Case Study: The US and Japanese Semiconductor Industries: Management of Technology 2003 Supplementary

Copyright 2003 Doshisha University Prof.
Yuzo Murayama
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Management of Technology 2003 supplementary
January 2004
Rev. January 2004

Case Study: The US and Japanese Semiconductor Industries

1) Semiconductors
A semiconductor has properties between those of a "conductor" which conducts electricity and an
"insulator" which does not conduct electricity. Semiconductors include materials such as silicon and
germanium. The silicon used in a semiconductor must have a monocrystalline structure with a level of
purity as high as 99.99999999999%, or 11 consecutive 9s. The semiconductors that support our modern
electronics dependent societies have been called a "staple of industry" and are an integral part of all
electronic devices. This technology is utilized in both civilian and military sectors. Civilian uses include
computers, portable phones, cameras, PDAs, air conditioners and audio equipment. Military uses
include fighter aircraft, precision guided munitions, cruise missiles, and surveillance or early warning
systems. The technology has developed in stages, moving from vacuum tubes, transistors, IC and LSI to
the currently predominant VLSI. In IC (Integrated Circuits) elements that possess the functions of a
transistor, etc. are brought together by manufacturing them on a silicon substrate. These electric circuits
are capable of electrical functions such as the recording and collation of information, and processing
commands. IC can be classified according to those functions as is shown in Figure 1. IC are circuits that
record information. They are the brain of the computer. Microcomputers are IC printed with multiple MPU
(micro processing units) that do arithmetic processing and carry out commands. A microcomputer is a
system LSI in which system functions that were previously achieved by multiple IC have been gathered
onto a single IC. There is a generational shift about every 3 years and it is said that the degree of
integration of transistors doubles about every 2 years. Gordon Moore, one of the founders of American
semiconductor manufacturer Intel Corporation, predicted this trend and announced it at an academic
conference in 1965. After his announcement, the degree of integration did indeed rise as he had
predicted and this trend is now known as Moore's law. Figure 2 shows the degree of integration of
transistors for different Intel MPU products. The MPU 8080, announced in April of 1974, had 6,000
transistors. The 8086 announced in 1978 had 29,000, the 80286 announced in 1982 had 134,000, the
Intel386 announced in 1985 had 275,000, and the Intel486 announced in 1989 had 1,200,000 transistors.
We can see here that the degree of integration has risen approximately according to Moore's Law.

2) The Japanese and US Semiconductor Industries (1) - The period from after World War II to 1960

The U.S.
The transistor was invented by three scientists at Bell Labs in December of 1947, including John
Bardeen, Walter Brattain and William Shockley. Bell Labs was established through joint investment by

Copyright 2003 Doshisha University Prof. Yuzo Murayama
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AT&T and the Western Electric Company (WE) (a manufacturer of specialized devices for AT&T) for
R&D related to the telephone business. During the Second World War the development of radar was one
of the primary activities of Bell laboratories and research into semiconductors was neglected. After the
war ended in 1945, research into semiconductors began again. Group leader William Shockley was
appointed to this task and recruited John Bardeen for theoretical analysis and Walter Brattain was
selected as the chief lab technician. Research and development then shifted from vacuum tubes to
transistors. The vacuum tubes which had previously been used to amplify speech current were both
large and heavy and were also not very reliable because of issues such as those caused by bulb failures.
Because multiple vacuum tubes are used in a network, the risk of bulb failures is increased. Attention
was focused on transistors as the next generation of technology in order to solve this problem. This is
how this research began and eventually led to the success of these three scientists in the invention of
transistors. After initially discovering their invention, the scientists showed their experiment to the head of
the laboratory and he assigned a name to this revolutionary device. He shortened the original name of
transfer-resister to "transistor". When the head of the laboratory recognized the importance of this
invention he treated the birth of the transistor as top-secret knowledge and it was released to the general
public a half year later. In truth, the invention of the transistor occurred unintentionally when Brattain's
hand slipped during an experiment. The invention of the transistor went on to become the beginning of
the history of the IC and the three scientists later received the Nobel Prize for physics in 1956.
Bell Labs obtained a patent on the results of this research and AT&T purchased that patent from the
inventors giving AT&T fundamental patent rights on the transistor. The role played by WE, which
manufactured specialized equipment for AT&T, was to develop manufacturing technology based on the
Bell Labs patent and to obtain a manufacturing patent. Many of the revolutionary technologies invented
by Bell Labs were used in telecommunications networks. Through mass production, WE became one of
the most advanced companies in the world technologically. Soon after this AT&T licensed this important
patent for the transistor. This was inconsistent with patent law regarding the exclusive possession of
important patents. AT&T used this preemptive policy in order to avoid the imminent possibility of the free
of charge releasing of patent rights. Transistor technology was released on a for charge basis from April
of 1952. The amount of money invested by Bell Labs in the development of the transistor was said to be
$1 million and by holding paid seminars, they were able to recover that $1 million by 1956. There were
approximately 200 participants in these seminars and the 28 companies that bought manufacturing
licenses included Raytheon and Texas Instruments (TI). The participants in these seminars took
transistor technology back to their companies and began the development of new products. At that time
TI was thinking of products that it could create that would use many transistors. The president at that
time, Patrick Haggerty, thought of manufacturing pocket radios. Eventually he realized that instead of
manufacturing radios the ideal target was to manufacture transistors themselves. TI concentrated on the
manufacture of transistors and the development of radios was left to I.D.E.A. Corporation. TI went on to

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announce the world's first silicon transistor in May of 1954. This was many years before any other
companies manufactured silicon transistors. In October of the same year, the world's first transistor radio
was released to the market. It was designed by TI and assembled by I.D.E.A. Corporation. Soon after,
the transistor radio boom occurred and TI made a significant profit. Jack Kilby, a participant in one of the
paid seminars by Bell Labs, went on to develop the basic IC design in 1958. As the circuitry of electronic
devices such as computers became more complex, it became more difficult to achieve miniaturization,
reliability and low-cost manufacturer for electronic devices. It was at that point that Jack Kilby had the
idea to bring together all of the electrical components together onto silicon or germanium. This concept
was the beginning of IC. At TI these devices were being called solid circuits instead of IC. After being
released within the company, this technology was demonstrated to the Air Force. The Air Force was very
impressed and was immediately interested in the possibility of using this technology to create guidance
computers for missiles. The Air Force immediately supplied TI with development funding. Design work
was done in 1961 and several guidance computers for missiles were developed by 1964. After
successful missile flight tests, TI received a flood of manufacturing orders from the military. IC
technology went on to grow rapidly, but was not quickly adopted in household products. Eventually
computer companies adopted this technology and it gradually came to be accepted in household
products, but a long time was necessary for it to be completely accepted. TI, which was experimenting
with the use of IC in household products, completed the test manufacture of a hand held calculator using
IC in 1967. Patrick Haggerty, the president of TI at that time, predicted that IC would become central to
electronic devices. He thought of the possibility of using the IC technology being utilized in missile
development in household products and ordered the development of a calculator. His prediction came
true and thanks to Jack Kilby's seminal discovery, TI became a fixture as the dominant semiconductor
manufacturer. When Motorola established a semiconductor division in 1959, they requested the help of
Lester Hogan, who had experience working at Bell Labs. Motorola was a leading company in
communications equipment for military, space and industrial use, but they had not been successful in
semiconductors. Thanks to Hogan's work there they were in the black after 14 months and the company
experienced rapid growth. This is a result of Hogan's recruitment of many researchers from Bell Labs.
Motorola recorded an average annual growth rate of 40% over the next 10 years and became a leading
company, even in the semiconductor market.
William Shockley, one of the inventors of the transistor, withdrew from Bell Labs and in order to
commercialize the results of his research, in 1956, he founded Shockley Semiconductor in the Santa
Clara Valley. The brightest young engineers gathered together at Shockley Semiconductor from around
the country, attracted to his reputation. These young men went on to create the American semiconductor
industry. Electronics related companies began to crowd into the Santa Clara Valley itself and because
these companies were either directly or indirectly related to semiconductors, this area became known as
Silicon Valley. Figure 3 shows the San Francisco area and Figure 4 is an expanded view of Silicon Valley.

