Japan Inc. Rethinks Its Semi Strategy

Tough Economic Times Force Changes at Equipment Companies

TOKYO —  It is evident here at Semicon that Japan’s continued economic woes are changing the way Japanese equipment companies do business.

Alas, Electronic News (the print edition): we hardly knew ye!Even in the midst of a lengthy recession, executives and analysts cling to evidence of a recovery for the latter quarters of 2002. Yet, even if this takes place, the days of Japan Inc. and its us vs. them mentality are over, and the Japanese readily acknowledge and accept this.

Perhaps the most visible aspect of this phenomenon is Canon Inc.’s embrace of two-year-old Austin metrology start-up nLine Corp. Canon announced that its sales and distribution subsidiary, Canon Sales Co., would function as a sales partner for nLine, selling its newly unveiled direct digital holography Fathom tool in Japan.

Canon Sales is the distributor for a number of third-party tools in Japan, not just Canon’s own semiconductor equipment, explained Hiroshi Shibuya, director and group executive for Canon’s semiconductor equipment sales. Many companies approach Canon’s sales arm to represent them in Japan, but they must meet very strict criteria, Shibuya said. But he found nLine’s technology impressive, suggesting that it has strong potential, and he felt that the two companies would be able to establish a mutual trust between them, he said.

Kyodai Brothers perform outside Tokyo at SEMI Japan 2001
Tradition meets Tech: The Kyodai brothers of Michinoku, Japan, played the shamisen at the opening of Semicon Japan outside of Tokyo. The Kyodai brothers are well known throughout Japan.

While it’s too early to declare a trend, perhaps, the agreement is not without precedent. At last year’s Semicon Japan, Japanese OEM giant Tokyo Electron Ltd. (TEL) announced that it would handle sales and support throughout the world for start-up NuTool Inc. and its copper electrochemical mechanical deposition tool and technology. The move raised a lot of eyebrows in the industry, but TEL heartily endorsed the Silicon Valley start-up. Tetsuro Higashi, TEL president and CEO, said that NuTool’s technology would permit the Japanese OEM to penetrate the market for interconnect process technology.

The idea of Canon’s and TEL’s embrace of American companies and technology would have seemed laughably ridiculous not too many years ago, when Japanese automobiles and electronics dominated America and there was talk that the United States would exit the chip industry all together.

Now, the roles have been reversed. Japan is struggling to move away from the troubled DRAM-dependent semiconductor business model and expand into other areas—system LSI, as opposed to system-on-a-chip, is the current buzzword on this side of the Pacific.

Canon and TEL aren’t the only ones looking west. Specialty etch tool OEM Tegal Corp. announced at the show joint development partnerships with three Japanese microelectronic companies. They look to Tegal for manufacturing process expertise in order to enter the market for nonvolatile memory.

Meanwhile, U.S.-based OEMs August Technology, Ultratech Stepper and Kulicke & Soffa, and European OEM Unaxis Balzers announced that they were joining Japanese tech and OEM companies Dainippon Screen Manufacturing, Ebara and Casio Computer Co. in the newly created Advanced Packaging and Interconnect Alliance (APiA). APiA wants to accelerate the development and implementation of commercially viable advanced packaging technologies.

Semi Japan 2001 in Chiba, outside Tokyo
While participation may be down, particularly among other Asian countries, many exhibitors expressed surprise at the number of Japanese customers at Semicon Japan particularly interested in advanced technologies, even though there is little, if any talk of equipment purchases at the current time.

Many of the OEM executives involved in these partnerships noted that as chip technology becomes more complex, it becomes more costly to invest. While Tegal’s Japanese subsidiary has been established in Japan for 16 years, its new partnerships weren’t struck solely on Tegal’s reputation. The Japanese economy has been hurting for so long that it has created opportunities for foreign companies to become more involved in the domestic Japanese semiconductor business, said Jim McKibben, VP of worldwide marketing and sales for Petaluma, Calif.-based Tegal.

This trend may be most dramatically evident in Japan, but the phenomenon isn’t limited to this side of the Pacific, suggested Mike Parodi, Tegal chairman, president and CEO. “I see a change in the complexion of the industry … It’s driving relationships that wouldn’t have occurred before,” he said.

The business climate has changed so much here, that some U.S. OEM executives are openly wondering what will happen to the Japanese chipmakers during the next upturn. With investment in technology seemingly at an all-time low in tech-hungry Japan, they question if the Japanese will be able to compete with the global market, or if they will eventually be forced to exit not just DRAM, but the chip market altogether.

