million)

200

100
Sales
Operating profit margin (right scale)

150

75

100

50

50

25

0
2000

Note:
Source:

2001

2002

2003

0
2004 (year)

Financial year ends in December.
Annual Report

Figure 4-2. Performance of Sunplus Technology in Past 5 Years
19

In some fields, including analog and communication-related semiconductors, the company adopts the strategy of procuring complementary development resources
through partnerships with European fabless companies.
34

Development Bank of Japan Research Report/ No. 57

the time-to-market. Short-notice orders from clients may be met to some extent by immediate
shipments from stock of general-purpose products, but this type of response is difficult when it
comes to custom products. Because each custom
product is designed for a specific client, any surplus cannot be supplied to another client in standard form.
(ii) Wafer Bank Strategy
To minimize lead-time, Sunplus Technology devised a “Wafer Bank Strategy” in collaboration
with a foundry.
Most of the chips designed by the company
are multilayered. For example, 15 masks are required to produce a chip with 15 layers. In thiscase, the Wafer Bank accumulates common circuit blocks that are needed in every type of chipon the 1st to 10th layers, for example, and thenbuilds a stock of wafers made up of these 10 layers. On receiving an order from a client, thecompany draws a 10-layered wafer from theWafer Bank and customizes the remaining fivelayers. In this way, delivery time may be curtailed compared to the case where all 15 layers
are designed from scratch.

Introduction of “re-usable IP” concept

Some might say that this design technique isnothing new in comparison to methods used withstructured ASICs. What is noteworthy, however,is that even in the vertical specialization model,
fabless companies and foundries are working
together in an effort to develop efficient design
techniques.
Fabless companies need to develop original
products incessantly if they are to increase turnover by raising unit prices. In outsourcing production, it is also essential to select the mostcompetitive process for any given design. This is
why it is so important to work with foundries
from the initial design stages. For their part,foundries are brushing up on their production
technologies so that they can respond flexibly tosmall orders from fabless companies.
The combination of fabless companies’ own
efficient design techniques and foundries’
small-volume production technologies in Taiwan,
aims at creating a win-win situation for fablesscompanies, foundries and clients. Closer corporate partnerships are being pursued to respond
more promptly to the needs of clients, based on
the common understanding that reduced
time-to-market is a major source of profit.

Wafer Bank Strategy
15 layers in 6 weeks

MCU

DSP

10 layers in 4 weeks
5 layers in 2 weeks

SRAM

I/O

Source:

Flash
フラッシュ
memory
メモリ

A/D

ROM

MPEG

Logic
ロジック

Interviews

Figure 4-3. Development of Efficient Design Techniques in Sunplus Technology (schema)

Development Bank of Japan Research Report/ No. 57

35

V Current Conditions and Issues
Confronting a Stagnant Japanese
Semiconductor Industry
The previous chapter provided an overview of
the Taiwanese semiconductor industry, which is
exploring responses to the SoC business throughenhanced partnerships between fabless venturesand foundries. In recent years, arguments havebeen made in support of either vertical integration or vertical specialization as the optimalbusiness model for the semiconductor industry.
Regardless of which model is chosen, closer collaboration between design and fabrication ismore important than ever in the nano-level SoC
business. We have already seen that in the vertical specialization model, fabless companies andfoundries are trying to adjust themselves to the
SoC business by achieving “virtual unity”
through enhanced partnerships. Among verticallyintegrated manufacturers, a movement towards
active outsourcing has also been observed, including a “fab-lite strategy.” The reality is thatthe two business models are evolving to stand thetest of time, integrating each other’s advantages.
Under these circumstances, corporate success hinges on optimal management strategies toreconcile client satisfaction with self-interest. To
achieve this goal, the vertical specialization
model needs to establish subsidiaries to overcome the disadvantages of specialization, whilethe vertical integration model should ensureharmony between various corporate departments
and focus on the attainment of common objectives. For a semiconductor manufacturer that has
clearly identified its own management strategy,
the business model to be adopted will emerge byitself.
This chapter first examines the trend of theJapanese semiconductor industry in terms of its
share in the world market, followed by the identification of current conditions and issues confronting the industry, based on a comparison
with Taiwanese and other foreign manufacturers.
Finally, it demonstrates that problems facing
Japanese manufacturers essentially come fromthe nature of their business management strategies.

36

Development Bank of Japan Research Report/ No. 57

1. The present Situation of the Japanese
Semiconductor Industry: Falling Share of theWorld Market
The widening gap between Japanese and foreign
semiconductor manufacturers was already mentioned in Chapter III. This is not a temporary
movement but has continued since the 1990s.
Figure 5-1 shows the composition of theworld semiconductor market by region over the
24-year period from 1980 to 2004.20 Japanesecompanies’ market share soared in the 1980s,
reaching a high of 51.0% in 1988, only to decline
almost constantly ever since to only 24.5% in
2004, less than half of the peak level. Meanwhile,
U.S. companies, on the defensive against Japanese manufacturers in the 1980s, regained themarket leader position in 1993. Subsequently,
their market share recovered to a little less than
50%. In recent years, the share of Asian-Pacificmanufacturers has been increasing steadily,
reaching 15.3% in 2004.
Thus, Japanese manufacturers have beenfighting an uphill battle against Western andAsian companies in a three-way competition.
The international competitiveness of Japanesemanufacturers shows no sign of bottoming as
overseas manufacturers are becoming increasingly aggressive even in the domestic market.
After exiting the DRAM market, many of
the Japanese manufacturers adopted a policy ofshifting their focus to application-specific logic
products. The move is clearly reflected in thestatistics: domestic memory production fell from
more than ¥1.4 trillion in 1995 to just over ¥0.52
trillion in 2005 (see Figure 5-2). However, thegrowth of non-memory products including MCU
and logic has not offset the decline in memory
production. As a result, total domestic semiconductor production declined from some ¥3.83 trillion in 1995 to about ¥3.28 trillion in 2005. Although the transfer of production overseas in recent years should be taken into account, theslowdown in the earlier production process,which usually should create much of the value
added, is considered to be one of the causes ofHere, regional distribution is based on the location ofhead offices. For example, “U.S. companies” include thesales of semiconductor manufacturers based in the UnitedStates.
20

2.8

100%

9.7

15.3

80%

12.4
36.5

60%
47.8
40%
51.0
20%
24.5
0%
1980

1982

1984

1986

Japanese companies

Source:

1988

1990

U.S. companies

1992

1994

1996

1998

European companies

2000

2002

2004 (year)

Asia-Pacific companies

Gartner Dataquest (April 2005) GJ05440

Figure 5-1. Composition of the World Semiconductor Market by Manufacturer Region(100 million yen)
45,00040,000
Others35,00030,000MCUs

25,000Logic

20,00015,000Linear circuits

10,000
Memories

5,000
0

1995

1996

Source:

1997

1998

1999

2000

2001

2002

2003

2004

2005

(year)

Ministry of Economy, Trade and Industry, “Preliminary Report on Machinery
Statistics.”

Figure 5-2. Domestic Semiconductor Production by Major Product Category
the decline in the international competitivenessof Japanese manufacturers.
2.

Issues Facing the Japanese
Semiconductor Industry

The long-term decline of the Japanese semiconductor industry may be explained by factors including the lack of products with an overwhelming market share, insufficient investment, slow
response to changing business models, a decline
in cost competitiveness, and weak sales ability inoverseas markets (see Figure 5-3). All of theseissues, far from being independent, are closelyinterrelated and directly linked to corporate
management strategy. This section analyzes eachof them in some detail.
2.1. Lack of Products with an Overwhelming Market Share or Unique Features
As analyzed in Chapter II, Japanese manufacturers in general face an uphill battle in general-purpose markets such as processors andmemory nor do they have many products with an
overwhelming market share. On the contrary,
they have been routed by U.S. companies in such
emerging products as FPGAs/PLDs. Furthermore,
overseas manufacturers have been on the offenDevelopment Bank of Japan Research Report/ No. 57

37

Present situation(1) Lack of products with an overwhelming market share or unique features(2) Insufficient business investment(3) Slow response to changing business models

Management
strategy(4) Decline in cost competitiveness(5) Weak sales ability and marketing in overseas markets(6) Financial base susceptible to volatility(7) Slow progress in industry-academia-government collaboration

Source:Development Bank of Japan

Figure 5-3. Issues Facing the Japanese Semiconductor Industry
sive in the analog market since many leading
Japanese companies left the market to concentrate their managerial resources on digital semiconductors. Japanese manufacturers have only
managed to maintain a competitive edge in
MCUs, the unit prices of which are lower thanother semiconductor products.
Since their withdrawal from the general-purpose DRAM market, Japanese manufacturers have been focusing their operations on
application-specific products. It is true that theyhold a certain advantage in highly-customized
ASICs. However, they have been slow to develop these products into world-standard ASSPs.
As Japanese manufacturers shifted their businessfocus from commodity products to high-end, application-specific products in a “me-too” mentality, competition has probably intensified among
them, with an adverse effect on their profits.
Many Japanese manufacturers have a similar
scope of business that focuses on microcontrollers, display drivers and ASICs. Individual companies seem not to have been able to develop aunique family of products.
2.2. Insufficient Business Investment
In 2004, Japan again replaced the U.S. as theworld leader in semiconductor investment. The
country seems to have maintained this position in2005 (see Table 5-1). We should give a positive
evaluation to the fact that business investment
increased after staying at a low level following
the bursting of the IT bubble in 2001. It should
be noted, however, that Japan has a greater
38