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San Mateo is a city located 30 minutes drive on the freeway from San Francisco and further down the
road there is Palo Alto, Sunnyvale, Santa Clara and a few other cities on the way to San Jose. The area
called Silicon Valley is centered on Palo Alto, which has Stanford University, and covers the 45 km from
San Mateo to San Jose. This area led the American semiconductor industry and was the source for
many revolutionary semiconductor technologies released to the world. One cannot ignore the
relationship with Stanford University to the development of Silicon Valley. F.E. Terman, Dean of
Engineering at Stanford University, was actively involved in strengthening the relationships between the
university and companies. As a part of that, he offered financial support to Hewlett-Packard in 1937,
which became one of the roots of Silicon Valley. This was in order to commercialize the results of
research by two of the graduate school students he instructed, William Hewlett and David Packard. After
this other companies were founded from Stanford University and continued on to grow into companies
that would represent Silicon Valley. The background of this trend included the influence of the
development of the Stanford Industrial Park promoted by Terman. This development was begun as a
method of using the wide area of land owned by the University in a meaningful way. After the invention of
the transistor in 1947, Terman had an interest in this area and after hearing that one of the inventors of
this technology, Shockley, was interested in establishing a company, he contacted him. Terman then
enticed him to establish his company nearby Stanford University. After Terman's persuasion, Shockley
received a request and Shockley Semiconductor was established in Silicon Valley. Terman strengthened
the relationship between the University and companies in this way it and went on to build the basis of
Silicon Valley. As electronics companies began to gather in the Santa Clara Valley, it became known as
Silicon Valley and developed into a high-tech industry region. The establishment of Shockley
Semiconductor was influential in the development of Silicon Valley, but soon after its establishment the
promising young engineers that had gathered together because of their admiration for Shockley
encountered difficulties in working under him and left the company as a group. Less than 1 year had
passed since the company was created. These eight young engineers that left together went on to
create Fairchild Semiconductor in 1957. These eight young engineers came to be known by many as the
"Traitorous Eight" or as the "Fairchild Eight". These eight included Robert Noyce, Gordon Moore, Jean
Hoerni, Julius Blank, Victor Grinich, Eugene Kleiner, Jay Last and Sheldon Roberts. In 1957 there were
no venture capital companies and there was no one who would invest in a venture company. These
young men were forced to visit existing companies and ask for their support. They visited over 50
companies and eventually they were able to receive support from camera manufacturer Fairchild
Camera and Instrument. Sherman Fairchild, the founder of Fairchild Camera and Instrument was
interested in all forms of technology and immediately expressed an interest in semiconductors. Fairchild
Semiconductor Camera and Instrument invested $1.3 million and Fairchild Semiconductor was officially
established on October 1, 1957. The eight Fairchild Men were a group of highly qualified technicians, but
because they lacked business experience, Ed Baldwin was hired on as a general manager and Robert

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Noyce was selected as the group leader. The manufacture of silicon transistors was set as the goal for
Fairchild Semiconductor. The company was successful in meeting their goal of manufacturing mesa
transistors and were then successful in the development of planar transistors. The mesa in mesa
transistor comes from the Spanish word for table and this refers to a transistor in which the excess silicon
around the transistor is cut in a trapezoidal shape. In a planar transistor the surface is planar (flat) and
this type of transistor was an improvement over the mesa type. At the time, it was still the golden age of
germanium and other companies did not have this technology. Silicon transistors also had very stable
temperature characteristics in comparison with germanium transistors so IBM lept to take this
technology and the military also quickly accepted it. That is how Fairchild Semiconductor, as an
emerging company, was able to get these important clients. IBM ordered 100 mesa transistors at $150
each. Even though the price of $150 for one transistor was tens of times as expensive as a vacuum tube,
IBM desired these transistors because of their work on munitions. IBM was working to manufacture
military computers. They desired to miniaturize the memory device in the computer and change it to a
device that could be operated with minimal electric power. At that time, the magnets in use as memory
devices in computers were called core memory and a great deal of power was necessary to operate this
core memory. By changing the system to a transistor-based system, the engineers at Fairchild
Semiconductor believed they might be able to change the memory device to one that operated on
minimal power and that could be operated reliably. IBM was attracted to that thinking and this led to them
ordering transistors at $150 per unit. Between the end of 1958 and the beginning of 1959 there was an
event that brought a lot of attention to Fairchild Semiconductor. Fairchild Semiconductor was selected
for the procurement of semiconductors used in missiles by the military and they were able to obtain the
largest contract of all of the semiconductor manufacturers. This led to the rapid development of Fairchild
Semiconductor. Fairchild Semiconductor went from an emerging company to one that was the focus of a
great deal of attention. The contract with the military was a decisive one in that it was to replace
germanium transistors with silicon ones so the silicon mesa transistor became the focus product of
Fairchild Semiconductor. The performance and reliability of their products were highly superior to those
of other companies and in the silicon transistor field they had almost no competition. Because of this
large scale purchase by IBM, production could not keep up with demand and factories were built one
after another, painting a rosy future for the company. At this time, a mysterious rash of deterioration
began occurring amongst the shipped products. After the devices were attached at IBM or at the time
that customers received the products, the transistors would commonly suffer a short circuit. The
engineers at Fairchild Semiconductor frantically searched for the cause of this mysterious deterioration
and sought a response to it. When the metallic case was welded to the transistor, metal particles so
small as to be invisible to the naked eye were released and became attached to the metallic case that
sealed the transistor. The engineers believed that as time passed, they would fall onto the transistor
surface and this was causing the problem. The engineers call these metallic dust particles invisible to the

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naked eye "UFOs". Just as they imagined, these UFOs were the cause of the short circuits. This issue
was so grave as to threaten the very future of the company and they were unable to discover an effective
response. Instead, they surpassed the emergency by tapping the transistors. Tapping the transistors
referred to lightly tapping the head of the transistor with a pencil and by doing so causing metal particles
to fall on the transistor thereby purposefully causing it to deteriorate. Those parts which failed were then
removed before shipping. Tapping too many times or too strongly could cause all of the products to fail
so the strength and number of taps was a vital company secret at the time. This was effective, but
because it was not an actual resolution of the problem, Fairchild Semiconductor engineer Jean Hoerni
thought that it might be possible to structure the transistor so that even if metal particles were to fall on its
surface they would not short-circuit. This was the starting point for planar transistors. Test production
was successful in 1959 and an IC was successfully developed that applied planar technology in 1961.
This successful application of the technology in an IC was achieved by Robert Noyce. In mesa
transistors a trapezoidal film that protected the silicon surface from contamination was removed, but in
planar transistors that film was only removed where necessary. This planar technology is one of the
landmark inventions in the history of the development of semiconductor technology. That is because this
technology was able to affect the root of the issues troubling semiconductor manufacturers, which were
transistor deterioration and low manufacturing yields. Furthermore this technology is fundamental to IC
and IC technology is based on the planar process. IC technology was achieved based on planar
technology and IC technology enabled the super-miniaturization of electronic appliances. The current
VLSI also followed from this extremely important technology. The emerging company Fairchild
Semiconductor, that created this revolutionary technology, grew into a new and powerful global company
that could boast sales of over $100 million. Robert Noyce proposed the development of business in
Japan. His idea was to construct a manufacturing plant in Japan and sell locally produced planar
transistors there. He came to Japan in 1962 for those applications and negotiations and visited the
Ministry of International Trade and Industry. However, the Ministry of International Trade and Industry
determined that if Fairchild Semiconductor was allowed to construct a factory in Japan, this would be a
major blow for Japanese semiconductor manufacturers and Fairchild Semiconductor was not permitted
to construct a factory. Left with no other choice, Noyce was forced to license the patent to a Japanese
company at a high price and signed a contract with NEC. Many of the semiconductor technologies of the
1960s came from Fairchild Semiconductor and the people who had learned these technologies left the
company one after another to establish themselves. At one time three quarters of the presidents of
companies in the American semiconductor industry came from Fairchild Semiconductor. Rheem
Semiconductor was also one of the spin offs of Fairchild Semiconductor. In 1959, general manager of
Fairchild Semiconductor, Ed Baldwin, left Fairchild Semiconductor together with the employees that he
had brought to the company and founded Rheem Semiconductor. Secretly, they took copies of
manufacturing information detailing silicon mesa technology with them. This was a forerunner of