Editor’s Note: As explained at length elsewhere on this site, this is a news story written by me that originally appeared on the now-defunct Electronic News’ website, which is long gone. It’s former sister pub Electronic Design News (EDN) currently holds the copyright to all Electronic News copy (to the best of my knowledge). You can still see a copy of this story at EDN.

Crossing the Cultural Divide, Part 2

Editor’s Note: this is the second part of a two-part series. Here is the first part of Crossing the Cultural Divide.

Japanese Overcoming Nationalism on Both Sides of Pacific Ocean

TOKYO — As the semiconductor industry helps the world become a smaller place, it has suffered the growing pains of the very changes it helped foment.

Alas, Electronic News (the print edition): we hardly knew ye!Those growing pains involve transitions that haven’t always been easy for companies on either side of the Pacific. Nevertheless, the United States and Japan, two of the world’s economic powerhouses, have each managed to learn from the other as they head into the 21st century.

By the 1970s Japan had emerged from its post World War II rebuilding period as an economic giant. It took what it had learned from America and put it to good use, noted Kiyoshi Miyasaka, senior managing director for Tokyo-based Advantest Corp.’s automated test equipment and handler interface business groups. Forced by economic necessity to respond, American industry in turn looked to its perceived nemesis in the 1980s in order to learn.

“Americans were so clever to combine American ways with Japanese ways,” Miyasaka said, adding that in the 1990s, U.S. corporations managed to surpass their competition outside the United States by incorporating not only Japanese but also European business practices to become truly global entities.

“For myself, I’m thinking about how to mix the cultures not only from the States, but from the European people and the Indian people as well,” Miyasaka said.

It is often a dilemma for companies like Advantest, which really have no choice but to grow beyond their country’s borders if they wish to continue to grow. “Fortunately or unfortunately, 70 percent of our sales comes from foreign trade,” explained Toshio Maruyama, executive managing director and senior vice president of Advantest’s automated test equipment sales division.

In theory, business should be business regardless of borders. After all, Japanese chipmakers face the same market demands and problems that their U.S. counterparts do, such as lowering the cost of test. “Quality and price are the same. In that sense, there is no difference,” Maruyama said. “To my mind … it’s seamless. Business is business. The product is the same. That’s my message to my staff,” he added.

Japanese executives from Advantest and Tokyo Electron.

Following that belief, in April 1999 Advantest consolidated its global sales force, both foreign and domestic, and began directing its international subsidiaries to develop localized support and R&D In addition, Advantest instituted global accounting several years ago. The company has also outlined a five-year goal: to offer the same product price and the same level of customer support anywhere in the world.

But theories face challenges when put into practice. One of the biggest challenges Japanese companies must overcome while doing business with American and other foreign customers is a nationalistic bias — its own as well as that of foreign corporations.

Chipmakers, regardless of which side of the Pacific they are on, often prefer a local tool supplier, their logic being that a local supplier can offer better customer support. Also, Japanese executives point out that foreign customers tend to question if a domestic supplier might give preference to a domestic customer over a foreign one. At one time, this was probably the case no matter on what side of the Pacific a company did business.

So, just as American companies have often had to establish Japanese subsidiaries in order to break into Japanese markets, Japanese companies have had to do the same in order to penetrate American and other foreign markets. It has become a matter of providing a competitive level of service as well as overcoming bias. “An important point is not just selling hardware and software, but we have to support it,” Maruyama said. “The important point is to support the customer. That has to be localized.”

The largest Japanese tool supplier, Tokyo Electron Ltd. (TEL), is even taking its operations one step further. The company is locating certain manufacturing operations in the United States. Tetsuro Higashi, TEL’s chief executive officer and president, noted that the nature of the relationship between chipmaker and tool supplier is very close. In order to penetrate the market in the country that spawned the semiconductor industry, “we need a very deep root in the United States,” he said. “But it takes time.”

Editor’s Note: As explained at length elsewhere on this site, this is a news story written by me that originally appeared on the now-defunct Electronic News’ website, which is long gone. It’s former sister pub Electronic Design News (EDN) currently holds the copyright to all Electronic News copy (to the best of my knowledge). You can still see a copy of this story at EDN.

Crossing the Cultural Divide, Part 1

Editor’s Note: this is the first part of a two-part series. Here is the second part of Cross the Cultural Divide.

