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Kahaner report -- Semiconductor related
From: David Farber <farber () central cis upenn edu>
Date: Sun, 26 Feb 1995 12:08:06 -0500

Dr. David K. Kahaner
Asian Technology Information Program (ATIP)
Harks Roppongi Building 1F
6-15-21 Roppongi
Minato-ku, Tokyo 106
 Tel: +81 3 5411-6670; Fax: +81 3 5412-7111


ABSTRACT. (1) Summary report surveying the current status and future
outlook for the Japanese semiconductor industry, from the Electronic
Industries Association of Japan (EIJA), (2) Semiconductor Industry Research
Institute Japan (SIRI), (3) Earthquake impact on semiconductor industry -
update.




(1) STATUS OF JAPANESE SEMICONDUCTOR INDUSTRY.


The following report was published in the Japanese journal Denshi, Jun
1994, pp18-25.


Summary of the Report on a Survey of the Current Status and Future
Outlook for the Japanese Semiconductor Industry, Mid-Term Vision


From Denshi Jun 1994, pp18-25.


Electronic Industries Association of Japan (EIJA), MidTerm Vision Committee


 INTRODUCTION


The Semiconductor Mid-term Vision Committee (chairman, Ryuichi Ozaki,
NEC) of the Electronic Industries Association of Japan (EIJA) has
recently compiled the results of a survey regarding the current status
and future outlook for the semiconductor industry. The survey was
performed by the "Semiconductor Industry, Mid-Term Vision Committee"
which is comprised of ten members from major electronic device
manufacturing companies, and covers the FY93 business period.


For further information contact the following.
    Electronic Industries Association of Japan (EIJA)
    (Nihon Denshi Kikai Kogyo Kai)
    3-2-2 Marunouchi, Chiyoda-ku, Tokyo 100 Japan
     Tel: +81 3 3213-1065; Fax: +81 3 3213-1371 (Mr Sugioka)


The semiconductors which have come into being during this century have
fostered dramatic development of computers and electronic equipment, and
have made a wonderful contribution to the building of today's convenient
and comfortable society. Semiconductors have come to be used in all sorts
of things which surround us, so much so that it would be hard to think of
life without them. They will certainly leave an indelible "footprint" in
the history of technological advancement of the twentieth century.


On the hand, because of the wide scale industrial expansion and
advancement of technology which accompanies high-level growth, the
semiconductor industry is beginning to face various types of problems.
Some of these include excessive investment with lower return on
investment, and some are also trade problems. These problems cannot be
easily resolved if only an extension of conventional approaches is used.


The nature of the semiconductor industry has also changed in the '90s,
being driven by "sub miniature fabrication", which is associated with
higher integration levels, large quantity production, higher reliability,
and faster operational speed. That is, the dramatic improvement of the
level of integration has enhanced the functions within LSIs, and LSIs
have advanced to the point where they provide the added value and
competitive force associated with electronic equipment. As a result,
"system-on-chip" products (such as microprocessors and ASICs) have begun
to play an important role in the industry, replacing memory chips which
have been the driving force in the past.


It is inevitable that these changes have begun to widely affect the
global semiconductor industry, and has resulted in a resurgence of US.
manufacturing companies, advancement of Korean companies, and a
stagnation of Japanese manufacturers. In addition, the Japanese economy
suffers from the breakdown of the "bubble economy", the high valuation of
the yen, and shifts taking place overseas. This places Japan in a serious
long-term slump, with wavering confidence and a questionable future.


With troubles both at home and abroad, the semiconductor industry should
play a major role in the future of Japan. That is, it would be better to
clarify the role and vision of the semiconductor industry from a global
point of view based on the resurgence of Japanese technology, rather than
to focus on the semiconductor industry itself.


Therefore, the main theme of this report is not "problems of the
semiconductor industry", but rather "the resurgence of Japanese
technology". it is our earnest desire that authorities will examine and
implement the proposals given in this report to achieve a rejuvenation of
the Japanese semiconductor industry.


---------------------------------
 1. Current Status of the Semiconductor Market, and
    Changes in the External Environment


The transistor was invented in the United States in 1947, and was used
first for American military applications. It then began to be used in
consumer applications in Japan. At first, the main application of the
transistor was to replace the vacuum tube, but demand for the transistor
increased dramatically with the appearance of the integrated circuit. In
addition, the achievement of "higher integration, volume production,
higher reliability, and lower cost" by the untiring pursuit of
sub miniature fabrication, was hastened by the development of the personal
computer in the 1986s. This brought about tremendous growth focusing on
memory chips.


Average annual growth between 1970 and 1993 was 16%, and the 1993 market
reached about 80 billion dollars.