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industrial espionage. However, the information they stole about mesa technology was soon made
obsolete by planar technology and Rheem was threatened with bankruptcy. In 1968, Hogan, who
established the semiconductor division of Motorola, was enticed to Fairchild Semiconductor. Robert
Noyce, Gordon Moore and Andy Grove left Fairchild Semiconductor to establish Intel Corporation. Intel
Corporation focused on the R&D, manufacture and sales of IC and primarily developed semiconductor
memory products. Noyce and his colleagues were able to make devices with very complex structures
using the technology they had accumulated during their time at Fairchild Semiconductor. The philosophy
of Intel Corporation was to find new products that could utilize this technology for which the development
costs could be recovered and that could be mass-produced. That product was semiconductor memory
for computers. Semiconductor memory refers to a silicon chip with a memory device printed on it. Intel's
first product was a 64-bit memory chip announced in April of 1969 and they next began the development
of a 256 bit memory chip. In 1970, they announced the world's first DRAM. The first two chips were
technologically quite interesting, but did not sell well. The first DRAM announced in 1970 sold well but a
great deal of effort was needed to deal with technical issues. Based on these experiences, Intel
Corporation became an innovative company with a great deal of technological strength. Because it was
the first company in the world to manufacture memory it had an actual market share of 100%.
Government played a large role in the development of the American semiconductor industry. It was the
Department of Defense that first recognized the importance of semiconductors and took steps to develop
the industry. The role played by the Department of Defense can be broken down into demand and
research and development. It is particularly notable that the Air Force considered the transistor a useful
technology for miniaturizing electronic devices and proposed changing the electronic devices in aircraft
and missiles from vacuum tubes to transistors. Transistors were 1/100 the size of a vacuum tube,
consumed less power, were more functional and were more reliable, but were very expensive at the time
they were first developed. Because of this, they could not be used for household applications, but in
military applications where performance and reliability are prioritized and cost is disregarded, the
Department of Defense actively bought up these transistors. Large companies, such as Raytheon,
General Electronics (GE), WE, and RCA, etc., received orders for military-use transistors. In October of
1952, a manufacturing contract of over $5 million was signed between Raytheon, GE, RCA and Sylvania,
to manufacture and deliver germanium transistors, etc. at a pace of over 5000 per week. This supported
the supply side of the semiconductor industry. Through this military manufacturing germanium transistor
technology moved forward and quality was improved, but the reliability demanded by the military was not
achieved. The temperature characteristics of germanium transistors are poor and those characteristics
deteriorate rapidly at temperatures of over 50 degrees centigrade. They were not appropriate for
weapons in which the internal temperature rises high, such as missiles. Demand increased for silicon
transistors because silicon has a high melting point and silicon was seen as an unlimited resource. Even
though the melting point of silicon is high, it was a material that was difficult to handle because at high

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temperatures it would combine with things. The various problems associated with silicon were resolved
one after another and silicon transistors came into use. Silicon transistors quickly developed into IC.
Semiconductors became an electrical part so integral to modern society that they could be called a
"staple of industry". IC was developed during Sputnik Shock at a period in time when America was
looking for a new technology. This is because in 1957, the Soviet Union was successful in launching the
space rocket Sputnik and Soviet technology was revealed to be clearly superior to American rocket
technology. American military personnel saw the difference in the range of those rockets as the
difference in the range which nuclear warheads could be delivered. They then set two goals in order to
catch up with Soviet rocket technology. The first goal was the development of rocket technology itself,
and the second goal was the miniaturization of the devices used on rockets. This was the Apollo
Program announced by Pres. Kennedy. This is how the American semiconductor industry came to
prioritize performance and reliability while developing technology without regard to cost driven by military
demand. Procurement of IC by government was 100% in 1962 and remained over 70% even in 1965.
Table 1 shows the government procurement of IC from 1962 to 1968. They were used extensively in the
Minuteman Missiles and the Apollo vessels. Over 1 million IC were purchased as a part of the Apollo
Program by 1967. However, we can clearly see the structural changes in semiconductor demand over
the 10 years from 1965 in Table 2. This time period was the peak in the government semiconductor
market which then declined to 36% by 1969. In the 1970s the demand for semiconductors moved into
the commercial market.
The role of the Department of Defense was significant on the R&D side as well. The department
predicted the potential of semiconductors for military applications and invested a great deal of capital
into it. The department supplied $11 million for the manufacture of transistors in 1952. This made it
possible for many companies to construct semiconductor manufacturing lines. At the time that
transistors were invented it was a high risk proposition to create a costly manufacturing line for
semiconductors. The supply of capital from the military reduced the risks faced by semiconductor
companies. Amongst these companies are included TI and Motorola, which went on to support the
American semiconductor industry. The military supplied 50% of the transistor R&D costs at Bell Labs
from 1953 to 1955. As of 1958, 25% of the R&D capital came from military contracts across the entire
industry. Not only companies, but Stanford University, which was the heart of Silicon Valley, received
research funding from the military to establish its R&D field in electronics. At the end of the 1960s, along
with its interactions with the Department of Defense, Stanford had transformed into the university known
for the most cutting edge R&D in the United States in the fields of chemical engineering, aeronautics,
physics and material sciences. The university used these military contracts to obtain top class research
staff and facilities and the companies attracted to this were born in Silicon Valley. The semiconductor
industry went on to develop through this intimate relationship to the university. That is how through the
1950s and 1960s the development of the American semiconductor industry was supported by the

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military, but after that the budget for military related development was reduced and the role of
government decreased. In the latter half of the 1960s, technological developments, mass production and
improvements in skill brought a rapid reduction in the prices of IC and prices were brought down to a
standard compatible with use in commercial products. Because of this, the commercial market, for which
the demand can be projected, became attractive and high-tech companies moved towards the
commercial market. When IC were first developed around 1962, the price was about $50 per unit and
they could not be used for commercial products. The demand for IC was limited to the military sector.
The average price in 1965 was $8.3 and it was reduced further to $2.3 in 1968, dropping below the
ceiling for commercial applications.