For Japan, Penetrating U.S. and Global Markets Means Making Changes

TOKYO — The struggle for domestic corporations in any country to become global means more than just selling tools or other products outside their national borders. Often it means a clash of cultures that forces a company to rethink the way it does business, adopting different, if not outright foreign, means of getting things done in order to compete internationally.

Alas, Electronic News (the print edition): we hardly knew ye!Nowhere is this more evident than in the globalization of Japanese semiconductor equipment companies. Just as American companies have eyed Japanese markets, Japanese companies seek to become competitive forces on the other side of the Pacific. As a result these companies have had to overcome the cultural and political obstacles that separate the United States and Japan.

“As a matter of fact, the conflicts in Japanese business culture in the United States started years ago,” observed Tetsuro Higashi, chief executive officer and president of Tokyo Electron Ltd. (TEL), the largest semiconductor tool maker in Japan and the second largest in the world. Those conflicts extend back 150 to 160 years ago, Higashi suggested. “Since then we have been struggling.”

But those struggles have paved the way for change on both sides of the Pacific. For many Japanese companies, competing in America and around the globe has meant changing the decision-making process.

Higashi observed what many others have also pointed out: that leadership and decision-making within American companies tends to follow a top-down model, whereas Japanese companies tend to be much more consensus based; the organization as a whole plays a much more central role than the chief executive officer.

“In Japan it takes a long time to make one decision,” Higashi said. “But once it is decided the action is very quick.” This lengthy time preceding action can frustrate U.S. companies and executives, he added.

 Technicians assemble memory testers at one of Advantest's production facilities outside of Tokyo.
Technicians assemble memory testers at one of Advantest's production facilities outside of Tokyo.

It can even frustrate Japanese executives at times, once they have become used to American decision-making methods, said Toshio Maruyama, executive managing director and senior vice president of Advantest Corp.’s Automated Test Equipment Sales division. Maruyama spent 10 years helping Advantest establish a presence in the United States before returning to work in Japan.

“I agree with the American style,” Maruyama said, adding that the Japanese style of decision making, with its potentially long and numerous meetings, can affect productivity.

Of course, in the volatile world of semiconductors, time is often a critical factor. This is why TEL has taken a cue from its U.S. brethren and reorganized its corporate structure. Three years ago, it split its executive functions from its board of directors; in Japan typically the board also handles what in the United States would be considered executive duties and powers. Now TEL’s board oversees the fundamental policies and long-term goals, while its executives set corporate strategy to achieve the company’s goals and handle day-to-day operations, Higashi explained.

TEL may have an historical edge over other Japanese companies when it comes to understanding American business practices. TEL was founded in 1963 as an electronics import/export company and had considerable dealings with U.S. suppliers and customers from the beginning.

“Compared to other Japanese companies, our understanding of the American way is much deeper, I think,” Higashi said.

Indeed, TEL has been a leader among Japanese in adopting the American custom of the stock option. “We are the first company in Japan to offer stock options through the entire (corporate) group,” not just the parent company, Higashi explained.

Of course, it only recently became legal for Japanese companies to offer stock options in this manner, but then it is a foreign concept after all. As Advantest’s Maruyama explained, until recently employee turnover in Japan was virtually nonexistent. The Japanese, both employer and employee, saw employment with a company as a lifetime commitment, which has made it difficult for Japanese companies establishing U.S. subsidiaries to adjust to American practices of merit and performance bonuses and stock options in order to attract qualified candidates.

“It’s a very tough job,” Maruyama admitted, “this is one bottleneck we are having.”

But that bottleneck may soon be opened. “We are getting better though,” he added, noting that this phenomenon was one of the reasons behind Advantest’s announcement last fall that its U.S. subsidiary, Advantest America, would be publicly traded on the New York Stock Exchange.

Editor’s Note: As explained at length elsewhere on this site, this is a news story written by me that originally appeared on the now-defunct Electronic News’ website, which is long gone. It’s former sister pub Electronic Design News (EDN) currently holds the copyright to all Electronic News copy (to the best of my knowledge). You can still see a copy of this story at EDN.

Is the Sky Falling?

Analysts, Tool Makers Say No

One would have thought the sky was falling on the semiconductor industry last Thursday morning as technology stocks dropped, with semiconductor capital equipment shares leading the way.

Chicken Little must be an investor.

Alas, Electronic News (the print edition): we hardly knew ye!Assembly equipment company Kulicke and Soffa Industries Inc. (K&S) Wednesday evening announced that it experienced some customer order deferrals and pushouts for ball-bonder tools because of space constraints and wafer and substrate shortages affecting certain customers.