Development Bank of Japan Research Report/ No. 57

number of large- and medium-sized semiconductor manufacturers.
Table 5-1 shows the amount of business investment by Japanese and overseas manufacturers.
Among the overseas manufacturers, Intel leads theindustry in business investment, having spent approximately $3.8 billion and $5 billion in 2004
and 2005, respectively. In July 2005, the company
invested $3 billion to launch a new 300mm wafer
fab in the U.S. It also announced plans to start
MPU fabrication with 45nm processing technology in the second half of 2007.21 TI and AMD
have constantly been investing $1.3-1.5 billion. In
Asia, Korean Samsung Electronics has invested
over $5 billion in recent years. The company’s
investment seems to have reached about $6 billion
in 2005.22 Taiwanese TSMC is also implementing
a large-scale investment project of some $2.5 billion, mainly for building a 300mm wafer fab using leading-edge microfabrication technology.
Taiwanese foundries have a maximum production
capacity of 30,000–40,000 chips on average.
Eventually, this gap in scale will be reflected incost competitiveness.
In comparison, investment by most Japanesemanufacturers has not yet reached ¥100 billion.
The only exceptions are Sony, which primarily
invested in the new processor “CELL”, Toshiba,
which is committed to capacity investment in
21

See Intel website.
See Samsung Electronics website. Of the semiconductor
investment of 6.3 trillion won in 2005, memory accounts for5.33 trillion won and system LSI 0.99 trillion won. 1 won =¥0.11 (2005 average).

22

Table 5-1. Business Investment by Japanese and Foreign Semiconductor Makers(¥100 million, %)

Japan

U.S.

EuropeTaiwanKorea

Renesas Technology
Toshiba Semiconductor
NEC Electronics
Matsushita Electric (Semiconductor Company)
Fujitsu
Rohm
Sharp
Sony
Sanyo Semiconductor Company
Elpida Memory
Oki Electric Industry
Seiko Epson
Nichia Corporation($ million)Intel
Texas Instruments
AMD
MicronFreescale
ST Microelectronics
InfineonPhilips
TSMC
UMC
Samsung Electronics

Business investment
FY2004 (actual)
FY2005 (planned)
900
800
2,030
2,250
1,632
900
810
800
450
950
671
740
180
100
1,500
1,600
212
124
1,250
1,900
231
180
150
130
397
400
FY2004 (actual)
FY2005 (planned)
3,800
4,900-5,100
1,300
1,300
1,440
1,500
1,400
1,500
490
570
2,050
1,500
905
780-1,000
500
550
2,400
2,500-2,700
1,530
1,000-1,500
5,238
5,724

Annual change
05/04
-11.1
10.8
-44.9
-1.2
111.1
10.3
-44.4
6.7
-41.5
52.0
-22.1
-13.3
0.8
Annual change
0.0
4.2
7.1
16.3
-26.8
10.0
9.3

Notes: 1. The financial year ends in March for Japanese manufacturers and in December for overseas manufacturers except
for Micron (August) and Infineon (September).
2. Toshiba revised investment in 2005 upwards to ¥289 billion.
Source:The Semiconductor Industry News (November 30, 2005 and April 6, 2005)

flash memory, and Elpida Memory, whose new
DRAM fab is under construction. There is a wide
investment gap between Japanese and overseas
manufacturers. If this trend continues, Japanesecompanies may see their competitiveness decline
in the medium to long term, as well as in the
short term.
2.3. Delay in Response to Emerging Business
ModelsIn the world of semiconductors, the vertical specialization business model has drawn attention inrecent years. Not all IDMs are having difficultyin the global market. Some booming companies,
including Intel, TI and Samsung Electronics,
may be classified as IDMs. Among verticallyintegrated companies, however, many Japanese
semiconductor manufacturers are typically partof a general electronics manufacturer that also
has a department for set products for which its
semiconductors are used.

Taking this advantage to the maximum,
Japanese IDMs should be able to accelerate
product development as they can start semiconductor design from the planning stage of their set
products. It should also be easier for them toprevent leakage of design secrets and skills.
Moreover, the set product department and thesemiconductor department of the same IDM cancollaborate in the co-development of final products right from the beginning, which should allow speedy development of original productswith unique features and the potential to bring
additional profits through external sales. Unfortunately, however, the performance of Japanesemanufacturers indicates that they have not beenable to capitalize fully on the advantages of vertical integration. So, how can Japanese IDMs
claim that they have made serious efforts to restructure as new business models emerged withthe advent of vertical specialization?
As noted in the previous chapter, Taiwanesefoundries are seeking to find a breakthrough by
Development Bank of Japan Research Report/ No. 57

39

building broad partnerships with other relevant
players such as fabless companies, IP providers
and EDA tool vendors, based on the understanding that they will not be able to respond to thenano-level SoC business with the simple business model of contracted manufacturing. Japanese manufacturers should make every effort togain further insight into the vertical specialization business model and to integrate its comparative merits into their operation. A thoroughcomparison of their business model with that ofoverseas competitors should let them identify thechallenges to be met.
2.4. Decline in Cost CompetitivenessIn order to analyze the cost structures of major
specialist semiconductor manufacturers in Japanand overseas, we conducted a comparative survey of the three categories of semiconductor
manufacturers: fabless companies, foundries andIDMs, for which accounting data are available.
The result is shown in Table 5-2. Here, foundries
are represented by TSMC and UMC, fablesscompanies by Xilinx and Altera, and IDMs by
NEC Electronics, TI and Intel.
As pointed out in the previous chapter,foundries excel in the low-cost production ofsemiconductors. Indeed, the leading foundry
TSMC has a significantly low sales/cost ratio. It
has also achieved a high profit margin by cuttingback on sales, general administrative and R&D
expenses. In comparison, the huge amount ofmoney spent by Japanese manufacturers on sales,
administration and R&D has not necessarily
borne fruit.

The difference in profit structure becomes
more apparent when we compare Japanese andU.S. IDMs. Although the ratios of sales, administrative and R&D expenses versus total sales are
similar – from the 10% range to around 15% respectively – a wide gap appears in the operating
profit ratio, which measures core business profitability. The low marginal profit ratio of Japanese manufacturers might be explained by relatively high production costs. However, it mightalso be because the consequences of huge R&D
and sales expenses are not reflected sufficiently
in the sale prices of products. As already mentioned, Japanese manufacturers have very few
general-purpose semiconductors with an overwhelming market share. As final product prices
continue to decline and their life cycles shorten,
improvement of profitability is urgently needed,even for custom products developed with substantial man-hours. Sales, administrative andR&D expenses should be reviewed thoroughly sothat these can contribute to an increase in sales
volumes and unit prices.
Table 5-2 also shows that fabless companies,
foundries and IDMs have substantially different
cost structures. Foundries dedicate themselves tocontracted manufacturing, while fabless companies are in charge of product research and development. Therefore, production costs, including raw materials and depreciation expenses, account for a large part of total costs in foundries.
Fabless companies have a completely different
cost structure, spending most of their money on
R&D and sales.
Vertical specialization typically reveals thedifferent cost structures between the design de-

Table 5-2. Cost Structures of Major Foundries, Fabless Companies and IDMs (FY2004)(¥100 million, ratio)
Sales
Sales cost
Gross profit
Operating cost
Sales & marketing expenses
General & administrative expenses
Research and development expenses
Operating profit
Pre-tax profit
Net profit

Foundries
TSMC
UMC
8,323 100.0% 4,181 100.0%
4,575
55.0% 2,988
71.5%
3,748
45.0% 1,192
28.5%
885
10.6%
485
11.6%
109
1.3%
90
2.1%
371
4.5%
157
3.8%
405
4.9%
238
5.7%
2,863
34.4%
706
16.9%
2,976
35.8% 1,027
24.6%
2,987
35.9% 1,030
24.6%

Fabless companies
XilinxAlteraNEC Electronics
1,691 100.0% 1,099 100.0% 7,080 100.0%
619
36.6%
336
30.5% 4,859
68.6%
1,072
63.4%
764
69.5% 2,221
31.4%
672
39.7%
423
38.5% 1,890
26.7%

IDMs
TI
13,609 100.0%
7,523
55.3%
6,086
44.7%
3,699
27.2%

Intel
37,006 100.0%
15,645 42.3%
21,360 57.7%
10, 402 28.1%

341

20.2%

228

20.7%

810

11.4%

1,559

11.5%

5,234

14.1%

330
400
431
336

19.5%
23.6%
25.5%
19.9%

195
341
358
298

17.8%
31.0%
32.5%
27.1%

1,079
332
264
160

15.2%
4.7%
3.7%
2.3%

2,140
2,387
2,619
2,013

15.7%
17.5%
19.2%
14.8%

5,169
10,958
11,269
8,130

14.0%
29.6%
30.5%
22.0%

Notes: 1. The financial year ends in December for TSMC, UMC, Altera, TI and Intel, and in March for Xilinx and NEC
Electronics.
2. Exchange rates: T$1=¥3,236 (2004 average), $1=¥108.2 (2004 average), $1=107.5 (FY2004 average).
Sources:40

Corporate annual reports

Development Bank of Japan Research Report/ No. 57

100%
23.0
75%

12.2

11.2

13.8

19.9
11.3

50%

45.0

42.4

23.0

27.0

57.6

25%

9.0

4.6

Intel
(U.S.)ST Microelectronics(Europe)

0%

Japan

Note:
Sources:

EuropeAsia/Pacific

NEC Electronics(Japan)U.S.