However, in view of long-term trends, the market is beginning to become
sluggish. For example, over the last five years (1989 to 1993), annual
growth was 11-12%. Converted to yen (and due to the high valuation of the
yen), the annual growth was about 11% between 1970 and 1993, and for the
past five years, only 5-6%. This represents a sudden downturn when seen
from the Japanese point of view.


The "silicon cycle" which is peculiar to the semiconductor industry, has
recently begun to change in conjunction with the increasing number of
applications. For example, the cycle experiences peaks and valleys, and
during 1992, which should have been a peak year, the Japanese market
recorded negative growth. The Japanese market also experienced slow
growth during 1992, when compared to overseas markets, so it seems that
the silicon cycle no longer applies to the Japanese market.


Together with the change in the market environment, semiconductor
products themselves began to vary widely in 1990. That is, during the
1970s and '80s, higher integration, volume production, higher
reliability, and lower cost through the "tireless pursuit of sub miniature
fabrication" roused demand, and the memory chip was the typical product.


However, in the 1990s, LSIs have acquired a higher level of function as
well as improved integration levels, and the LSI now determines even the
level of performance and added value of electronic equipment. The LSI is
not simply an electronic component anymore; it now plays the role of the
"brain" in electronic equipment. The source of the added value in
semiconductor products has begun to change from "sub miniature
fabrication" to "LSI function". The microprocessor is a typical example.


These changes which took place in the '90s are having an especially large
influence on Japanese manufacturing companies which have been strong in
"sub miniature fabrication". The lower added value associated with memory
chips has troubled Japanese manufacturers because it is linked to lower
investment efficiency. In addition, the breakdown of the "bubble economy"
has done away with the ability to obtain inexpensive investment means.
This is why it seems that US. manufacturers have regained the lead from
Japanese manufacturers in 1993 in terms of investment amount, with
improved profit from microprocessors and related products. In terms of
sales also, Japanese manufacturing companies, whose one time 50% of the
global market has been affected by the advancement of Korean companies,
surrendered their leading position to US. manufacturers in 1993. In the
semiconductor industry, it is said that the amount of investment has an
impact on the market share several years later, and this trend presents a
significant warning to Japanese manufacturing companies. Improved
earnings and investment efficiency are urgently needed.


On the other hand, major changes are also taking place worldwide with
regard to the electronic equipment market, where semiconductors find
their chief application. First of all, within Japan, there has been a
loss of competitive edge within the electronic equipment market due to
the high valuation of the yen, and there has been shifting overseas. This
trend is especially evident in the consumer market. In addition, there
have been stringent demands from abroad, calling for increased internal
demand, opening of markets, correcting trade imbalances, and contribution
to international efforts. Definite measures have not been adopted, and
the future outlook is still not clear for Japan.


Overseas, the United States, which experienced a recession earlier in the
'80s, began taking strategic steps directed toward developing an
information-based society, by downsizing its work forces. This led to a
strong recovery from the "domestic hollowing out trend" which was at one
time prevalent. Europe also has experienced a gradual recovery stimulated
by the breakdown of the former Soviet block, and Asian countries continue
to experience high growth, as equipment production shifts away from
advanced countries.


There also have been regional economical consolidations as evidenced by
the EC unification, NAFTA, and AFTA. The global economy is continually
groping for new structure, and for the time being consists of three
elements-global, regional, and market economies.


Amid these changes in the external environment, Japanese manufacturers
are pursuing new approaches which are not simple extensions of
conventional thought. Two examples of this are the ideas of improving
product composition (not dependent on memory chips) and developing
business ties with overseas manufacturing companies. Independent
companies are taking clear steps in this direction.


However, at the same time, there are also numerous problems, such as the
trade problems, environmental problems, and intellectual property rights,
which independent companies cannot handle alone. These problems are not
likely to be easily resolved through efforts made by individual firms.
Today, as the Japanese economy and Japanese manufacturing companies
themselves face these major changes, the time has come where we must take
a hard look at the prospects for the next century.


[To bring this up to date, sales by Japanese semiconductor manufacturers
in 1994 were US$44.4B, about 40.5 percent of the world total, and less
than one percent under the US total (41.4%). World semiconductor sales
were about US$110B, about 28% greater than in 1993. The closing gap
between Japan and the US is due to the rapid increase in sales of DRAMs
(memory chips), which were 60% above 1993 figures, and primarily
manufactured by Japanese companies. However other Asian manufacturers,
particularly Koreans such as Samsung also benefited from the DRAM sales
increase; Asian semiconductor sales in 1994 rose 64%. Dataquest
estimates that the market will grow at an average annual rate of 15%
from 1995 and will exceed US$150B by 1997.


The 1994 ranking of semiconductor makers is as follows.