“We hope no one overreacts to this news,” said C. Scott Kulicke, the company’s chairman and chief executive officer.

But overreaction is exactly what happened according to analysts and other equipment manufacturers. The K&S announcement, coupled with reports that Motorola Inc. would reduce its projection of demand for wireless handsets, prompted already nervous investors to sell off technology stocks Thursday.

On Thursday as of noon EDT, the tech-heavy Nasdaq index had lost 22 points, or 0.61 percent, falling to 3,635 after dropping more than 3 percent earlier in the day. Even the consistent performers in the capital equipment industry weren’t immune; Applied Materials Inc. was down $3.56 and closed at $69 per share. The Nasdaq rebounded, however, to close at 3,750, up 101 points.

While many chip stocks, including chipmakers IBM and Intel, ended Thursday on positive notes, equipment stocks remained tepid. The Semiconductor Equipment and Materials International (SEMI) index of equipment companies ended the day down more than three points. Technology stocks in general seemed to be holding their gains on Friday-the Nasdaq was up more than 14 points as of 12:45 p.m. EDT. Equipment stocks, however, continued to be lukewarm; the SEMI index was down another 1.5 points.

No Cause for Alarm

Fat kid in a bunny suit -- that's me!
Well, now I can say it: they were WRONG!

Technology and financial analysts said investor reaction had to do with mixed signals in the marketplace, and not the analog/digital kind.

On one hand, there was the K&S announcement, the Motorola announcement, and recent reports from some companies that near-future earnings may not be as high as predicted. But this tends to be typical for second-quarter reports during the summer, even during an upswing. Furthermore, many companies are posting record earnings and aren’t experiencing the traditional summer slowdown. Also, the Semiconductor Industry Association (SIA) last Thursday reported that world semi sales had topped $16.6 billion in June, a 48 percent year-to-year increase over June 1999 and an all-time record.

“(The SIA) figures are through the roof, which indicates the industry is as good as it can get, and every time we say that, it gets better,” observed Risto Puhakka, vice president of VLSI Research Inc. He added that the stock price of chipmakers doesn’t seem to be getting stronger, however, and some have even declined recently. “We have a lot of mixed signals from the marketplace,” he said.

“The basic thing is that the industry is at full swing, and you see shortages here and there,” Puhakka said. As for sensitive investors and bouncing stock prices, everyone is trying to figure out where it’s going to peak and how soon, he added.

Several analysts noted that assembly equipment companies have much shorter lead-times on orders than front-end tool makers, and that they are the first to feel the effects of a downturn because the assembly industry closely tracks the chip industry in general. This may have been part of the reason investors reacted the way they did, said Dick Greene, principal equipment analyst with SEMI.

“I haven’t seen anything in our data that reflects any particular signs of a downturn,” Greene said.

S.G. Cowen Securities Corp. analysts concluded that the reasons behind K&S’s announcement were essentially the same reasons behind Teradyne Inc.’s previous announcement of lower than expected quarterly earnings, said Tia-min Pang, managing director and equipment analyst.

Pang said that K&S revealed in a conference call Thursday that a Taiwanese subcontractor was primarily responsible for the order push-out because of space constraints at its facilities. Looking to other customers to fill the vacant slots, K&S discovered that other subcontract accounts had tempered their outlook, taking a more conservative approach to near-term spending, Pang said. The company indicated that most of these customers are located outside of Taiwan and for most, the issue is a lack of finished wafers from their foundry fab partners, he added.

This was consistent with Teradyne’s announcement that customers in Korea and Singapore had eased spending because the number of available finished wafers was less than anticipated, according to S.G. Cowen. The firm concluded that Teradyne and K&S share a mutual customer, Amkor Technology, that contributed to both companies’ announcements. Amkor reported quarterly earnings Wednesday night. The packaging and test company said that its fab utilization rates were 75 percent, which could mean one of three things, according to Pang. Either Amkor experienced a lack of wafers to test and package during the quarter, lost market share to its Taiwanese competitors or Amkor and Teradyne’s specific market segment is experiencing softness, Pang said.

“In digging deeper, it appears to be customer-, (geography-) and chip-application-specific,” Pang concluded. “We’re not seeing it anywhere else, just these two companies.”

Editor’s Note: As explained at length elsewhere on this site, this is a news story written by me that originally appeared on the now-defunct Electronic News’ website, which is long gone. It’s former sister pub Electronic Design News (EDN) currently holds the copyright to all Electronic News copy (to the best of my knowledge). You can still see a copy of this story at EDN.