Japan
The Japanese semiconductor industry adopted technology from the American industry and worked hard
to catch up. The first Japanese to come in contact with news of the invention of the transistor were two
engineers working at Kobe Industries (a manufacturer of vacuum tubes that was later bought by Fujitsu).
Before the technology was named a transistor, these two engineers were sent to learn more about
vacuum tube technology at an RCA factory in America. It was there that they heard from RCA engineers
that an important invention had been made at Bell Labs and they made an appointment to meet with one
of the inventors, John Bardeen, to discuss his discovery. Many Japanese engineers first read about the
invention of the transistor approximately a half year later in magazines such as Time or Newsweek. In
October of 1948, academics and engineers from industry held a Transistor Study Conference. Because
there were no copy machines at that time, a great deal of work was put into duplicating the documents
that had been gathered. The only methods available were for people to copy the documents by hand or
to use carbon paper and a typewriter. They had to copy and re-type the documents so many times that
they eventually knew the contents by heart. This was not the only challenge. Because semiconductors
were still an unknown field, they had to work hard to gather information about them. The General
Headquarters of the US army was the primary source of information, but participants have said that
much of it was inaccurate.
When AT&T licensed the transistor patent in 1952, many Japanese engineers made the journey to
America. There was not a single Japanese participant at the 1952 seminar, but engineers from all of the
major companies made the journey in the next year. The engineers that were sent to the US gathered
information by passionately taking notes, making careful illustrations and taking photos. Japanese
companies were successful in manufacturing transistors at that time, but were not able to convert their
success into mass production. Japanese companies worked to set up technological tie-ups with
American companies because technological know-how is necessary for mass production at the same
quality with lower costs. In order to mass produce transistors, it was necessary to purchase a license for
the manufacturing patents and technical knowledge of not only the basic patent owned by AT&T but also

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from WE, RCA and GE. This was a major cost for Japanese companies. However, without purchasing a
license for these patents, the Japanese companies would have to develop proprietary technologies of
their own so most companies chose to purchase patent rights. In 1952, Kobe Industries purchased a
license for transistor technology from RCA. The discussion between the first Japanese technicians to
hear about the invention of the transistor and John Bardeen were the impetus for Kobe Industries as the
first company in Japan to begin research into transistors and successfully manufacture them. In 1953,
Tokyo Tsushin Kogyo K.K. (now Sony) purchased a license for technology from WE. The president of the
company at that time, Masaru Ibuka, was hoping to create a pocket radio that used transistors. Unlike TI
which focused on the manufacture of transistors, Tokyo Tsushin Kogyo manufactured transistors only
because they were necessary in the manufacture of pocket radios. In order to purchase a license to use
the AT&T patents in the manufacture of transistors, Ibuka applied to MITI for the foreign-currency, but his
application for precious foreign-currency was turned down because his company had experience in
manufacturing tape recorders, but had never manufactured a vacuum tube. WE, which had taken an
interest in Tokyo Tsushin Kogyo agreed to accept delayed payment for licensing fees and signed the
contract. Tokyo Tsushin Kogyo announced the first transistor radio in Japan in July of 1955 and sales
began in August. Transistor radios, which consumed less battery, became popular amongst young
people and experienced a boom in popularity during the summer of next year. However, in April of 1957
an issue occurred in the manufacturing process for transistors. The line was destroyed and the shipping
of radios was put on hold. The entire company was put to the task of pursuing the cause for this issue
and Leo Esaki participated in this work. Esaki went on to have success in research and be awarded the
Nobel Prize in Physics in 1973 for his work. While overcoming these crises, the company built up an
infrastructure to produce 800,000 units per month by November. Tokyo Tsushin Kogyo became a leading
transistor manufacturer. The company chose "Sony" after overrunning the transistor radio market and
Tokyo Tsushin Kogyo changed its name to Sony, which it had been using for its radios in 1958. The sale
of Sony's transistor radios was the first primer for the consumer demand driven development of the
Japanese semiconductor industry. Sony's domination of the market was made possible by their
proprietary transistor manufacturing technology and their ability to manufacture transistors at extremely
high yields. That is because WE was a company that licensed only patents and did not sell its
manufacturing know-how. Sony was forced to develop its own manufacturing technology. Until 1958,
companies such as Toshiba, Hitachi, NEC and Fuji Telecommunications Equipment Manufacturing
(Fujitsu) attained their technologies from WE or GE and Matsushita Electric obtained patents from the
Dutch company Phillips. In 1959 Mitsubishi Electric, Japan Radio, Oki Electric Industry and Sanyo
Electric entered the market for an eventual total of 11 companies in the semiconductor industry. While it
was only for that year, the production volume of germanium transistors in Japan was higher than in
America, making it number one in the world. Before long, NEC recognized the importance of silicon
transistors and obtained planar technology from Fairchild in 1962 before becoming the first company to

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mass produce IC in Japan in 1964. NEC began research on transistors in 1950. The engineer that
learned about the invention of the transistor in America, Hiroe Osafune (later president of NEC
Corporation of America) proposed research on transistors to his boss and this was the beginning. In
1958 they signed contracts to obtain technology from RCA and GE and in spring of the same year
constructed a factory specialized in transistors and began the mass production of transistors. This is how
NEC was able to make a serious entry into the semiconductor industry. Osafune thought that the era of
germanium was ending and the time for silicon was coming. As a result, NEC began research on silicon
transistors before any other Japanese companies and was the first company in Japan to achieve
success in the mass production of IC. During the era of germanium transistors in Japan, the precise
tasks in the manufacture of transistors were done by female employees called "transistor girls". Because
this work was very delicate, the qualifications for employment were reported to have been excellent eyes,
hands and patience. These women were highly skilled, made very few mistakes and the production yield
was high. These "transistor girls" played a large role in Japan's surpassing America in the production of
germanium transistors. However, at this time, in America where the semiconductor industry was
centered, the industry was already moving from germanium to silicon transistors. In Japan, radios were
the primary source of demands and there was little need for silicon transistors. Rather than beginning
research on silicon transistors which were very difficult to handle and for which the technology was not
yet fully developed, it was more reliably profitable to rely on the highly skilled transistor girls and continue
manufacturing germanium transistors. As a result, Japanese silicon technology fell behind America and
this connected to further delays in the establishment of IC and LSI technologies which are based upon
silicon technology processes.
In the early 1960s, revolutionary technologies were developed one after another in America. The
American companies that possessed these patents monopolized the semiconductor industry. The
Japanese semiconductor manufacturers were paying enormous license fees to American semiconductor
manufacturers at that time and the portion of manufacturing cost was as much as 10% of sales. The
Japanese companies were truly in patent hell. To have to purchase a license for planar technology
patents on top of this was a major burden for all of the companies. Furthermore, because NEC
purchased exclusive rights to the planar patent from Fairchild, its domestic rivals had to pay an additional
premium to NEC. In this environment, Hitachi and Toshiba resolved to develop their own similar
technology that would not conflict with the planar patent. In 1966, Hitachi developed the LTP transistor
and was able to save several hundred million yen in patent licensing costs annually. Planar transistors
used a protective film to cover the silicon surface, while in LTP transistors that protective film was initially
removed and a technology was developed to then apply an LTP protective film. This allowed them to
avoid conflict with the planar patent and create transistors with a similar structure. LTP transistors are
characteristic for having significantly reduced noise in comparison with planar transistors. Japanese
semiconductor demand in the commercial market was primarily for use in audio and television devices.