                       SALES    INCREASE  MARKET SHARE
  1    Intel          US$10.1B    +27%       9.2%
  2    NEC                7.9      29        7.2
  3    Toshiba            7.5      31        6.9
  4    Motorola           7.2      22        6.6
  5    Hitachi            6.5      29        5.9
  6    Texas Instruments  5.3      29        4.8
  7    Samsung            4.9      61        4.5
  8    Fujitsu            3.9      32        3.5
  9    Mitsubishi         3.7      32        3.4
 10    Philips            2.9      26        2.6


DKK ]




---------------------------------
 2. Outlook for Electronic Equipment Production and Semiconductor Demand


Although there have been short-term fluctuations, demand for
semiconductors has increased steadily due to the increased production of
electronic equipment and the increasing amount of semiconductor
components used in each unit. In particular, development of electronic
computers in the '70s and '80s has determined the course for an
information-based society, and has been the largest factor associated
with increased semiconductor demand. In Japan, the development of
consumer devices has also contributed greatly to this demand.


In the '90s, however, demand for semiconductors began to change
significantly with regard to growth rate and content. That is, the
breakdown of the bubble economy, the slowdown of internal demand, and
economic shifts abroad caused by the high valuation of the yen, have
resulted in a negative growth rate for 1992 and single-digit growth for
1993; and it appears that slow growth will inevitably continue for the
time being.


On the other hand, US. and Asian markets overseas achieved high growth
during 1992-93, largely due to the driving force of the personal
computer, with the growth of microprocessors being particularly high. This
indicates a departure from the former type of growth which was based on
memory chips. Future demand for semiconductors is predicted to be
sluggish (about 10% annually), and will continue to focus on data
processing and communications equipment directed toward achieving an
advanced information-based society. The reasons for this are:


      *  Advanced areas such as Japan, the United States, and Europe will
         enter a period of stable, but slow growth, and the shift toward
         production in Asian countries will continue. Therefore, there
         are no prospects for high growth of electronic equipment
         production in advanced areas.


      *  Production of electronic equipment will continue to increase in
         Asia at an average annual growth rate of 10% up to the year
         2000.


      *  In Russia and Eastern Europe areas, the shift toward a market
         economy will continue to be difficult; and, up to the year 2010,
         the market can not be driven by electronic equipment.


In addition, the nature of demand will change significantly in the
future. For example:


      *  While the ratio of semiconductors used per each electronic
         device will continue to increase in the future, the "system-on-
         silicon" trend associated with more highly integrated LSIs will
         advance significantly.


      *  In conjunction with this trend, the time will come when the
         designer of electronic equipment will design the LSI, and
         semiconductor manufacturing companies will need to provide not
         only the LSI, but also software components and comprehensive
         design environments.


---------------------------------
 3. Future Outlook for Semiconductor Technology


In the 21st century, the intelligent data communications infrastructure.
which is expected to have a large impact on the demand for electronic
equipment and semiconductors, will need advanced systems and signal
processing technology. These can be classified from various different
viewpoints. The needs associated with ultimate demand for semiconductor
products were classified as follows:


   Semiconductor product group: memories, processors, logic devices,
     linear devices, and other devices.


   Semiconductor technology elements: process device structures,
     assembly, design methods, test methods, circuit systems, commodity
     technology, production equipment, production systems, and other
     technologies.


   Equipment technology elements: communications processing systems,
     network systems, wireless/satellite communications systems, and
     image processing systems.


The future needs directed toward major applications are shown in Table 1
below.


   Table 1. Future Outlook for Semiconductor Devices


 Memories        Larger capacities associated with advanced information
                 media (voice, still images, moving images, and 3-
                 dimensional images)


                 Application specific memories associated with
                 diversification of media


                 Non-volatile memories to replace external memory
                 equipment (associated with trends toward more
                 compact and portable equipment)


                 Fast access memories for high-speed processing
                 engines


                 Incorporating memory functions into silicon, associated
                 with the advancement of system-on-silicon


 Processors      Fast processor engines associated with advanced
                 information media


                 Improved processing capability associated with more
                 advanced and smaller communication terminals


                 Application specific type engines associated with more
                 diverse and smaller equipment


                 Power management technology associated with lower
                 power consumption devices


 Logic ICs       Improved operational speed and increased gate
                 numbers associated with more advanced information
                 media


                 Isolated applications associated with improved
                 processor functions (such as operational speed,
                 confidentiality, and peripheral functions)


                 Advanced design environments for higher gate numbers
                 (such as advanced CAD and micro cell)


 Linear ICs      Limitation and specialization associated with the
                 progress of signal processing digitalization (such as
                 for high frequency transmission/receiving circuits).


                 Faster and higher bit numbers for AD conversion


                 Combined analog and digital  associated with the
                 advancement of system-on-silicon


                 Efficient design methods and environment for
                 mixed analog and digital circuits.


 Other Devices   High-speed/high-bit number DSPs for increased
                 digital signal processing; development and
                 standardization of related DSP optimization software
                 (operating systems, signal processing algorithms, etc.)