OthersAreas within dark borders indicate sales in the “domestic market” (i.e.
the region in which the company based).
Corporate annual reports, etc.

Figure 5-4. Sales of Japanese, U.S. and European Semiconductor Manufacturers by
Region (2004)
partment (fabless companies) and the fabrication
department (foundries). Data indicate that partners in the vertical specialization business model
are improving competitiveness in their respective
fields of specialization in the face of fierce competition for external clients, and can ensure
stronger competitiveness as a whole throughtheir complementary relationships.
By comparison, it is difficult for an outsider
to identify the cost structure of an IDM, which
integrates design/development and fabrication.
Of course, this does not mean that the IDM
model itself is problematic. Indeed, IDMs likeIntel enjoy advantages of scale by developing
and fabricating products that hold an overwhelming market share. The first step for Japanese IDMs in solving their problems is to compare their own cost structures with those of leading IDMs, fabless companies and foundries
overseas.
2.5. Weak Sales and Marketing Ability inOverseas Markets
The regional composition of the world semiconductor market has changed substantially in thepast two decades. Chapter I has already indicatedthat the development of a global marketingstrategy has become increasingly important, focusing not only on domestic sales but also on the

fast-growing Asian and Western markets. Have
Japanese manufacturers succeeded in responding
appropriately to the changing market environment and developed their businesses on a global
scale?
To answer this question, we conducted acomparative survey of three semiconductor
manufacturers each representing Japan, the U.S.
and Europe, which disclose their sales data by
region. Figure 5-4 shows the result. Defining“domestic market” as the region in which acompany’s head office is located, the share of thedomestic market in total sales stands at around
one quarter for overseas manufacturers: 23% forIntel (U.S.) and 27% for ST Microelectronics(Europe). In contrast, NEC Electronics realizes
the majority of sales (57%) in the Japanese market.
Even Intel used to depend heavily on its
domestic market. But the share of the U.S. market in world sales fell from 51% in 1994 to 23%
in 2004, reflecting the emergence of the
Asia-Pacific region (including Japan) as a major
market (see Figure 5-5). As the core of thesemiconductor market shifts from Japan to Asia
via the U.S., the difference in the share of thedomestic market in total corporate sales indicatesthe difference in the level of success in developing a comprehensive marketing strategy in

Development Bank of Japan Research Report/ No. 57

41

ily influenced by fluctuations in the silicon cycle:
it is not unusual for a company to record a substantial deficit at the bottom of the cycle.
World-leading semiconductor manufacturers
therefore find it crucial to enhance equity capitalin good times by accumulating profits and new
stock issues, so that they may continue
large-scale investment in bad times. According
to Figure 5-6, the equity ratio stands at aroundprompt response to the changing global market
structure. Having difficulty in expanding sales
overseas, Japanese manufacturers are forced toengage in fierce competition for the domestic
market, which in turn leads to a further deterioration in corporate profits.
2.6. Financial Bases Vulnerable to Volatility
Profits of semiconductor manufacturers are heav100%

23.0
75%

43.0

51.0

45.0

50%

23.0

14.0
25%

0%

27.0

27.0

23.0

8.0

7.0

9.0

1994

19999

2004

Japan

Note:
Sources:

EuropeAsia/PacificU.S.

Areas with dark borders indicate sales in the “domestic market” (i.e. the region inwhich the company is based).
Intel Annual Report, etc.

Figure 5-5. World Sales of Intel by Region
Intel

0.25

D/E ratio

80.1

Equity ratio

TSMC

0.25

79.9

Samsung Electronics

0.89

52.7

Toshiba

3.8

21.0

NEC Electronics

1.0

48.9

Fujitsu

2.6

28.1

100
-1
(%)

-1

80
-1

Note:
Sources:

-1

60
-1

-1

400

0

200

0

0

1.00

2.00

3.00

4.00

5.01

The financial year ends in March for Japanese manufacturers and in December
for overseas manufacturers.
Corporate accounting data.

Figure 5-6. Financial Structures of Japanese and Overseas Semiconductor Manufacturers(FY2004)42

Development Bank of Japan Research Report/ No. 57

80% for Intel and TSMC. Fabless companies
have even higher equity ratios: 85% for Xilinx(U.S.) and 84% for Sunplus Technology (Taiwan).23 In contrast, Japanese manufacturers are
generally characterized by a greater dependence
on loans, largely because they form a department
in a general electronics manufacturer. In order tomake a bold decision in the semiconductor business, a company requires a substantial buffer toabsorb any shock resulting from a wide fluctuation in corporate performance. In the final analysis, the difference in the financial structure ofJapanese and overseas companies has considerable implications for the nature of business
management.
2.7. Slow Progress in Partnerships between
Industry, Government and Academia
Revitalizing collaboration between industry,
government and academia is another urgent issue.
As time-to-market is a crucial source of value

added in the semiconductor business, it is now
crucial for a manufacturer to be the first to provide clients with new products by combining
their expertise with quality resources gatheredfrom around the world. Therefore, Japanesemanufacturers, in conducting purely basic research and development that does not lead directly to product differentiation, should not pursue the principle of in-house development, butrather adopt a flexible attitude, incorporating theexamples of consortiums created through industry-government-academia partnerships.
In March 2006, the Japan Electronics andInformation Technology Industries Association(JEITA) announced the launch of “Asuka II,” ajoint development project for next-generation
semiconductor
technologies
tofacilitate
pre-emptive R&D activities that meet prospective business needs and promote partnerships
between the industry, universities and public research institutes. Led by the Semiconductor
Technology
AcademicResearchCenterPartnerorganizations

Japan Electronics andInformation Technology
Industries Association (JEITA)
Semiconductor Board

Consortium for
Advanced
Semiconductor
Materials and Related
Technologies,
CASMAT

Semiconductor Industry
Research Institute Japan
SIRIJ

ExtremeUltraviolet
Lithography
SystemDevelopment
Association,
EUVA

Asuka II Project
Semiconductor
Technology Academic
Research Center,
STARC
Leading-edge
designIndustry-academia
partnerships ineducation

Source:Tsukuba Semiconductor Consortium

Semiconductor
Leading Edge
Technologies, Selete

R&D forleading-edge
processes/devices(Commissioned by
NEDO)
MIRAI
Project

Research on
infrastructure

National Instituteof Advanced
Industrial Scienceand Technology,
AIST
Association ofSuper-Advanced
Electronics
Technologies,
ASET

Japan Electronics and Information Technology Industries Association

Figure 5-7. Structure to Promote a Joint Development Project for Next-generation
Semiconductor Technologies
23

Data as at the end of FY2004 according to the company’s
website.
Development Bank of Japan Research Report/ No. 57

43

(STARC) and Semiconductor Leading Edge
Technologies, (Selete), both financed by domestic semiconductor companies, the “Asuka II”
project will invest ¥90 billion over five years
until 2011 (see Figure 5-7).
Manufacturers need to clearly express their
willingness to participate in these joint development efforts if they want to see such cross-sectional,
joint projects lead to the restoration of the competitive capability of the Japanese semiconductor
industry. For example, they may form a consortium for common technologies related to processing or materials development while conducting in-house R&D activities closely related to
product commercialization. Universities and research institutes will also have to redouble theirefforts in human resource development and select research subjects that meet actual needs inthe field. In-depth discussions are urgently
needed on key questions with reference to relevant cases overseas. Is the current budget sufficient for further promoting joint development?

44

Development Bank of Japan Research Report/ No. 57

Do we need to expand the scope of government
support for the development of common technological infrastructure?
This chapter has analyzed some of the
problems facing the Japanese semiconductor industry in comparison to the conditions facing
overseas manufacturers. What is important is that
all these issues are closely interrelated andtherefore cannot be considered separately fromthe nature of business management. For instance,
the weak sales ability in overseas markets makes
it difficult to secure profits by developing application-specific products into world standards.
Also, the lack of a product with an overwhelming market share is partly responsible for the decline in Japanese cost competitiveness and insufficient business investment.
Building on the discussions in this chapter,the following chapter proposes some concretemeasures to restore the international competitiveness of the Japanese manufacturing industry.

VI Policies to Restore theInternational Competitiveness of theJapanese Semiconductor Industry
1.