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January 2004
LTP transistors came to be used in the commercial market by offering a solution to the high levels of
noise caused by planar transistors. They were sold in volume as a device which could be applied across
a wide scope of applications and continued to be used in the commercial market. Soon after,
technological development progressed to IC and LSI made of integrated LTP transistors. Toshiba was
another company that worked to create its own proprietary technology and did so at a different time and
through a different process. When Hitachi was successful in the development of a transistor television in
1967, Toshiba set its target as the development of a color television using IC. Toshiba's goal was to
further reduce the noise of planar transistors. What Toshiba chose to experiment with was a technology
that would surpass planar technology. Hitachi sought to develop its own technology that would rival
planar technology. Toshiba, however, began work on an improvement to planar transistors. Toshiba was
successful in creating its own proprietary transistor technology in 1970 and in 1971 it began selling the
world's first color televisions using IC. This is how Hitachi and Toshiba were successful in the
development of their own proprietary technologies and were thereby able to save an immense amount
on patent licensing fees. It was a Japanese company that heard the news of the development of IC
technology in America and set for itself the goal of developing a similar technology on its own. That
company was Mitsubishi Electric. The president of Mitsubishi Electric did not call IC integrated circuits at
the time of their development. IC was also known as solid circuit or molectronic technology, but instead
he named them after the "Molectron" proprietary technology being developed by Mitsubishi at that time
and set up a massive project. Other semiconductor manufacturers had primarily been manufacturing
vacuum tubes and were able to apply the electronics technology of vacuum tubes to the manufacture of
transistors. However Mitsubishi had no experience with vacuum tubes and had no store of
semiconductor technology. Mitsubishi begin experimentation, but experienced defect after defect and the
first three years were a battle with defective products. Eventually it wasn't until 1964 and beyond that
they were able to produce a real IC. They were unable to create historic and revolutionary technologies,
but once the direction was made clear, they were soon able to catch up with an original technology. That
is the trend with Japanese technological development. NEC was earlier than other companies in
beginning R&D and achieving success with IC, but they suffered because there were no customers
interested in using their IC. That is because all of the companies were skeptical of IC technology. IC
were not fully mass-produced until calculator manufacturers appeared. "The calculator wars" provided
support for the Japanese IC industry.
The first calculator manufactured in Japan appeared in May of 1964 at the 28th Annual Business Show
in the Tokyo International Trade Center. The calculators on display at this business show were 4 models
from 4 companies including Canon, Sony, Oi Electric, and Hayakawa Electric (currently Sharp). Many
thousands of models of calculators have been developed from that time to today. The history of the
calculator begins with the mechanical calculator. The mechanical calculator first appeared in Japan at
the end of the Meiji Period (1868-1912). The only purchasers of these imported calculators at the time

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January 2004
were organizations for which the majority of their work during the day involved calculation, such as
government offices and research labs, universities, banks and insurance companies, etc. As Japan
entered into the Taisho Period (1912-1926), the first domestically produced calculators appeared and in
1935 there were five mechanical calculator companies in competition. These five companies were Tiger,
Noritz, Aikoku, Taiyo, and Taiyo. After the end of World War II, under the guidance of GHQ, operations
were modernized in a variety of fields in the pursuit of the economic recovery Japan. The rationalization
and mechanization of office structures was particularly promoted. Around 1955, as the economic
recovery hastened, the volume of calculations increased and many companies came to use electric
calculators. When the importing of electric calculators increased rapidly, prewar Japanese
manufacturers of mechanical calculators hurried to catch up and entered the market. This is how the
calculator market began to expand rapidly. Electric calculators used a motor to turn the handle that
would be turned by hand in a mechanical calculator. This decreased the physical burden, but had the
drawback of being extremely noisy. In 1957, Kashio Seisakujo (Now Casio Computer Co., Ltd.)
developed the "14-A Relay Calculator". The operating noise of the relay type calculator was significantly
quieter than electric calculators and calculating speed was also significantly faster. This contributed to
the rapid growth of the calculator market, but as the Japanese economy entered a period of growth,
there was an increase in calculation work. The workers in charge of calculation came to long for
high-speed silent automatic calculators instead of electric calculators. In 1962 the British company
Sumlock Comptometer manufactured and sold the world's first vacuum tube calculator, the "Anita Mk8".
The first company to import it into Japan was mechanical calculator manufacturer Nippon Calculating
Machine Corp (afterwards changed to Busicom) and the price for one unit was 600,000. The
appearance of the Anita Mk8 had a large influence on Japanese electronics manufacturers. Japanese
companies raced to import this calculator and absorb its technology. In the Business Show of 1964, four
domestic companies were able to introduce the first electric calculators made in Japan. Oi Electric's
"Aleph-zero 101" was able to do four basic operations up to 20 digits and sold for 800,000. Canon's
"Canola 130 Calculator" was able to do four basic operations up to 13 digits and sold for 395,000.
Sharp's "CS10A Compet" was able to do four basic operations up to 20 digits and sold for 535,000.
Sony's "SOBAX" was a prototype that was able to do four basic operations up to 10 digits. The Sharp
CS10A Compet was the most popular product. At the time, production was projected for 400 units per
month sold, but once sales began, orders came in far exceeding expectations. There were also many
orders from overseas, including as many as 1,000 orders from Australia. While the quiet operation and
calculating speed of the CS10A Compet were appreciated, Sharp received complaints about the number
keys and a new product with different keys was announced in 1965. The second Sharp calculator was
called the "CS20A". Silicon transistors were used in this calculator. It had 14 digits and cost 379,000.
Sales of this calculator exploded. A specialized factory was constructed and Sharp expanded production
to 2000 units a month, fully entering into calculator production. Kashio Seisakujo, which had dominated

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January 2004
the market share for electric calculators with relay calculators, received a violent shock from the
dissemination of Sharp and Canon's electric tabletop calculators. Deciding that there was a limit to relay
calculators, Kashio Seisakujo changed directions to electric calculators and in 1965 announced the
"Casio 001", a 20 digit 380,000 calculator. That is how Kashio Seisakujo entered the electric calculator
market. Transistors were in use until this time, but companies began using IC in volume in commercial
applications due to major improvements in IC performance in reliability and decreased prices. Japanese
calculator manufacturers switched to IC in the pursuit of miniaturization and reduced weight. From 1966
to 1967, Sharp sold new calculator models using IC, including the CS30A, the CS31A and the CS32A in
succession. These calculators were not yet small enough to fit in a pocket and Sharp's target at that time
was to move towards miniaturization and reduced weight by targeting the most advanced technology,
LSI (large-scale integration). However, this technology was not yet well established even in America and
manufacturers skeptical of LSI remained unwilling to engage in it. This was also a period when the
manufacture of IC had finally gotten on track and manufacturers were attempting to recover their
development costs. Hitachi and NEC refused and after convincing Mitsubishi to finally begin
development, production was abandoned on orders from the top management. Left with no choice,
Sharp went to America where it began with Fairchild before visiting TI, Motorola, National Semiconductor,
RCA, Westinghouse and Sylvania, etc., but was turned down by all of these companies. Sharp was
finally able to sign a manufacturing contract with North American Rockwell. Rockwell was the
manufacturer of the LSI used in the Minuteman missiles. This is how sharp was able to succeed in
developing the first electric calculator in the world to use LSI, the Micro Compet QT-8D, in 1969. At 8
digits and a price of 99,800, sales of the calculator exploded and both Sharp and Rockwell saw large
profits. For Japanese semiconductor manufacturers, the calculator industry was their premier customer.
Calculator manufacturers drove generation after generation of technological development, from
germanium transistors to silicon transistors and from transistors to IC and provided Japanese
semiconductor manufacturers with a high volume of demand. However, the use of LSI and calculators
meant dealing with an as yet uncertain technology and Japanese semiconductor manufacturers were
not willing to meet the demands of calculator manufacturers. With the success of Sharp and Rockwell,
calculator manufacturers shifted en masse to American semiconductor manufacturers. Japanese
semiconductor manufacturers missed out on the large volume of demand for LSI and fell into a
predicament. Figure 4 is a graph of the demand for IC each year and the portion of IC each year that
were imported. This is from a top secret document produced by one company's marketing division at that
time. The importing of IC increased dramatically from 1968 and we can see that it remained around 30%.
The Japanese government had a protective policy towards the Japanese semiconductor industry. The
government set the IC tariff at 15% (America: 10.1%) and direct investment from overseas was
regulated. TI, which developed the basic structure of IC in 1958 and obtained a patent the following year,
established a company in Japan with a stake of 100% hoping to build an IC factory. TI wanted to produce

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IC in Japan. In 1964 they applied for permission to establish the company and build the factory from MITI.
However, MITI continued to delay their response. Finally, in 1996, MITI responded that they would grant
permission under three conditions. Those conditions were that 1. the stake be 50-50 Japanese and US,
2. The production volume be maintained at within 10% of the total domestic production of IC, and 3. The
license for the Kilby Patent be released. TI did not accept this and the negotiations between TI and MITI
went poorly. Eventually MITI determined three years later to give permission for the creation of a factory
with 100% stake owned by TI and in 1968 TI established Texas Instruments Japan Corp. and began the
construction of its factory. MITI was obstructive of the entry of American companies into Japan but was
welcoming towards American technology. American companies were already involved in direct
investment in other Asian countries and Europe at that time so it can be clearly said that the actions of
the Japanese government were part of a protectionist policy.