                 Non-Neumann type processor engines associated with
                 the increase of "fuzzy" data processing, recognition
                 and judgment processing; also, new logic systems such
                 as multiple value logic, and the devices needed for
                 these systems.


                 Various types of optical devices associated with the
                 advancement of optical communications technology
                 (terabit communication)


                 High-speed optical exchange devices for ATM exchanges.


                 Development of future technologies such as large scale
                 three-dimensional optical integrated circuits.


As shown in Table 1, future needs will be highly advanced and cover a
large range. There are many needs which cannot be met easily through the
efforts of individual companies alone. Upon evaluating these needs, it
was determined that the research and development associated with these
needs should be allocated in the following way:


       *  University and public research organizations should be in
           charge of research and development for those needs which are
           either technically advanced or basic, but which are not yet
           clarified.


       *  Joint government research and development organizations should
          be in charge of those needs which are technically advanced,
          basic, and of a follow-up nature, and which warrant technical
          standardization. (Follow-up nature means that Japanese
          manufacturers will follow suit, or that the manufacturers are
          not likely to take the leadership role.)


For other needs not described above, Table 2 (below) shows the needs of
individual enterprises or cooperative enterprises which are technology-
related themes suitable for research and development by government
research  organizations.




    Table 2. Future Technology Themes Suitable for Joint Research
       and Development by Government and Private Sector


 Process-related        1. Basic processes for 4Gbit and later DRAMs
  themes                2. Advanced wiring technologies
                        3. Process simulators and design tools


 Themes pertaining to   4. Next-generation user programmable device
  device structures         structures


                        5. Device simulators and device structure
                           design tools


 Themes  related  to    6. Multichip modules
  assembly              7. Package design environment


 Themes concerning      8. Top-down design environment from the system level
  design and test
  methods
                        9. Next-generation functional languages
                       10. Mixed  analog/digital LSI design methods
                       11. Test automation methods


 Product technology    12. Basic software for peripheral devices
  themes                    (such as operating systems for DSP)


 Production technology 13. Ultra-clean rooms
  themes               14. Production simulation technology


 Themes related to     15. Next-generation devices (devices and
  large-capacity and        integrated circuits)
  high-speed
  communication




In any case, the important thing in examining future technology themes is
to clarify the direction in which Japanese manufacturing companies should
head. In view of the current situation where LSI design technology has
been added to sub miniature technology (which has been the nucleus of the
semiconductor industry to date), there are two basic directions in which
Japanese manufacturers should head.


One is a continuation of the "unending pursuit of sub miniature
fabrication technology", taking advantage of the excellent production
technologies and large volume production capabilities.


The other is to focus on advanced LSI design technology, the direction
taken by US. manufacturing companies, to increase the weight of
semiconductor products which are "design-rich" and have high added value.


Since there are many factors involved in selecting the direction to
pursue (including a "middle-of-the-road" direction), serious
consideration is warranted. However, it is clear that we have reached a
point where an extension of the traditional approach must be
reconsidered, in view of the current situation (where the relative
competitiveness of Japanese manufacturers has taken a downturn, where
US. manufacturers are experiencing recovery, and where Korean
manufacturing companies are entering the marketplace) and in view of the
changes which are likely to take place regarding the future electronic
equipment market and semiconductor needs.


In particular, it is noteworthy that many of the themes suitable for
joint research by government and the private sector are software related.
As the necessity for LSI design capability increases, the need for
software will naturally increase also. However, this is undeniably a
difficult theme for Japanese manufacturing companies which have pursued
sub miniature fabricating (hardware) technologies to date, and it applies
also to the entire Japanese electronics industry. In retrospect, Japan
has not cultivated the human resources needed to develop superior
software. For this reason, there is an extremely small population capable
of creating such software. What this means is that together with focusing
on software related themes, there is a long-range problem of also
developing software designers.


---------------------------------
 4. Problems of the Semiconductor industry and Mid-Term Vision


Table 3 (below) shows the "important problems" of the (Japanese)
semiconductor industry as described above, and ways to resolve these
problems.




   Table 3. Problems and Corrective Measures for the Japanese
                   Semiconductor Industry


  Problem                   Corrective Measure


  Lower investment      Optimize equipment investments (by drastically
   efficiency & less     cutting down the amount through the introduction
   profit                of new concepts, etc.); lower  costs; shift to
                         higher value-added "design-rich" products.


  High valuation of     Reinforce competitiveness with more advanced
   the yen and           electronic equipment; create new Japanese markets
   emptying of the       (advanced information-based society)
   domestic electronic
   equipment industry


  Engineering           Train younger engineers (hiring, testing, treatment
   shortage (in          systems, work environment, etc.); shift to
   particular, creative  education systems which encourage independence,
   personnel and         (elementary and junior high schools, technical
   system designers)     schools, and internal corporate education);
                         seek personnel who have an international scope
                         (exchange students, foreign students, etc.)