Three Possible Directions of the Japanese
Semiconductor Industry

Basically, semiconductors are fit for volume
production due to factors inherent in the manufacturing processes. Only those manufacturers
whose products have significant market share,
and thus enjoy overwhelming advantages ofscale in production, can benefit from retaining
their own fabs. Therefore, increasing market
share for general-purpose products such as processors and memory is the best way to succeed in
the semiconductor business. This is exactly how
Japanese manufacturers once thrived in the
DRAM market. Without doubt, they are hoping
to make a spectacular comeback in the general-purpose market, no matter how long it takes.
Since the 1990s, many Japanese semiconductor manufacturers have shifted their focus
from general-purpose to application-specificproducts. Since application-specific products
require high-mix, low-volume production, an
IDM has to adopt a different approach to thatapplied to general-purpose products in order togain profits. This is where foundries and fablesscompanies found a golden business opportunity.
Based on the business model of vertical specialization, they specialized in fabrication or de-

Memories
Flash memories
DRAMs
Japanese
semiconductor
manufacturers

SoC
Power
semiconductors

Source:sign and then collaborated in a complementarymanner to achieve substantial growth. Japanese
IDMs will have to find an innovative businessstrategy immediately, if they are to withstand thechallenge of specialist manufacturers.
Against this backdrop, the future of theJapanese semiconductor industry will depend on
three categories of product: (i) memory, (ii)power semiconductors/sensors and (iii) SoCs.
The following sub-sections focus on each of
those three possible pillars.
1.1. Memory
Memory, the first pillar, represents a volume
zone among general-purpose products. Competitiveness in this product largely depends on thescale of production facilities available and themicrofabrication technology employed. Domestic players have already been selected for two
representative products: flash memory and
DRAM. Toshiba is leading the flash memory
market together with Samsung Electronics.
Elpida Memory is currently the only Japanesecompany specializing in DRAM, as many leading manufacturers exited the market or consolidated in the late 1990s. Players in the memory
business must be ready to fight to the bitter end.
It seems that this attitude is reflected in the business policies of Japanese manufacturers as they
have successively announced plans for major
investments to enhance their competitive capacities.

SoC market
2005: $46 billion→2010: $84 billion
Source: Gartner Dataquest“SoCs Are a Major, Multifaceted
Semiconductor Theme,” Bryan Lewis,
October 27, 2005, GJ06048<Samsung Electronics>
Identified system LSI as one of the growthengines for the next generation(mid- and long-term visions announced in
November 2005).

Development Bank of Japan

Figure 6-1. Three Possible Directions of the Japanese Semiconductor Industry in Future

Development Bank of Japan Research Report/ No. 57

45

1.2. Power Semiconductors and Sensors
The second category of products, power semiconductors and sensors, is rather atypical in thatit requires analog design/fabrication technologies.
Digital semiconductors, including memory andlogic, require huge investments to maintaincompetitiveness because they are highly dependent on manufacturing equipment. In contrast,
analog products such as power semiconductors
need to be customized and hence depend heavily
on the experience and expertise of individual
engineers. Typically, the investment burden is
not so heavy, as they better lend themselves torelatively mature production processes, rather
than leading-edge processes.
Power semiconductors, used for powertransforming purposes including AC/DC conversion and power supply control, are mounted on avariety of products, ranging from power generators and rolling stock to industrial equipment andconsumer electronics. In consumer electronics,
for example, power semiconductors are used as
the core device of inverters that control the rotation speed of motors at an optimum level bymodifying power frequencies. Their importancehas increased rapidly in recent years as an effective means of saving energy and improving thecontrollability of equipment. Demand for power
semiconductors is also increasing in the automobile industry, mainly for engine control in hybridcars. A high level of reliability and heat resistance is required of power semiconductors forautomobiles, which raises the expectation thatJapanese manufacturers will be able to show
their skill in this area.
Sensors are devices that measure, with thehelp of semiconductors, the levels of light, sound,temperature, pressure and acceleration andtransform these into electric signals. They arewidely used in products such as digital cameras,
camcorders and cellular phones. CMOS sensors,which have been gaining attention in recent years,
provide the technical challenge of maintaining
sensitivity while increasing pixel counts to givehigher resolution. Sensors also play a key role inautomatic control technology to improve thesafety and mileage of automobiles. Indeed, alarge number of sensors have come to be used in
vehicles, including fuel injection sensors, hydraulic/pneumatic sensors and collision detecting
46

Development Bank of Japan Research Report/ No. 57

sensors. Stable growth is expected in the medium
to long term in the automobile sensor market,
presenting an opportunity for Japanese semiconductor manufacturers to expand their businesses
through enhanced collaboration with vehicle
manufacturers.
1.3. SoCs
Finally, SoCs have drawn interest as a potential
source of renewal for the Japanese semiconductor industry. As demand for application-specificproducts, ASSPs in particular, is expected tocontinue growing in the years ahead, SoCs which
integrate a whole system on one chip will havefurther roles to play in realizing miniaturization,
multi-functionality and low power consumption
in various types of equipment. According to
Gartner Dataquest, the world SoC market surpassed $46 billion in 2005 and will reach $84
billion in 2010 (see Figure 6-1). In its mid- andlong-term vision announced in November 2005,
Korean manufacturer Samsung Electronics identified system LSI as one of the growth engines
for the next generation along with memory anddisplays.24 Many semiconductor manufacturers,
both in Japan and overseas, have already taken
pro-active steps to develop their SoC operation
as a primary focus of future business development.
2. Strategy to Enhance Competitiveness in
the SoC Business
What strategies should Japanese manufacturers
adopt to improve their international competitiveness in the burgeoning SoC business?
As described earlier in this report, it is important to determine what to manufacture in viewof the functions required of SoCs in final products. Therefore, success in the SoC business depends not only on process technologies but also
on skills in designing, development and marketing. As greater emphasis will also be placed on
software, manufacturers must find out how toreconcile client satisfaction with self-interest,
24

Samsung Electronics’ mid- and long-term visions (announced in November 2005) identify eight growth engines
for the future: memory, displays, mobile telecommunications, digital TVs, printers, system LSI, storage and air control systems.

1. Refocus operations on design and marketing
2. Active involvement in global alliances
3. Rebuild relationships with final set product departments
4. Overhaul of corporate management, organization control andpersonnel evaluation

Source:Development Bank of Japan

Figure 6-2. Strategies to Strengthen Competitiveness in the SoC Businesswhile minimizing the costs of product development and user support.
In this context, this section focuses on the
SoC business and proposes four strategies to improve competitiveness: refocusing operations on
design and marketing; participating actively inglobal alliances; rebuilding relationships with thefinal set product department; and overhaulingbusiness management, organization control andpersonnel evaluation.
2.1. Refocusing Business Operations on
Design and Marketing
Design accounts for a considerable part of SoC
development costs. There are two aspects of SoC
design capacity. One is the design and development skills of the IP core, including processors
and peripheral circuits, and the other is the ability to organize these devices into a system. The
importance of the latter, system design, has been
growing with the sophistication and complexityof systems used in equipment. However, it is noteasy to train engineers in this type of skill, andsome rightfully point out a delay in relevant human resource development. In developing theskill of organizing devices into a system, engineers should be required to work with clients todevise the set products for which the developed
chips will be used and to efficiently design thenecessary IP core to be included on the chip.
Moreover, software contributes substantially tothe cost of SoC development. The evaluation ofset products therefore depends on the quality andversatility of the embedded software. Improving

the development skills of software engineers isurgent in light of such product characteristics.
A SoC can hardly be profitable if it remainsa chip for a specific final product. It is therefore
essential to turn it into an ASSP fit for volume
production by selling it to other clients. For thisto happen, the manufacturer has to adopt a marketing technique that can be applied horizontallyto the same or similar industries and find newclients. In order to ensure smooth application ofthis horizontal marketing approach, SoCs need tohave some degree of versatility from the firststage of development. In this respect, engineers
should be able to identify the most generalized
needs that are common to two or more clients. A
cross-sector arrangement to place design engineers in the marketing department would be effective in giving feedback to the development
process. Some manufacturers might still believein the old cliché: “response to client needs spells
full customization.” They will have to abandon
this belief as soon as possible and move towards
accelerating development activities by making
effective use of existing design assets.
2.2. Active Involvement in Global Alliances(i) Rebuilding IP strategy through complementary relationships
With the progress of large-scale integration andmulti-functionality in SoCs, it is virtually impossible for a single company to develop all IP on its
own, in terms of both cost and time required.
What is worse for Japanese manufacturers,
Western companies retain global standards in

Development Bank of Japan Research Report/ No. 57

47

Strategies to strengthen competitiveness in SoC business

Strategies

IssuesConcrete measures

1. Refocus operation on design/marketing

SoC design capacity(i) IP core design/development
skills(ii) System organization skills

Strengthen system design
capacity.

Evaluation of SoCs depends on thequality of embedded software.

Strengthen the capacity todevelop software embedded
in semiconductors.

・ Improvement of profitability
through volume production.
・ Ability to identify the mostgeneralized needs.

Develop SoCs into ASSPs
for external sales.

2.

Human resource development, enhancementof higher education

Develop effective customizing techniques.

Build partnerships through horizontal marketing.
・ Develop “hot-selling chips.” Find new major clients.
・ Forget the myth of customization as the best
response to client needs.
・ Develop new customers with the horizontal sales
approach.

Active involvement in global alliances
Build complementary relationships on a global scale.

・ Increase in IP development cost.
・ Late start in processors.
・ Drain of margins to manufacturers
holding global standards.
・ Colossal investment in leading-edge
processes.
・ Process technology development by eachcompany on its own account.
・ Meeting the challenge of designing nanolevel SoCs.

Rebuild IP strategy.

Prepare de facto standard
strategy.
Share investment and R&D
risks.

Classify IP for internal use and for externalsales.
Efforts for winning global standards throughindustry-academia-government partnerships.
・ Harmonize process technologies.
・ Review business investment strategy.
・ Strengthen ties with manufacturing equipment
makers.
・ Enhance partnerships in infrastructure technologies.

3. Rebuild relationships with final set product departments(i)Japanese manufacturers have the edge in set
products but have not necessarily been able tosecure overwhelming status in key-device
semiconductors.