3) The Japanese and US Semiconductor Industries (2) - 1970s
The U.S.
Upon entering the 1970s, the American semiconductor industry changed from a military demand driven
to a commercial demand driven model. The mass production of semiconductors enabled the
accumulation of technology and higher skill allowed the achievement of low-cost production. However,
the mass production of military orders of semiconductors was difficult because they were special ordered
and it was impossible to gain the benefits of accrued skill. The shift to mass production was made
smoother as demand shifted towards household electronics. Companies were able to gain the benefits
of accrued skill and the commercial market became more attractive for semiconductor manufacturers.
Semiconductor demand gained traction in America because of the computer market. At around the end
of the 1950s, the management at IBM began to understand the importance of software in data
processing systems and they groped for a policy on how to include this in IBM's computer strategy. In the
early 1960s, the software created for a single model could not be used for other models. In addition to
the lack of inter-compatibility of software, when a computer user bought a new model, they had to make
a significant investment, purchasing the computer itself and all of the software. This made it difficult for
them to shift away from a specific model. IBM, grasping this trend, began the development of the System
360 and developed software that would work on all models from the lower end to the higher end models,
adopting a strategy of compatibility. This made it possible for them to minimize the cost of software and
made it possible for users to shift from the lower end models to the higher end models. The ability to
respond to changes in a customer's needs while reducing price reassured the highly cost sensitive
business market and went on to be very well received in the business market. IBM adopted a strategy of
maintaining compatibility not only within a series but also with the next generation. Because IBM users
were able to continue using the same software it became easier for them to switch over from an older

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January 2004
model to the new series. Users paid careful attention to each new model that IBM announced and IBM
secured control of the computer industry. At that time computer manufacturers were selling complete
packages including their own hardware, their own chips, their own OS and also their own applications. In
the beginning of the 1970s, IBM released the next generation System 370. MITI projected that the new
RAM chip included on this computer would be the key to victory in the computer market and embarked
on the development of the Japanese semiconductor industry. That is how large the presence of IBM
was.
In 1970 Intel Corporation developed the world's first MOS type 1K DRAM. MOS IC operated at lower
voltages and lower power than the bipolar IC that were previously favored. Because the structure of
MOS IC was simpler then that of bipolar IC, there were less manufacturing processes and lower costs
could be achieved through mass production making it relatively easier to increase the degree of
integration. However, MOS IC were vulnerable to contamination by impurities and yield was poor. When
this problem was resolved by Fairchild in 1965, this technology went on to penetrate the market. Then
the MOS DRAM by Intel was announced in 1970. DRAM is a standardized IC technology suited for mass
production and became a technology driver for semiconductor technology. This is because once mass
production technology was introduced with DRAM, and a certain amount of success had been achieved,
this could also be applied to other varieties of IC. In the second half of the 1960s, the semiconductor
market predicted that the future of IC was in customized products. That is because the consumers of
semiconductors, computer and communication equipment manufacturers, had come to a consensus that
the semiconductors incorporated into their products could not be used by other companies. However
once standardized IC came to be used in calculators and computers, the highly generalized DRAM
came to preeminence in the semiconductor market. As DRAM prices decreased and the amount of
memory used in computers increased, DRAM came to be used in large volumes and the American
semiconductor industry entered into a period of growth. Intel Corporation took an active part in this
period of growth. Intel Corporation continued to release general-purpose products with regular increases
in integration. MOS DRAM in 1970 was followed by 4K DRAM which had a degree of integration that
was four times higher and again in 1977 the degree of integration was raised with 16K DRAM. The
revolutionary technological developments that placed Intel Corporation in an unassailable position was
the world's first four bit microprocessor, the "4004" released in 1971. The development of
microprocessors happened as Intel Corporation was test producing LSI in response to a request from
Japanese calculator manufacturer Nippon Calculating Machine Corporation. Nippon Calculating
Machine Corporation planned to sell the same device as a model targeted for a different purpose by
changing the ROM without changing the other hardware. These ROM were made of MSI (medium scale
integrated circuits), but Nippon Calculating Machine Corporation was trying to use LSI instead. At that
time Robert Noyce, who was in Japan to sell 64-bit memory, met Nippon Calculating Machine
Corporation president Yoshio Kojima. Kojima was moved by Noyce's passionate discussion of the

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January 2004
potential of memory and went on to request the development of LSI from Intel Corporation. During this
development a CPU (central processing unit) was developed to interpret programs and carry out
commands from the programs that were interpreted. This processor gained the name microprocessor
because it was so micro (miniature) that it could be placed upon an LSI. The size of the world's first
microprocessor was 3 mm tall and 4 mm wide and there were 2300 transistors printed on this silicon chip.
At the same time TI was also working on a microprocessor, but was not successful. Intel Corporation
was successful in its development of the microprocessor because of the high level of technology that
they had. In the year after the microprocessor was developed, 1972, Intel Corporation announced its
8-bit microprocessor the "8008". The microprocessor was created for data processing purposes but was
not greatly successful. Intel Corporation adopted a new technology, changing the variety of transistor,
and was dramatically increasing the degree of integration on LSI. That was the "8080" announced in
1974. This was a microprocessor with sufficient functionality for data processing. At that time MPUs were
only being used for engine control in automobiles and automatic machinery in industry. They came into
full use in America with the arrival of the PC and the PC pioneered the microprocessor market. The
personal computer was made possible by the development of the microprocessor by Intel Corporation in
1971. Until that point, computers were the large general-purpose computers represented by IBM, and
almost all of these were placed in companies out of reach of the general public. With the birth of the
MPU, it was possible to miniaturize computers and this was first attempted in 1975 when the assembly
kit for the personal computer "Altair" went on sale. Intel MPUs were used in this computer. However, this
PC had almost no practical applications and was more of a toy for hard-core computer fans. Eventually,
the development of miniaturized computers continued and in 1981 IBM's first personal computer was
announced and included Intel MPU. Both Intel Corporation and IBM were able to further grow through
the development of this computer. However, the MPU market was a lower growth and smaller scale
market than the memory market. While they saw success in MPU development, the highest priority
market for Intel Corporation was always memory.
As the era of IC began, some companies central to the vacuum tube era such as GE and Raytheon
withdrew from the market. Then captive manufacturers (semiconductor manufacturers that do not sell
outside of the company), such as IBM and AT&T, and merchant manufacturers (specialized
semiconductor manufacturers) such as TI, Intel, Fairchild and National Semiconductor became the
central companies. Table 3 shows the companies active in the American vacuum tube, transistor and IC
fields. We can see a pattern in the table demonstrating that when next-generation technology arrived,
the companies that had been successful in the previous generation largely vanished and new companies
became active. At Fairchild, which brought Lester Hogan on to its management team, more and more
engineers were turning against his management policies and leaving Fairchild for Charlie Sporck's
National Semiconductor, Jerry Sander's Advanced Micro Devices (AMD) and Robert Noyce's Intel
Corporation. Important technological information left Fairchild with those people. The performance of

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January 2004
Fairchild, which came to be known as the mother of the semiconductor industry for having produced so
many revolutionary technologies, began to deteriorate and at last in 1979 Fairchild was purchased by
Schlumberger, a French oil exploration company. At this time many semiconductors had begun to be
used in the well logging equipment used to examine strata. Schlumberger was afraid of having its well
logging knowledge and technology leak and bought Fairchild with the hopes of producing IC and LSI
internally. Later on a plan to purchase Fairchild by a Japanese company was a source of great debate.