  Continued trade       Establish clear vision and international leadership
   problems              capability for Japanese industry (through
                         global contribution, etc.); shift more toward
                         joint ventures and industrial co-ops


  Excessive             Shift from a "horizontal line-up" approach
   competitiveness       toward individual thinking and mutual interaction.


  Environmental         Conserve energy, prevent global contamination
   problems              and disturbance, etc.


  Intellectual          Communicate continuously between industries,
   property rights       using WIPO and GATT, assure appropriate protection
                         and operation.




It is only natural that Japanese manufacturing companies will take up
these problems individually; but now more than ever before, it is
important to have a mid-term vision which takes a hard look at the next
century, to be aware that the semiconductor industry is at a turning
point, and to regard Japan in its position relative to other countries
worldwide. From this point of view, the mid-term vision which the
Japanese semiconductor industry should have, is as follows.


       Opening New Markets


For the semiconductor industry, which is expected to experience sluggish
market growth, the "creation of a high value-added market for the next
century" is a matter of urgency worldwide. In particular for Japan, which
lacks an abundance of natural resources, to shift from an export-
dependent country to one based on internal demand, the most important
thing is to make the change to an advanced information-based society
quickly. The semiconductor industry is key to achieving this.


Of course, this does not mean that the semiconductor industry alone will
be able to develop this enormous market. In order to do achieve this
goal, it is also necessary to develop a society-related framework and an
awareness of the technology revolution. Once this is accomplished,
Japanese manufacturing companies, which rank at the top level worldwide,
can be expected to lead in this area with confidence and responsibility.


Also, for potential markets such as Asia, Japan should provide active
support (personnel, technology, and capital) and leadership geared toward
opening these new markets in the next century.


On the other hand, there are negative effects that may be associated with
a sudden technology revolution, and these effects must also be dealt with
appropriately. For example, the effects of data-related crimes, changes
in the work environment, employment fluidity, changes in social systems,
and changes in personal lifestyles should be considered. In order to
assure that no ill effects are brought about by the technology
revolution, and to achieve an appropriate balance between the technology
revolution and social revolution, it is important to always think in
terms of "optimization of a semiconductor technology revolution".


     New Contributions


Although it is certain that Japanese manufacturing companies and
industries must address the problems at hand, the "worldwide
contribution" must also not be forgotten. Looking back, Japanese
manufacturers learned their technology from the "Silicon Valley" in the
United States, and are now ranked at the top worldwide. However, the
semiconductor industry is experiencing numerous problems on a global
basis, and has reached a turning point. The world expects Japanese
manufacturers and industries to tackle these problems directly, and to
establish the direction of the next century; doing so would assure
Japan's position in the global community.


While Table 2 shows many of the problems being faced, the following
discussion covers examples related to "worldwide contribution".


 * Support for Basic Research of Cutting Edge Technologies


Criticism such as "sub miniature fabrication will not be the source of
semiconductor advancement" began to be heard in the 1990's. In reality,
this type of opinion arises from the simple logic which holds that
sub miniature fabrication equals higher density memories, and that the
shift toward higher density memories exceeds the associated demand.
However, sub miniature fabrication technology is not associated with the
development of higher density memories alone. It is also essential to
achieving a "large-scale system-on-silicon" in the future, and
advancement of sub miniature fabrication and higher density levels is
needed.


However, there is a big problem associated with "the future of
sub miniature fabrication" in today's semiconductor industry on a
worldwide basis. It is more of an "economical problem" than a
"technological problem". That is, although there is a bright outlook for
the advancement of sub miniature fabrication technology, the economical
outlook for mass production is not good. Table 3 expresses this problem
as "drop in investment efficiency".


This problem must be quickly resolved by somebody. But, who should (or is
capable of) doing this? The answer to this should be clear. The ones who
have received the most benefits by incorporating advanced sub miniature
fabrication technology into memories, in other words, the Japanese
manufacturing companies, should be responsible for this. The Japanese
manufacturers, by breaking through the problems on a global basis, will
contribute not only to the advancement of semiconductors worldwide, but
will also secure a global leadership position in the next century, as the
backbone of sub miniature fabrication advancement. However it will be
difficult to resolve this problem using the conventional approach which
has been used in the past. This is because individual companies are
already suffering from the increased cost of research and development and
the lack of qualified personnel, and there is no favorable outlook for a
change in these circumstances.


For these reasons, I would like to propose that facilities be
established for the "International Improvement of Efficiency of Research
and Development". The experience gained through promotion of
sub miniature fabrication techniques, and the capabilities of related
industries such as production equipment manufacturing, have been the
strong points of Japanese manufacturing companies for some time. On the
other hand, US.  manufacturers have capabilities associated with system
design, software, and Design Automation. For both US. and Japanese
companies to adhere to their current positions and think only of
pursuing the strong points of each other would have a negative impact on
the worldwide advancement of semiconductors. It would be preferable for
those excelling in a particular area to further enhance those
capabilities, and then to implement them worldwide in an appropriate
manner.