Rebuild relationships between
the set product andsemiconductor department.
Spin off the semiconductor
department.

Heavy dependence on domestic electronics
makers.

Strengthen the competitiveness ofdomestic manufacturers of set
products including digitalconsumer electronics.

4. Overhaul of corporate management, organization control andpersonnel evaluation
Adjustment of business management to
the SoC business to ensure mosteffective provision of optimal solutions
for clients.
Small gains in investment for
substantial sales and R&D expenses.

Decline in sales overseas

Source:Widely adopt the idea of“concurrent management.”

Review organization control
and personnel evaluation.

Develop business relationships
with overseas clients based on
dialogue and suggestions.

Use leading-edge custom products in own products.
↓
Develop SoCs into ASSPs for external sales.
Expand partnerships.
↓(iii) Develop ASSPs into general-purpose products forvolume production.
(ii)

Improve the capacity of new product development throughenhanced collaboration with materials/equipment manufacturers
and supporting industries.

Ensure horizontal linkage of productdevelopment, manufacturing and sales strategies.
Reconcile client satisfaction with profitability.
Define the form of organization fit for the SoC
business.
・ Paradigm shift to focus on design,development and marketing.
・ Adopt an attitude that appreciates crosssectional efforts.
・ Enhance local facilities. Recruit local staff.
・ Participate in joint research with local publicorgans or universities.
・ Use own IP strategically.

Development Bank of Japan

Figure 6-3. Strategies to Strengthen Competitiveness in SoC Business48

Development Bank of Japan Research Report/ No. 57

core processors, which also constitute the core of
SoCs. Against this backdrop, it is urgent to develop an IP strategy based on global complementary partnerships, in which Japanese manufacturers develop in-house, high-value added IP
that helps in product differentiation, while procuring other standard IP from suppliers both inJapan and overseas.
As examined in Chapter IV, fabless companies and foundries are working together to findanswers to the emerging SoC business. Fablesscompanies are concentrating resources on thedevelopment of core IP, while foundries provide
fabless companies with libraries of standard IP
and those related to peripheral circuits, both in aneffort to curtail development time and to win
new clients. These alliances have become indispensable in meeting the challenge of nano-level
design under a system of vertical specialization.
Indeed, foundries are planning to further enhancetheir partnerships with EDA tool vendors, IP
providers and manufacturing equipment makers.
For example, TSMC, Cadence (a major EDA
tool provider), ARM and Applied Materials havelaunched a Silicon Design Chain Initiative.
Drawing on each company's domain of expertise,
the Silicon Design Chain has correlated models,design and analysis tools, and IP to silicon results, providing customers with a proven pathfrom design to volume production.25 The move
indicates that corporate collaboration has become
a compelling requirement, as individual companies find it difficult if not impossible to develop
such techniques on their own.

department within the company. We will comeback to this topic a little later.

(ii) Preparation of a de facto standard strategy
The enhancement of global alliances also represents an effective strategy for nurturing
self-developed IP into de facto standards. Winning as many clients as possible is the best way
to develop a SoC to an ASSP that practicallyserves as a global standard. In this connection, acompany has to classify self-developed IP intothat reserved for internal use and that available
for external sales. How to define this boundary isa crucial issue, closely related to the status of the
final set product department and semiconductor(iii) Sharing investment and R&D risks
Hundreds of billions of dollars are required tobuild a leading-edge semiconductor fab. Few
manufacturers, if any, can afford to shoulder
such huge investment costs. Colossal R&D expenses are also required to overcome the problems confronting nano-level SoC design. Thus,
sharing risks inherent in business investment and
R&D between two or more companies has become a compelling reality. Due largely to differences in production processes, such full-scalecollaboration has materialized only rarely.
The initial process of semiconductor manufacture alone contains hundreds of steps. Since
Japanese manufacturers often incorporate custom
specifications in manufacturing equipment, individual manufacturers adopt slightly different production processes and hence a chip produced on
one company’s line cannot easily be reproducedon another’s. Thus, to carry out its responsibility
as a supplier, each company has to continue
manufacturing the products it developed in thepast, even after sales start to decline. The resulting
increase in the variety of products produced leads
to a rise in production cost. This vicious cycle has
already been repeated several times.
Design is a key differentiation factor in the
SoC business. Establishment of a common production process would open the way to solving the
problems described above, allowing more investment to be directed to design and marketing. In
February 2006, three Japanese companies – NECElectronics, Sony and Toshiba – agreed to jointly
develop system LSI technologies for the 45nm
generation (see Figure 6-4). By collaborating in
the development of next-generation process technologies, the three companies aim to raise development efficiency and further accelerate the paceof development.26 Similar agreements might result in joint utilization of fabs in the future. In thissense, this move should attract particular attention
as a sign that a new SoC business model may be
emerging in which each manufacturer does notnecessarily utilize its own fabs.

25

26

See Cadence website (press release dated March 21,2006).

See NEC Electronics, Sony and Toshiba websites (press
release dated February 1, 2006).
Development Bank of Japan Research Report/ No. 57

49

Europe
Siemens
Spin-off in
April 1999

U.S.

Japan
NEC
Electronic

Infineon Technologies
Announced in
November 2005

Spin-off of memory

メモリ事業の分離
operation

Sony

Joint development of system LSI
process technologies for 45nm generation(announced in February 2006)

Announced in
December 2005

Spin-off of semiconductor
半導体部門の分社化
department

IBMleading-edge process technologies(announced in January 2006)

Spin-off inNovember 2002

Toshiba
FPGA contract manufacture

SoC
ＳｏＣ

NEC

Flash
memoryﾌﾗｯｼｭﾒﾓﾘ

DRAM

Acquisition in 2002

Assignment of distributorship

HitachiRenesasTechnology

SanDisk
MicronMerger (announced in
November 2005)

Establishment of foundry
operation planningcompany (January 2006)

DRAM

XilinxPartnership

General-purpose
DRAM
汎用
DRAM

Spin-off inDecember 1999

Elpida Memory

Philips・Joint development of CELL processor
・Collaboration in development of post-32nm

DRAM

Mitsubishi

Power semiconductor, .etc.

IM FlashTechnologies

Intel

Spin-off in April 2003

Thomson Semiconducteurs (France)ThomsonSemiconducteurs（仏）

Exit in 1999

Merger in 1987

ST Microelectronics

SGS
Microelettronica（伊）(Italy)SGSMicroelettronica

Sources:

Fujitsu

General-purpose
DRAM

FPGA contract manufacture

Lattice

Merger in July 2003
Flash memory

Matsushita

SPANSIONAMD

IPO in December 2005

Company websites, etc.

Figure 6-4. Movement towards Collaboration and Reorganization among Domestic andForeign Semiconductor Manufacturers (as of March 2006)

2.3. Rebuilding Relationships with Final Set
Product Departments
Most Japanese semiconductor manufacturers operate as IDMs, i.e. corporate groups with final set
product departments. Figure 6-5 shows the production of Japanese IDMs by region and theirshare in world production as regards three typicalset products: color TVs, video recorders (DVDvideo and VTR) and digital cameras. Althoughproduction facilities have been shifted overseas
for all these products, Japanese companies maintain a substantial share in the world market:
41.6% for color TVs, 49.3% for video recorders
and 76.6% for digital cameras (see Figure 6-5).
The crux of the matter lies in the fact that, despite this competitive edge in set products, Japanese companies have not necessarily been able toretain an overwhelming share in key-device
semiconductor markets.
One of the reasons why Japanese companies
have not been able to capitalize fully on their

50

Development Bank of Japan Research Report/ No. 57

abilities as general electronics manufacturers isthe difficulty of defining a clear boundary between sales within the group (internal sales) andexternal sales. Application-specific products
such as SoCs are customized to the needs of individual clients in terms of design and development. Therefore, the volume of production cannot be expected to increase as long as the productonly meets the needs of a single client. Even therecovery of development costs might be at risk if
the set product fails to find a market. In this context, Japanese manufacturers need to standardize
custom products into ASSPs, because failure to
do so means no external marketing and hence
erosion of profits. They will have to start withproduct development in partnership with a leading-edge client, and then develop the output into
a de facto standard by using horizontal marketing.
As long as a semiconductor manufacturer
stays within the framework of an IDM, it will
have to give preference to the internal set productdepartment over external customers. Nonetheless,we should remember that more “leading-edge”
clients are now found overseas than in Japan.
Some companies have moved towards spinning
off the semiconductor department in recent years.
Real success in this effort entails reconstructing
the relationship between the set product department and the semiconductor department so as togrant greater independence to the latter, and establish a regime that allows active involvement
in alliances with global clients. The ability ofmanagement will be judged by how to build
strategic partnerships in which all stakeholders
will benefit from supplying the developed chips
to a wider range of clients.
Striking a balance between internal and external sales is a major challenge affecting thebasis of corporate business management, as optimal balance also depends on the competitiveedge held by the internal set product department
and the cost competitiveness of the chips concerned. No semiconductor company spun off
from an IDM should give in to peer-pressure toadopt a half-hearted strategy.
Some general electronics companies may
want to retain their semiconductor department. In
this case, the most crucial role to be played by
the semiconductor department is to supply key
devices that contribute to differentiation of thegroup’s products. However, a semiconductor
Color TV
Others
3.4%