Japan
Because the growth of the American semiconductor industry was driven by military demand, there was
little chance for semiconductor companies from Japan, where there was little of this demand, to enter
into that market. Fundamentally the semiconductor industry was American. However, when the
development of semiconductors became centered around commercial products such as DRAM, a
chance had finally come for Japanese companies which were stronger in the commercial field.
Calculators created demand for semiconductors and growth in the Japanese semiconductor industry
went on to be driven by commercial demand. NTTPC (Nippon Telegraph and Telephone Public
Corporation) was a steady customer for Japanese semiconductor manufacturers. This allowed
Japanese manufacturers to achieve reduced costs through the accumulation of technology resulting
from mass production, economy of scale and accumulated skill. It was not only competition between
calculator companies that led to the rapid improvement in quality and reliability of Japanese made LSI,
but the "DEX2 Plan" of NTTPC (NTT). NTTPC wanted to avoid breakdowns in telephone switching. The
severe deterioration testing required by NTTPC of LSI test produced by the companies participating in
the plan was clearly more stringent than that required by NASA or the military standards of the
Department of Defense in America. As a benefit of this experience, Japanese companies became able
to manufacture extremely high-quality LSI. 5 semiconductor manufacturers related to the NTTPC family
of companies participated in this project. These companies included Hitachi, Toshiba, NEC, Mitsubishi
and Fujitsu. This plan was begun during the era of "the calculator wars" between calculator companies
and Japanese calculator manufacturers were using American manufactured LSI. Eventually American
companies moved the assembly of LSI to Southeast Asia in order to reduce manufacturing costs and LSI
costs were reduced, but quality also fell. During this process they also released a large volume of
defective parts onto the market. The Japanese semiconductor manufacturers that had improved their
reliability through their participation in the NTTPC DEX2 plan sold Japanese manufactured LSI to
calculator manufacturers based on their superiority. Kashio Seisakujo determined that because they
would work together with semiconductor manufacturers in the design of LSI, if that manufacturer was not
close by, they could not obtain a satisfactory product. Kashio Seisakujo stopped orders from America
and began ordering from Japanese semiconductor manufacturers. In 1970, Busicom, which had
changed its name from Nippon Calculating Machine Corporation, was also ordering LSI from America.

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January 2004
Busicom once again sold a dramatically successful calculator in 1971. That calculator was the Busicom
LE-120A. This calculator allowed for calculation up to 12 digits and while running on batteries, it was
entirely pocket-sized. The most unique feature of this calculator was that the circuits for input, memory,
calculation and display, etc. were all incorporated onto one LSI chip. The two companies that developed
this one chip technology were Mostek, established by 14 employees that spun out from TI and Intel
Corporation which was founded by Fairchild spinouts Robert Noyce and Gordon Moore. During this
process Intel Corporation was responsible for the development of the microprocessor that was the brain
of the computer. This calculator was popular at the business show, but at a price of 89,800, it was too
expensive for businessmen or students and sales were not explosive. However, the fact that it ran on
batteries and was pocket-size stimulated the calculator industry and calculator manufacturers targeted
further miniaturization and reduced weight designs, dramatically changing the calculator industry.
Eventually, calculate manufacturers flooded the market like a monsoon and entries into and withdrawals
from the market were bewildering. At this time, Casio Computer, (previously Kashio Seisakujo) was
groping for a new source of demand and began investigating the potential of personal use calculators. It
was necessary to set a price of around 10,000 for individual customers and after some debate they
determined that this would be possible for a calculator that was 6 digits without a decimal point. Casio
soon began designing the LSI circuits and Hitachi made the LSI, with the calculator going on sale in
1972 for 12,800. This price was about one third of the cheapest product on the market at that time.
Sales of this calculator, called the Casio Mini, exploded and 2 million units were sold in less than a year
and a half. With the appearance of the Casio Mini, the calculator market entered into a fierce price war.
Let us look at the Casio Mini as an example. The Casio Mini started at 12,800 and in 1974 was reduced
in price to 8,900, 5,800 and 4,800, before finally dropping to 3,900 in April of 1976. This was a
reduction to less than 1/3 of the original price in 3 years. Manufacturers that could not withstand this
price war were weeded out and major electronics manufacturers that were invested in other markets
withdrew from the calculator market. At one time there were as many as 50 calculator manufacturers, but
eventually only 2 companies, Sharp and Casio, remained.
From the latter half of 1970 to 1971 talk came from a variety of fields about wanting to use miniaturized
computers and in 1970 Coca-Cola ordered a portable POS terminal from Sharp. A POS terminal is a
point-of-sale information management system. A POS terminal is part of a sales management system
connecting the register on the sales floor of retail stores, etc., to the host computer in the head office so
that invoices can be prepared and the account ledger's can be calculated based on data entered at the
point-of-sale. Coca-Cola delivery persons carried this portable POS terminal known as a "Billpet" and
entered the volume and unit price at the delivery location before bringing it back to the office. At the office,
the cassette tapes were removed from the Billpet and handed over so that the host computer in the office
could quickly handle business processing. This request from Coca-Cola to Sharp was one example of
the requests to make a miniaturized portable computer. Sharp immediately created a specification sheet

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January 2004
and logical design blueprint and then requested that NEC develop the LSI. While NEC was developing a
POS terminal with Sharp, Intel Corporation announced the 4004 microprocessor. The structure of the
NEC POS terminal LSI used two chips, but after hearing the announcement by Intel Corporation they
soon redesigned it into a single-chip design. With the slogan "overtake the 4004", NEC was finally able
to overcome its difficulties and succeeded in the development of a microprocessor that could rival the
4004. That microprocessor was the first 4 bit microprocessor produced in Japan, the "COM 4". It was a
great achievement to develop the first microprocessor in Japan, but at first there were very few
customers that would use it and it eventually ended up being used in their own semiconductor factory.
Little by little, the COM 4 became more well known and a cash register manufacturer began purchasing
them in great volume and this demand structure continued for some time. Eventually microprocessors
became common and were used in a wide variety of fields including knitting machines, video games,
and pachinko machines, etc. However, the Japanese MPU market declined from the time of Intel
Corporation's 16 bit processors onwards.
The seven major Japanese semiconductor manufacturers (NEC, Hitachi, Fujitsu, Toshiba, Mitsubishi,
Matsushita Electric, and Oki Electric) predicted that MOS DRAM was the most promising market and
entered the DRAM market. Japanese semiconductor manufacturers were often a division devoted to
semiconductors within a large general electronics manufacturer. They obtained capital from other
profitable divisions or borrowed capital from banks with which they had developed close relationships or
business dealings and concentrated investment in MOS DRAM. In the cutting-edge semiconductor
industry, the amounts used in capital investment can be staggering. Because semiconductors are
vulnerable to contamination from dust and other contaminants, a clean room that has been equipped
with an air conditioning system that does not allow the entry of sources of contamination is required.
Furthermore with facilities that use large volumes of water and facilities for other manufacturing
processes capital investments can reach into the billions or 10s of billions of yen. An increase in
competition and rapid technological developments soon rendered these facilities obsolete. A capital
investment war began at about this time in response to the rapid increase in demand for capital.
Japanese companies were able to make enormous capital investments using profitable income from
other divisions and loans from banks, but American semiconductor manufacturers were almost all
specialized semiconductor manufacturers that had grown from venture enterprises. Increases in their
profitability were directly tied to expansions in capital investment. If they did not produce profits, they
were not able to make large investments. This is different from the conditions for Japanese
semiconductor businesses that had developed as a division in a major general electronics manufacturer.
The method in which they selected areas of investment was also different. In America they were focused
only on competition, but in Japanese semiconductor manufacturers, a certain amount of information was
being exchanged between companies so that they could predict to some degree the development
happening at their competitors and narrow down their investments to the most promising technologies.