Therefore, I would like to propose, as a facility which would make use of
the strong points of Japanese manufacturing companies on for global
basis, the construction of a "Worldwide Research Center for the
Sub miniature Fabrication and High Density (low-cost) Technologies Needed
for the Beginning of the 21st Century" in Japan. If this research center
were to be managed as an international organization where overseas
researchers would be welcome, and the results of the research were to be
protected and managed based on international regulations, this would
provide an international contribution toward the advancement of
semiconductors. If this type of international organization were to
function well, it could also be beneficial in training qualified
personnel and implementing technologies.


Inasmuch as the semiconductor industry holds the position of being a
competitive base industry in the next century worldwide, international
cooperation of cutting-edge technology is not likely to be so easily
achieved. The advantages and disadvantages, and the survival of
individual companies worldwide is of a complex nature, and opposition
(trade problems) could become even more intense. However, the short-
sighted disputes surrounding the competitive base industry of the next
century should not continue forever. There is little to be gained from
both sides from this type of opposition, and it will have a negative
impact on the progress of the industry.


Fortunately, the chance for globalization and international cooperation
is increasing on a worldwide basis, and it is good that international
ties are being made between individual companies. The Japanese industry
should definitely move toward promotion of international cooperation
based on these actions, and it is my sincere hope that Japan will be the
worldwide leader because of its convictions and sense of responsibility.


---------------------------------
 5. Addressing Long-Term Problems


As I have touched upon the current status, future outlook, and numerous
problems associated with the semiconductor industry, it is also necessary,
for the structure of the Japanese industry to change significantly,
geared toward a future advanced information-based society. Although the
role to be played by semiconductors in conjunction with this is becoming
increasingly important, the environment surrounding Japan's semiconductor
industry is also becoming harsher, and the number of problems which
cannot be resolved by individual companies alone is increasing.


Based on these considerations and this awareness, and together with the
activities of this mid-term vision committee, there has been increasing
call for establishment of the "Semiconductor Industry Research Institute"
(a think tank for the Japanese semiconductor industry) as an
organization to develop a course of action, in order to energize the
Japanese semiconductor industry and to challenge the many possibilities
which can be achieved through semiconductors. [Note: this organization
was established April 28, 1994, see below for more details, DKK.]


This research center approaches the problems discussed above from a long-
term and strategic point of view, and its chief mission is to provide the
research results to industry and society. Therefore, its activities are
expected to encompass not only the industrial world, but will also call
for cooperation from the government and academia.


The programs being dealt with at the research center can be basically
divided into four groups-promotion of technical advancement, contribution
to society, energization of the semiconductor industry, and global-
related programs. These four programs will be discussed below.




  A. Program for the Promotion of Technical Advancement


First, it is necessary to classify and evaluate each of the themes
described in the "Outlook for Semiconductor Technology", and to develop a
long-range plan for the technical development of the semiconductor
industry. (This includes materials, process technology, design
technology, device technology, production equipment, and inspection
equipment.) Then, we can establish long-term and advanced technical
objectives. A strategic initiative which considers a cooperative system
between industry, government, and academia would be desirable from a
global point of view.


In conjunction with this, an initiative pertaining to the "training of
personnel capable of bringing about a creativity-based technology
revolution" can also be expected, based on a generation in which product
design capability will be emphasized. For example, "reconsideration of
the education system", or "cooperation between industry and academia in
the training of personnel" might be considered. Another possibility is to
seek personnel from abroad.


It is also necessary to consider further reinforcing the research and
development system. Among other possibilities, research could be assigned
to universities or public research organizations, the creation of
specialized research organizations could be encouraged, or joint industry
and academic research could be promoted, depending on the research theme
at hand.


    B.  Program for Contribution to Society


With the end of the cold war, the world has undergone sudden changes, and
the semiconductor industry can no longer be thought of as belonging to
any particular country. In particular, even though Japan is regarded as
an "economic haven" it is sometimes perceived from a global point of view
as irresponsible or a "special type" of country, while within Japan there
are serious problems such as economic emptying, the aging of the
population, and a sharp decrease in the younger population. Under such
circumstances, in what ways should the semiconductor industry contribute
to society, being the "strategic base industry for the 21st century"?


The first contribution to come to mind is "enhancing the lives within the
country". This would stimulate internal demand and at the same time be an
effective way to correct Japan's trade imbalance. Some specific ways of
doing this might be supporting and reinforcing the activities of the
domestic electronics industry, dealing with the aging population, and
achieving a "comfortable" society. One effective method to achieve an
advanced information-based society is linked to the creation of a new
high value-added market. In doing so, electronic equipment manufacturers
and semiconductor manufacturers should collaborate to more effectively
promote this approach.