Japan
7.1%

manufacturer will not be able to gain sufficientprofits from internal sales alone. External sales
should be introduced by taking the following
steps.
1st step: Develop a leading-edge, custom product with the potential to differentiate the set
products.
Design assets of the set product and semiconductor departments should be integrated to develop a leading-edge custom product. As long as
the semiconductor manufacturer serves as a department of the general electronics company, thechip has to be a powerful device that forms thecore of product differentiation. Since the chip
will be developed for the group’s set products
only at this stage, the semiconductor manufacturer will have to seek total optimization, even if
this means sacrificing profits to maximize salesof the final products.
2nd step: Develop the custom product into an
ASSP through external sales.
Once a considerable portion of the initial investment has been recovered by the sales of theset products, the manufacturer will start externalsales of the custom chip at a premium. This may
require a bold decision, especially when doing so
may undermine the interest of the set productdepartment. Given that other manufacturers may

Video recorders (DVD video, VTR)
Others
8.1%

China
8.6%

North
America/
Europe
34.6%

Japan
4.7%

Other Asian
countries
17.6%

Other Asian
countries
29.1%
Malaysia/
Thailand
38.9%

China
58.0%

Total production of Japanese manufacturers:
61.85 million units(Share of Japanese manufacturers in world
production: 41.6%)

Total production of Japanese manufacturers:
53.10 million units(Share of Japanese manufacturers in world
production: 49.3%)

Other Asian
countries
7.4%

Source:Digital camera

Japan
53.8%

China
28.6%

Total production of Japanese manufacturers:
53.41 million units(Share of Japanese manufacturers in world
production: 76.6%)

Japan Electronics and Information Technology Industries Association, “World Production of Major Consumer Electronic Equipment.”

Figure 6-5. Japanese Manufacturers’ Production of Major Consumer Electronics by Region andShare in World Production (2004)

Development Bank of Japan Research Report/ No. 57

51

start marketing less expensive chips sooner orlater, management will need to exercise its
judgment from a broader perspective so as not tomiss a profit-making opportunity in the semiconductor business. Selling the custom chip toexternal clients may set off a vicious cycle. The
market’s evaluation of the chip will improve if it
is used by a larger number of partners, winning
new clients for the manufacturer and bringing it
one step closer to a global standard.
3rd step: Develop the ASSP into a general-purpose product.
If the manufacturer succeeds in developing thecustom chip into a de facto standard ASSP, opportunities for volume production will increasein emerging markets, including BRICs. The
volume efficiency may ensure an even greater
profit in the semiconductor business.
The vertical specialization business model
aims at generating large profits by standardizing
interfaces to bring down the cost of integration.
In order to cope with this model, IDMs have toestablish their own business model that takes fulladvantage of their strengths: i.e. to develop
original chips that outclass others and then market them to external clients in a timely manner toreceive maximum orders. They will have little
chance of prevailing against vertically specialized alliances once a standard has been established for interfaces between elemental technologies. The best way to prevent this from happening is to bring internal resources together toinvent set products and chips that cannot be copied by others; but first, the chips thus developed
will have to be examined closely to see if they
warrant the substantial cost of customization.
SoCs integrate entire systems on a single
chip. Success in the semiconductor business will
therefore depend heavily on whether the manufacturer can retain a powerful application productwith an overwhelming market share. As was
mentioned in the previous chapter, Japanese
semiconductor manufacturers primarily target thedomestic market and are highly dependent on
domestic consumer electronics manufacturers.
Therefore, the competitiveness of set productmanufacturers, including digital consumer electronics companies, will remain crucial to the52

Development Bank of Japan Research Report/ No. 57

Japanese industry. Further upgrading of new set
product development capacity will be required
through enhanced collaboration with supporting
industries, including material suppliers andmanufacturing equipment makers.
2.4. Overhaul of Corporate Management,
Organization Control and Personnel
Evaluation
This chapter has so far identified some of thestrategies for strengthening competitiveness in the
SoC business. These include: shifting the focus ofoperations from fabrication to design/marketing;horizontal development of custom products to
ASSPs in view of external sales; building global
partnerships around IP; risk sharing in business
investment and R&D; and rebuilding relationships
with final product departments. All these items areclosely related to the nature of business management and corporate strategies. As far as the SoC
business is concerned, it is essential to focus on
the concept of “concurrent management,” whichhorizontally links, and simultaneously optimizes,
product development, fabrication and sales strategies. High levels of expertise and a determination
to make bold decisions are required of senior
management.
Organizational control and personnel
evaluation must also be revised to fit the SoC
business. In order to ensure that substantial sales
and R&D expenses will bring profits, it is necessary to conduct a thorough review of the production-oriented organizational structure and implement a paradigm shift to an organization focused on design and marketing. In personnel assessment, an attitude should be developed tothoroughly evaluate cross-departmental efforts,
in addition to the traditional evaluation by individual departments such as production and design.
To revitalize sales overseas, some point out
the necessity of developing relationships withlocal clients based on dialogue and proposals.
Indeed, Japanese semiconductor manufacturers
are seeking to enhance their establishments
overseas by building up development staff. Ifthey are to build powerful alliances on an equal
footing with world-class fabless companies andIP providers in Silicon Valley and elsewhere,
Japanese manufacturers should also consider

strategic moves under a give-and-take policy,
such as speeding up development by providing
clients with high-performance IP and combining
these with clients’ IP.
3.

In search of a New Business Model for
Japanese IDMs

In the general-purpose semiconductor market on
which many Japanese companies focused theiroperations, difficulties are clearly reflected in thefact that a company’s competitiveness largely
depends on the business model it adopts. SoCs
require a shift in business focus from production
to design/marketing. It is not an exaggeration to
say that the adjustment of management structure
to this new paradigm is the key to survival for asemiconductor manufacturer. Specialized manufacturers have succeeded in expanding theircommercial opportunities by successively creating brand-new business forms and models suchas fabless ventures, foundries, IP providers, IPlibraries and the Wafer Bank Strategy. In responding to the SoC business, IDMs will have to
face one fundamental question: are their fabs
indispensable to earning profits?
A manufacturer with its own fab can expect
coordination between design and production as
well as huge profits in good times. At the sametime, however, it has to bear the heavy burden of
fixed cost in bad times, and may even be forced
to reduce prices to keep up production rates. Any
constraint by the specification of its own fabs on
product design and lineups could become an obstacle to marketing an application-specific product to a wider range of clients.
Although Intel and TI also have their own
fabs, these major IDMs focus their operation ona narrow range of products, such as MPUs andDSPs, that enable them to set global standards
before starting volume production. Indeed, they
ensure high levels of profit by maintaining pricelevels while holding down costs. In comparison,
Japanese IDMs are focusing on consumer electronics markets, where many final product makers are engaged in a fierce competition for a larger market share. This, along with a strong preference of clients for custom products, makes it
difficult for them to secure a large volume of
production per item, as seen in the case of proc-

essors. What is worse, they can hardly expect
stable profits, as digitization accelerates thecommodity market.
It is therefore essential for a manufacturer
with its own fabs to produce global-standard
semiconductors that may be sold in sufficiently
large quantities to recover investment cost. A
manufacturer of world-leading digital consumer
electronic equipment may rightfully retain asemiconductor department, mainly for differentiating its products. However, it is hard to imagine
that all IDMs are in such a position. Most ofthem should identify the size of the potential client base for horizontal marketing in the firstplace. If it is difficult to improve profits, they
will have to consider utilizing external fabs. Ifthey are to maintain their focus on digital consumer electronics as an application for SoCs,
they will have to revise their business management accordingly. The traditional IDM model
will not do in either case.
There is no fixed business model for SoCs.
On the contrary, various options may exist. Having distinctive manufacturers compete in theirrespective areas of specialization would be muchbetter than to have a large number of players using similar models. Venturing into joint development is definitely a viable option in infrastructural fields where product differentiation isdifficult. In this respect, development of common
process technologies is a potential trigger forsuch a choice. Elsewhere, concrete methods ofdeveloping custom products into ASSPs throughhorizontal marketing should include narrowing
down the scope of their application. A SoC
maker constantly needs to monitor trends invarious industries, as the chip is used for a rangeof products including cellular phones, consoles,
digital consumer electronics and automobiles andhence requires joint development with end users
from the outset. In some cases, it will be more
efficient to concentrate managerial resources ona specific area, and subsequently expand the client base, than to cover a full range of applications with limited resources.
In any case, the first step for any manufacturer will be to revisit the fundamentals of management strategy in light of the four strategies
presented above to increase competitiveness in
the SoC business, while taking account of its

Development Bank of Japan Research Report/ No. 57

53

own particular conditions. Does it really makeeconomic sense to maintain its own fabs? Is it
impossible to ensure differentiation in design andmarketing while using common process technologies? These questions should be examined

54

Development Bank of Japan Research Report/ No. 57

fully, followed by cross-sector discussions. It istime for Japanese semiconductor manufacturers
to renew their business models to meet the challenge of SoCs.

Conclusion
In Europe and the U.S., emerging design ventures such as fabless companies and IP providers
have been flying high on the wings of their
original expertise. As was noted earlier in thisreport, fabless companies are also growing rapidly in Taiwan, the home of world-leading foundries. Although semiconductor production requires huge investment, the design of circuits andthe development of IP depend essentially on
ideas. For this reason, the market is relatively
easy to penetrate even for a small venture, provided that it has unique skills and a capacity formarket cultivation. This has directly increased
the competitiveness of the semiconductor industry as a whole.
Although some semiconductor ventures
have started up in Japan, they lag far behind
overseas counterparts in number and scale. Most
Japanese semiconductor manufacturers take theform of IDMs, which perform the whole manufacturing process in-house, from design to fabrication. It is not easy for these firms to further
expand their operations as long as they supply
the domestic market. Some observers note thatfabless companies will not be able to expect a
flexible response from IDMs even if they wanted
to outsource chip fabrication, because they tend
to give priority to manufacturing their own
products. It has also become increasingly difficult for a small venture to design a SoC on its
own, as a large number of functional blocks haveto be integrated on a chip.
The vertical specialization model prescribes
a clear division of labor between fabless companies and foundries. Thus, fabless companies actively sell the outcome of their development anddesign activities to external clients, while foundries try to win more contracts by providing IP
libraries and otherwise building global alliances.
In contrast, many of the leading Japanese semiconductor manufacturers find it difficult to adopt
a bold external sales strategy out of consideration
for set product departments in the same group. In

this way, they may be missing out on a chance tohave their excellent designing and manufacturing
techniques appreciated by outsiders.
Design is by far the most crucial process for
SoCs. In this connection, EDA has become sovaluable that many consider it impossible to design any semiconductor without the help of an
EDA tool. Although leading Japanese semiconductor manufacturers used to develop their own
EDA, they have phased out in-house development as tools manufactured by U.S. vendors
gradually established their products as global
standards. In the world of SoCs, coordination
between fabrication and design is paramount.
Observers have alerted Japanese manufacturersof the risk of allowing overseas manufacturers tocontrol the crucial design tool market. Recently,
multiple EDA ventures have been created byformer engineers involved in research and development on EDA in major Japanese electronics
manufacturers, as well as by academic faculty
members. A Japan EDA Venture Consortium(JEVec) was established in January 2006. It is
worth monitoring whether these movements will
help revitalize the Japanese semiconductor industry.
An unconventional, innovative approach isoften required when designing a semiconductor.
If IDMs stop clinging to their own fabs and further increase the effective use of external resources, Japanese semiconductor ventures will beable to expand their field of activity, possibly
increasing the competitiveness of IDMs. Alternatively, if Japanese IDMs are to uphold themodel of “vertical integration” in the SoC business, they should redouble their efforts to enhance collaboration between the device and set
product departments. One of the strengths of ageneral electronics manufacturer lies in its ability
to increase the value added to a product with a
total approach encompassing devices, production,
sales and customer service. Management’s skills
will be judged by whether the company canachieve the convergence of compartmentalizedbusiness departments.

Development Bank of Japan Research Report/ No. 57

55

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List of Back Numbers (Including JDB Research Report)
No. 57 Policies to Restore the International Competitiveness of Japanese Semiconductor Industry(this issue)
No. 56 Survey on Planned Capital Spending for Fiscal Years 2005 and 2006 (Conducted in November 2005),
January 2006
No. 55 Survey on Planned Capital Spending for Fiscal Years 2004, 2005 and 2006 (Conducted in June 2005),
September 2005
No. 54 Improving Corporate Value through Disaster Management: Prospects of Socially Responsible Investment (SRI) for Disaster Reduction, July 2005
No. 53 Japan's Innovative Capacity and Policies for Commercializing New Technologies: Using Carve-Outs toCreate New Industries, May 2005
No. 52 Intelligent Transport System (ITS): Current State and Future Prospects, May 2005
No. 51 Recent Trends in the Japanese Economy: Pause in Recovery, March 2005
No. 50 Corporate Capital Spending Behavior and Innovation Efforts: Findings of Survey on Capital Spending
Behavior (Conducted in November 2004), March 2005
No. 49 Survey on Planned Capital Spending for Fiscal Years 2004 and 2005 (Conducted in November 2004),
January 2005
No. 48 Recent Trends in the Japanese Economy: Medium-term Outlook of Japanese Industrial Structure, January 2005
No. 47 Survey on Planned Capital Spending for Fiscal Years 2003, 2004 and 2005 (Conducted in June 2004),
September 2004
No. 46 Recent Trends in the Japanese Economy: Impact of Rising International Commodity Prices on Corporate Input/Output Behavior, September 2004
No. 45 How Life Cycle Assessment (LCA) Can Enhance the Fight against Global Warming, August 2004
No. 44 Recent Trends in the Japanese Economy: A Medium-term Scenario for the Japanese Economy with
Special Focus on the Flow of Funds and Finance, March 2004
No. 43 Survey on Planned Capital Spending for Fiscal Years 2002, 2003 and 2004 (Conducted in August 2003),
November 2003
No. 42 Promoting Corporate Measures to Combat Global Warming: An Analysis of Innovative Activities in the
Field, September 2003
No. 41 Prospects and Challenges for End-of-Life Vehicle Recycling, May 2003
No. 40 Survey on Planned Capital Spending for Fiscal Years 2002 and 2003 (Conducted in February 2003),
May 2003
No. 39 China’s Economic Development and the Role of Foreign-Funded Enterprises, May 2003
No. 38 Decline in Productivity in Japan and Disparities Between Firms in the 1990s: An Empirical Approach
Based on Data Envelopment Analysis, April 2003
No. 37 Trends in Socially Responsible Investment: Corporate Social Responsibility in a New Phase, March
2003
No. 36 Recent Trends in the Japanese Economy: A Medium-term Scenario for the Sustainability of the Japanese Economy, February 2003
No. 35 Concerns for the Future and Generational Consumption Behavior, February 2003

No. 34 Prospects and Challenges Surrounding Japan’s Electrical Equipment Industry: General Electrical
Equipment Manufacturers’ Restructuring of Operations and Future Prospects, November 2002
No. 33 Survey on Planned Capital Spending for Fiscal Years 2001, 2002 and 2003 (Conducted in August 2002),
November 2002
No. 32 Behavior Trends of Japanese Banks toward the Corporate Sector and Their Impact on the Economy,
October 2002
No. 31 Microstructure of Investment and Employment Dynamics: Stylized Facts of Factor Adjustment Basedon Listed Company Data, October 2002
No. 30 Recent Trends in the Japanese Economy: Globalization and the Japanese Economy, August 2002
No. 29 Corporate Financing Trends in Recent Years: Fund Shortages and Repayment Burden, August 2002
No. 28 Urban Renewal and Resource Recycling: For the Creation of a Resource Recycling Society, July 2002
No. 27 Labor’s Share and the Adjustment of Wages and Employment, June 2002
No. 26 Survey on Planned Capital Spending for Fiscal Years 2001 and 2002 (Conducted in February 2002),
May 2002
No. 25 Environmental Information Policy and Utilization of Information Technology: Toward a Shift in Environmental Policy Paradigm, March 2002
No. 24 The Changing Structure of Trade in Japan and Its Impact: With the Focus on Trade in Information
Technology (IT) Goods, March 2002
No. 23 Microstructure of persistent ROA decline in the Japanese corporate sector: Inter-company disparities
and investment strategies, March 2002
No. 22 Recent Trends in the Japanese Economy: The Japanese Economy under Deflation and Prospects ofEvolution, February 2002
No. 21 Survey on Planned Capital Spending for Fiscal Years 2000, 2001 and 2002, December 2001
No. 20 Current Situation and Challenges for Cable Television in the Broadband Era, October 2001
No. 19 Recent Trends in the Japanese Economy: The Japanese Economy under Deflation, August 2001
No. 18 Introduction of a Home Appliance Recycling System: Effects & Prospects: Progress towards Utilisationof Recycling Infrastructure, June 2001
No. 17 Survey on Planned Capital Spending for Fiscal Years 2000 and 2001, June 2001
No. 16 Revitalization of Middle-aged and Elderly Workers in Japan’s Labor Markets: Requiring the Expansionof the Vocational Training Functions, March 2001
No. 15 Risk-Averting Portfolio Trends of Japanese Households, March 2001
No. 14 Consumption Demand Trends and the Structure of Supply: Focus on Retail Industry Supply Behavior,
March 2001
No. 13 Recent Trends in the Japanese Economy: Weakness of Current Economic Recovery and Its Background,
March 2001
No. 12 Empirical Reassessment of Japanese Corporate Investment Behavior: Features and Changes since the1980s, based on Micro-level Panel Data, March 2001
No. 11 Survey on Planned Capital Spending for Fiscal Years 1999, 2000 and 2001, October 2000
No. 10 Job Creation and Job Destruction in Japan, 1978-1998: An Empirical Analysis Based on EnterpriseData, September 2000
No. 9

Recent Trends in the Japanese Economy: Information Technology and the Economy, September 2000

No. 8

Trend of International Reorganization Affecting the Japanese Automobile and Auto Parts Industries,
June 2000

No. 7

Survey on Planned Capital Spending for Fiscal Years 1999 and 2000, June 2000

No. 6

Current Status and Future Perspective of the Japanese Remediation Industry: Technology and Market
for Underground Remediation, May 2000

No. 5

Recent Trends in the Japanese Economy: The 1990s in Retrospect, March 2000

No. 4

Destabilized Consumption and the Post-bubble Consumer Environment, February 2000

No. 3

The Slump in Plant and Equipment Investment in the 1990s: Focusing on Lowered Expectations, theDebt Burden and Other Structural Factors, January 2000

No. 2

Survey on Planned Capital Spending for Fiscal Years 1998, 1999 and 2000, November 1999