Also, on an international basis, supporting potential markets such as
Asia with personnel, technology, and capital, and making positive
contributions toward global environmental problems (in terms of
technological development) can also be expected.


  C.  Semiconductor Industry Revitalization Program


For the industry, which is suffering from sluggish market growth and
reduced investment efficiency and profit, "drastically reducing
industrial costs", together with creating new internal demand are
important means of revitalizing the industry. In particular, with regard
to the costs associated with research and development, equipment, and
capital procurement (which have much room for scrutinizing), initiatives
should be developed which analyze the actual conditions, compare the
international competition, and identify problems, together with drastic
reduction of costs.


Since a tremendous amount of funding is needed to cover research and
development costs and for equipment investment, for the semiconductor
industry, which has a large ripple effect on other industries, tax
incentives which provide support in the international arena, should also
be examined and proposed.


   D.  International Programs


Although it has already been said many times, the semiconductor industry
requires international cooperation, but achieving an appropriate level of
competitiveness and effective international cooperation amid a continuing
environment of cut-throat competition, is not so easily accomplished.
However, this is something which must be achieved above all else. for the
base industry of the next century. At least, this industry should not
follow the history experienced by other unfortunate industries.


The first and foremost element is "to develop means of exchange with
other countries". These exchanges can be roughly classified into two
groups: those involving advanced countries, and those with middle and
developing countries. In both cases, the exchange should be earnest and
continuous, and should involve the government and industry of the partner
country. The Research Center described above could provide a means of
achieving this. In addition, one way of helping to eliminate friction is
to call for an "investigation of international demand balance" and a
"world semiconductor conference". This would also prevent any further
worsening of the semiconductor market and cultivate exchange.


Next, an initiative which is geared toward the establishment of
international unification rules is needed to facilitate international
exchange. In particular, the rules pertaining to international disputes
which involve claims of dumping and violation of intellectual property
rights need to be clarified. While some rules have already been
established, such as GATT and WIPO, they are not always interpreted the
same way by different countries. However, for widespread international
exchange to take place in the future, it is essential that each country
establish common rules. One possibility might be for the research center
to address the establishment of an "international semiconductor
standard cost computation method" or an "international semiconductor
organization". There are also many problems which should be approached
from a unified rule point of view. These include intellectual property
rights, country of origin, and standardization.


Last of all, with regard to the complex and continuing trade friction
issue, it has become necessary for the semiconductor industry itself to
examine a "comprehensive trade policy". Japan's industrial sector
sometimes tends to take a passive position, such as depending on the
government to solve the problems. However, the US SIA (Semiconductor
Industry Association) is a dynamic organization which takes advantage of
the Congress, the government, and mass communication facilities to protect
businesses, the industrial sector, and in turn assure the national safety.
Korea has also recently formed the KSIA and has begun to expand its
operations from a national point of view. [The implication is that Japan
should be doing the same. DKK]


By studying and initiating a "comprehensive trade policy", the research
center will not only be supporting the economic growth of Japan, it is
urgently needed also from the view point of revitalizing Japanese
technology and assuring economic safety. As a participant in this
wonderful industry, it is my sincere hope that this research center
overcomes the immediate difficulties it is facing, and becomes a
forerunner to open the 21st century, which is full of hope and
expectations.


----------


-----------------------------------------------------------------------------


(2) SEMICONDUCTOR INDUSTRY RESEARCH INSTITUTE JAPAN (SIRI)




Semiconductor Industry Research Institute Japan (SIRI)
(Handotai Sangyo Kenkyusho)
Fukoku Seimei Building, 23F
2-2-2 Uchisaiwai-cho, Chiyoda-ku, Tokyo 100 Japan
 Tel: +81 3 3593-7243; 3211-2765 Fax: +81 3 3593-7250 (Mr. Okabe)


This was founded 28 April 1994 with ten initial corporate members.




         Fujitsu Limited
         Hitachi, Ltd.
         Matsushita Electronics Corporation
         Mitsubishi Electric Corporation
         NEC Corporation
         Oki Electric Industry Co., Ltd.
         Sanyo Electric Co., Ltd.
         Sharp Corporation
         Sony Corporation
         Toshiba Corporation




SIRI is formed with four main business purposes.