No. 1

Corporate Strategies in Japan’s Semiconductor Industry: Implications of Development in Other AsianCountries, November 1999

JDB Research Report
No. 96 Recent Trends in the Japanese Economy: Focused on Fixed Investment and Capital Stock, August 1999
No. 95 Efforts to Protect the Natural Environment in the United States and Germany: Environmental Mitigation and Biotope Conservation, July 1999
No. 94 Survey on Planned Capital Spending for Fiscal Years 1998 and 1999, June 1999
No. 93 Towards the realization of ‘environmental partnership’: A survey of Japan’s environmental NPO sector
through comparison with Germany, June 1999
No. 92 The Impact of Demographic Changes on Consumption and Savings, March 1999
No. 91 Recent Research and Development Trends in Japanese Enterprises: Technology Fusion, March 1999
No. 90 Recent Trends in the Japanese Economy: Prolonged Balance Sheet Adjustment, January 1999
No. 89 Impact of Asset Price Fluctuations on Household and Corporate Behavior: A Comparison between Japan and the U.S., December 1998
No. 88 Survey on Planned Capital Spending for Fiscal Years 1997, 1998, and 1999, December 1998
No. 87 Foreign Exchange Rate Fluctuations and Changes in the Input-Output Structure, November 1998
No. 86 Structural Changes in Unemployment of Japan: An Approach from Labor Flow, November 1998
No. 85 Recent Trends in the Japanese Economy: Characteristics of the Current Recession, August 1998
No. 84 R&D Stock and Trade Structure in Japan, August 1998
No. 83 Survey on Planned Capital Spending for Fiscal Years 1997 and 1998, August 1998
No. 82 The Significance, Potential, and Problems of DNA Analysis Research: Establishing Public Acceptanceis Essential, May 1998
No. 81 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1996, 1997 and1998 Conducted in August 1997, March 1998
No. 80 Recent Trends in the Japanese Economy: Growth Base of the Japanese Economy, January 1998
No. 79 Information Appliances: The Strength of Japanese Companies and Tasks for the Future, January 1998
No. 78 Challenges and Outlook for the Japanese Machinery Industries: Impact of ISO14000 Series and Environmental Cost, January 1998
No. 77 Current Conditions and Issues of Computerization in the Health Care Industry: For the Construction of

a Health Care Information Network, January 1998
No. 76 Household Consumption and Saving in Japan, December 1997
No. 75 The Direction of Japanese Distribution System Reforms: Strengthening the Infrastructure to Support
Diverse Consumer Choices, November 1997
No. 74 Foreign Direct Investments by Japanese Manufacturing Industries and Their Effects on International
Trade, October 1997
No. 73 The Impact of the Changing Trade Structure on the Japanese Economy: With Special Focus on the Effects on Productivity and Employment, October 1997
No. 72 An Analysis of Foreign Direct Investment and Foreign Affiliates in Japan, August 1997
No. 71 Recent Trends in the Japanese Economy: Stock Replacement and New Demand as Aspects of Economic Recovery, August 1997
No. 70 Corporate Fundraising: An International Comparison, June 1997
No. 69 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1996 and 1997
Conducted in February 1997, May 1997
No. 68 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1996 and 1997
Conducted in August 1996, August 1997
No. 67 An International Comparison of Corporate Investment Behavior: Empirical Analysis Using Firm Data
from Japan, France and the US, April 1997
No. 66 Housing in the National Capital: Analysis of the Market for Housing using Micro Data, March 1997
No. 65 The Environment for Locating Business Operations in Major East Asian Cities, January 1997
No. 64 Direction of Reconstruction of Business Strategy in the Chemical Industry, January 1997
No. 63 Reflection on Discussions Concerning Regulation of the Electric Power Industry: Deregulation of theElectric Power Industry in Japan and Implication of Experiences in the United States, December 1996
No. 62 Current Status and Future Perspective of the Japanese Semiconductor Industry, November 1996
No. 61 A Breakthrough for the Japanese Software Industry?: Responsiveness to Users’ Needs is the key, October 1996
No. 60 Recent Trends in the Japanese Economy Focusing on the Characteristics and Sustainability of the Current Economic Recovery, September 1996
No. 59 Analysis of the Primary Causes and Economic Effects of Information: Related investment in the UnitedStates and Trends in Japan, August 1996
No. 58 Selected Summaries of Research Reports: Published in FY1995, June 1996
No. 57 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1995 and 1996
Conducted in February 1996, May 1996
No. 56 Recent Trends in the Japanese Economy, May 1996
No. 55 Issues Concerning the Competitiveness of the Japanese Steel Industry, February 1996
No. 54 Changes in the Financial Environment and the Real Economy, January 1996
No. 53 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1994, 1995 and1996 Conducted in August 1995, October 1995
No. 52 Current Economic Trends: Focusing on the Appreciation of the Yen and its Effects, October 1995
No. 51 Problems Concerning the International Competitiveness of the Petrochemical Industry, October 1995
No. 50 An Economic Approach to International Competitiveness, October 1995

No. 49 Selected Summaries of Research Reports Published in FY1994, July 1995
No. 48 Strategies for Improving the Efficiency of the Japanese Physical Distribution System: Part 2, July 1995
No. 47 Issues on International Competitive Strength of the Auto Industry, June 1995
No. 46 Problems Concerning the International Competitiveness of the Electronics and Electric Machinery Industry, June 1995
No. 45 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1994 and 1995
Conducted in March 1995, June 1995
No. 44 Strategies for Improving the Efficiency of the Japanese Physical Distribution System, March 1995
No. 43 Capital Spending Recovery Scenario Cycle and Structure, August 1994
No. 42 Progress of International Joint Development between Industrialized Countries on the Private Level,
May 1994
No. 41 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1993, 1994 and1995 Conducted in August 1994 , November 1994
No. 40 Selected Summaries of Research Reports Published in FY1993, June 1994
No. 39 Recent Trends in Japan’s Foreign Accounts, April 1994
No. 38 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1993 and 1994
Conducted in March 1994, April 1994
No. 37 Economic Zones and East Asia Prospect for Economic Activity Oriented Market Integration, December
1993
No. 36 Japanese Corporate Responses to Global Environmental Issues, December 1993
No. 35 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1992, 1993 and1994 Conducted in August 1993, September 1993
No. 34 Structure of Profit to Capital in the Manufacturing Industry, September 1993
No. 33 Comparison of the Japanese and The U.S. Labor Markets, October 1992
No. 32 The Relative Competitiveness of U.S., German, and Japanese Manufacturing, March 1993
No. 31 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1992 and 1993
Conducted in March 1993, April 1993
No. 30 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1991, 1992 and1993 Conducted in August 1992, December 1992
No. 29 Flow of Funds in the 80s and Future Corporate Finance in Japan, November 1992
No. 28 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1991 and 1992
Conducted in February 1992, April 1992
No. 27 An Analysis of Foreign Direct Investment in Japan, March 1992
No. 26 Projection of Japan's Trade Surplus in 1995: Analysis of Japan's Trade Structure in the 80s, February
1992
No. 25 Intra-Industry Trade and Dynamic Development of The World Economy, November 1991
No. 24 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1990, 1991 and1992 Conducted in August 1991, September 1991
No. 23 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1990 and 1991
Conducted in February 1991, March 1991
No. 22 Trends of the Petrochemical Industry and its Marketplace in East Asia, March 1991

No. 21 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1989, 1990 and1991 Conducted in August 1990, September 1990
No. 20 Deepening Economic Linkages in The Pacific Basin Region: Trade, Foreign Direct Investment andTechnology, September 1990
No. 19 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1989 and 1990
Conducted in February 1990, March 1990
No. 18 Petrochemicals in Japan, The US, and Korea an Assessment of Economic Efficiency, February 1990
No. 17 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1988, 1989 and1990 Conducted in August 1989, October 1989
No. 16 Impact of the EC Unification on Japan’s Automobile and Electronics Industries, August 1989
No. 15 Industrial and Trade Structures and the International Competitiveness of Asia’s Newly Industrializing
Economies, August 1989
No. 14 The Japan Development Bank Reports on Capital Investment Spending: Survey for Fiscal Years 1988
and 1989 Conducted in February 1989, March 1989
No. 13 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1987, 1988 and1989 Conducted in August 1988, September 1988
No. 12 Growing Foreign Investors’ Activities and the Future of Internationalization, September 1988
No. 11 Futures Tasks and Prospects for the Japanese Machine-Tool Industry, July 1988
No. 10 International Division of Labor in the Machine Industries Among Japan, Asia’s NICs and ASEANCountries, June 1988
No. 9

Trends of the Petrochemical Industry and its Marketplace in East Asia around Japan, May 1988

No. 8

The International Competitiveness of Japan and U.S. in High Technology Industries, April 1988

No. 7

The Japan Development Bank Reports on Private Fixed Investment in Japan, March 1988

No. 6

Economic Projections of the Japan’s Economy to the Year 2000, February 1988

No. 5

The Japan Development Bank Reports on Private Fixed Investment in Japan, September 1987

No. 4

Current Trends in the Japanese Auto Parts Industry in Overseas Production, July 1987

No. 3

Current Moves for Foreign Direct Investment into Japan, May 1987

No. 2

Overseas Direct Investments by Japanese Corporations, May 1987

No. 1

Current U.S. Consumption Trends, May 1987