(1)   Research for the promotion and development of semiconductor technology


      Research on long-term technological development programs
      Development of human resource leading to creative technological
          innovation
      Research for the reinforcement of R&D systems at universities and
          public research institutes


(2)  Research on the social contribution of the semiconductor industry


     Proposals for infrastructural improvement leading to the elevation  of
          lifestyles
     Proposals for the creation and stimulation of new demand
          (Progress in advanced telecommunications and potential
           applications  of semiconductor technology)
     Taking the lead in resolving environmental issues


(3)  Research for the revitalization of the semiconductor industry


     Research on taxation systems
     Proposals and analysis of industrial costs


 (4)  Research on international cooperation in the semiconductor industry


      International cooperation, technological exchanges,
          (exchanges with other countries; relevant proposals)
      Proposals for promoting international rules and standards;
          guaranteed intellectual property rights and establishment of
          proper administrative procedures
      Research on trade policies


Prospectus:


It is not too much to say that almost all major changes which we have
witnessed since the 1960s have been derived from great progress in
semiconductor technology. Social progress we anticipate in the near
future will also depend on the further development of semiconductor
technology. It follows that the semiconductor industry constitutes the
most important foundation for national development as well as for
society at large. By the same token, every one of us, who engaged in the
semiconductor business, must assume a great deal of social
responsibility and obligation.


Unfortunately, however, the vital roles being played by the
semiconductor industry are not fully recognized by the general public,
and members of industrial circles, as well, do not seem to have a middle
and long-term vision for the future direction of the industry. On top of
that, the present situation surrounding the Japanese semiconductor
industry is not totally favorable, in particular the lingering economic
recession and decreasing competitiveness due to the rapid appreciation
of the yen. Our recent experience seems to suggest that the Japanese
semiconductor industry, which has enjoyed steady growth without much
trouble, is now at a turning point.


In order to accommodate these changes, we believe that we need a clear
vision for the future and proper procedures for the revitalization of
the Japanese semiconductor industry which mobilizes all its potential
capabilities. Of course, each company will strive to achieve these
goals, but it is equally important that a middle- and long-range program
be proposed as an industry-wide initiative. This program should
encompass a broad variety of tasks common to the industry, including new
technological options, promotion of technological innovations,
development of creative personnel, infrastructural development to
stimulate new demands, ideal approaches to international cooperation,
etc. A long-range vision is required to develop such programs which are
independent of short-term factors such as economic fluctuations, whereas
in order to fully implement these programs, we must have the ability to
influence all concerned and execute them with resolution.


This is a challenging task which can only be carried out with tripartite
cooperation among industry, government, and academic circles. Moreover,
in order to maximize the effectiveness of such cooperation, an
independent organization is required to be established, where experts
widely representing private, government, and academic sectors will have
opportunities to interact dynamically with one another. The nucleus of
this venture is the proposed "Semiconductor Industry Research Institute
Japan," a center of excellence consisting, of corporate members,
government officials, and academicians. It will serve as a "think tank"
for the Japanese semiconductor industry, analyzing the overall
industrial environment, formulating strategies, drafting industrial
policies, etc. Furthermore, as a public relations center, it will
function as an information clearinghouse for interested parties both in
Japan and abroad.


-------------------------------------------------------------------


(3) IMPACT OF EARTHQUAKE ON SEMICONDUCTOR ACTIVITIES


Several people have asked about the earthquake.


Concerning semiconductor manufacturers, the most damage was at a
Mitsubishi research facility which includes a small scale fab used for
R&D and pilot production. It is not operating and there was no time
estimate about its resumption of operation. Plants of the joint TI/Kobe
Steel project (KTI), as well as plants of Toshiba, Ricoh, and Unison (a
diode maker) all received some damage but have resumed operation. The
factories of Matsushita, Rohm, and Sharp in Kansai (near Kyoto) had
essentially no damage.


Concerning LCD factories, Sharp had no damage, the IBM/Toshiba (DTI)
joint venture had only minor damage, but Hosiden had more severe damage.
Sharp and DTI are operating normally, but Hosiden began operating on 23
Jan. at 30% output.


For materials suppliers.


Sumitomo Sitix (silicon crystal). Damage was very light, but operations
were delayed until 23 Jan. because of water problems. This plant produces
5% of the world supply of 8 inch crystals plus smaller amounts of 4-6
inch crystals. There is still loss of production due to after shocks.


Sumitomo Denko (gallium arsenide). This plant was severely damaged with
estimates that production cannot be restored until the end of March, but
damage assessment is not complete. This plant produces 30% of the world
supply of the GaAs used in high frequency devices for telecom and
military applications, and 50% of a special grade of GaAs used in a
variety of Japanese industry.


Osaka Gas (special gasses). Only minor damage, and operations began 18 Jan.


Mitsubishi Materials & Shinetsu (silicon & slices). Reported no problems
except for some product on the line during the earthquake. These plants
are quite far from Kobe.


Most electronic end-user plants are in Osaka or Kyoto areas, outside of
the zone of severe damage. There have been no reported problems at major
consumer product factories. However, Matsushita's information systems
plant in Kobe had severe damage.


The port of Kobe is closed. This port handles 8-12% of Japan's imports
and exports. However, news reports indicate that Yokohama and other
ports are anxious to try and take up the slack.


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