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January 2004
Because MITI was also involved in this information exchange and technological prediction, in big
companies which had deep relationships with the government, there was a trend for similar products to
be developed with similar technologies. In an environment like this, the only way to win was to create a
high-quality low-price semiconductor more quickly than the competition. Manufacturers had to refine
their manufacturing technology and create a semiconductor with a higher degree of integration faster
than anywhere else. This development suited Japanese "monozukuri" or craftsmanship perfectly.
Development in which companies competed for speed brought on tough semiconductor competition in
Japan. However, as prices dropped rapidly due to this competition, the volume of demand for DRAM
expanded and this expansion in demand exceeded the momentum of the ongoing reduction in prices so
companies were able to maintain a profit. The prediction that DRAM would be a growth market came
true and the Japanese companies that concentrated investment in this field were very successful. The
market share during the era of 4K DRAM (1976-77) was meager, but the share for 16K was 40% (1979),
and the share grew to 60% for 64K (1982).
The role played by the Japanese government in assisting the growth of the Japanese economy in the
latter half of the 1970s was very important. MITI selected computers and communications for the
industries that would be central to Japan's future and embarked on their development. Hoping to
develop VLSI technology, MITI started the VLSI Technology Research Association in 1976. This project
lasted 4 years from 1976-1980. The 70 billion cost of the project was split down the middle between the
government and the participating companies making this semiconductor project a joint enterprise
between the public and private sectors. The five participating companies were NEC, Toshiba, Hitachi,
Fujitsu and Mitsubishi. The management of the project was generally left to the industry. Furthermore,
the participating companies were not only semiconductor manufacturers, but as many as 50
manufacturers of semiconductor fabrication devices also participated. The goal of this project was the
development of a basic technology which could be jointly used as the fountainhead for the development
of the VLSI technology of the future. Specifically, these researchers focused on achieving
microfabrication technologies that could work on semiconductors with fabrication line widths of less than
1 micron. In this project, joint research was done on fundamental technologies which could be shared,
but tying this technology to product development was to be done by each participating company. Even
after this research project ended in March of 1980, participating companies continued to work at and
achieve successes with the improvement, correction and commercialization of the fundamental
technologies developed in the project. The success of this project was because they did not seek to
develop a specific product. Because product development was done by each company, the participating
companies were able to participate without fearing the danger of unnecessarily disclosing their
proprietary technologies. Initially, the competitor companies that were participating in the project were
skeptical of each other's intentions and the atmosphere was poor, but as they became able to
communicate the decision-making process went more smoothly. Another factor was the existence of IBM

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as a shared enemy. The Japanese companies that participated in the project were also expanding into
the computer business and they felt threatened enough by the possibility of having the market
monopolized by IBM that they recognized the need for cooperation between the companies. As a result
of this project, over 1000 patents were applied for an approximately 460 technical papers were published.
Important semiconductor related devices were developed based on this research and industries related
to semiconductors also grew. This project reduced many successes, and the results of this research
came from improvements and expansions on pre-existing fundamental semiconductor technologies. The
vision of this research association was not to develop revolutionary technologies, as was done in the US,
but to expand on existing technologies and improve international competitiveness. This
industry-government collaborative system worked well. The project was successful in its initial goal of
achieving microfabrication technologies and it played a large role in the expanded capacity of the
Japanese semiconductor industry.

4) Friction between the Japanese and US Semiconductor Industries - 1980s
The U.S.
In 1981, Intel Corporation announced the 8088 microprocessor and IBM decided to place the Intel MPU
in its personal computers. These IBM computers exceeded all expectations and their popularity and the
Intel Corporation MPUs became the most popular products. From that point on, IBM continued to use
Intel Corporation MPUs in its PCs. Computer manufacturers had begun to recognize that compatibility
was important. They began to believe that it was more advantageous to develop their business based on
the Intel Corporation MPUs being used in IBM products. Production of Intel Corporation MPUs increased
each year. It had become a top brand product that could boast the highest production volume. These
companies expected to be able to use this brand power and their compatibility with IBM to expand their
own business. On top of this, software application developers targeted mass production and began to
develop software compatible with the Microsoft software which held the top market share. Intel MPUs
and Microsoft windows became the standard for personal computers. This connected to the success in
the 1990s of Wintel. This is because Windows was an OS standardized to operate on the computers of
any manufacturer in the world. The Intel Corporation MPUs were MPUs built to run on that software.
RCA, which initially supported the transistor market, lost out to the revolutionary technologies of Intel
Corporation and TI and was being pursued by Japanese companies, leading it to withdraw from the
semiconductor business. In 1986 RCA sold its factory to GE and its research labs to the Stanford
Research Institute. It was not only RCA that was defeated by the pursuit from Japanese companies.
From around 1985 the semiconductor market share of American companies such as TI and Motorola
was gradually taken by Japanese companies. Figure 6 displays shifts in global share for the 7 major
semiconductor manufacturers between 1982-1993. The sharp decrease in the share of TI and Motorola
is visible. Intel Corporation, which developed the world's first MOS DRAM and had put a priority on

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January 2004
memory development, was forced to change its strategy. They worked hard to improve the quality of
their DRAM and also attempted to reduce costs, but Japanese manufacturers produced high-quality
products at surprisingly low prices and Intel Corporation did not have a way around it. Eventually Intel
Corporation's performance declined and in 1985 the decision was made for Intel to withdraw from the
DRAM business. Intel decided to focus its resources on the MPU business, but this decision was not an
easy one. This is because DRAM is a technology driver and they were able to respond to other products
such as microprocessors based on their DRAM technology. The reason they decided to focus their
resources on the MPU business was because they had been supplying MPU to IBM and IBM compatible
personal computers for five years and Intel Corporation was the largest company in the market. They
also already had completed production preparations for the 32-bit MPU that would be next to dominate
the market. This is how Intel Corporation shifted strategy and used microprocessors as a weapon to
grow into the largest semiconductor manufacturer in the world.
In 1980, the Department of Defense, which had been concerned about the separation of parts makers
from the military, began a project to bring the companies in the semiconductor field back to the military.
This project, called the VHSIC (Very High Speed IC) Project targeted the development of
high-performance military-use IC. From the fact that arms companies and semiconductor manufacturers
were paired together, we can see that the major goal of this plan was to bring in civilian semiconductor
technology and develop cutting-edge semiconductor technology to suit military needs and then use that
technology in high-tech weapons. However, arms companies and the semiconductor industry
participated in this project with different motivations and the possibility existed that the interests of both
parties would not match. For military demand driven companies, the goal was to implement electronics in
the military sector and obtain future weapon development contracts from the Department of Defense. In
contrast, semiconductor companies had little interest in the military sector and were hoping for
commercial technologies that were expected to spin off from this product. The focus of the project was
on the development of military systems such as radar and guidance systems. Semiconductor companies,
expecting spin offs into the civilian sector as the technologies went into test production, began to lose
interest in the project. In addition, in order to prevent information leaks to the Eastern Bloc during the
Cold War, there were many rules and regulations. Companies that feared the penetration of military
regulations into commercial semiconductors eventually began to manage this project separately from
the civilian divisions within their own companies. Even for general-purpose semiconductors that could be
used both in commercial and military applications, companies began producing semiconductors
separately in commercial and military specific factories. This not only made it impossible to achieve the
original purpose of bringing semiconductor companies back to the military sector, but further encouraged
the separation of military and commercial applications within the semiconductor companies. It can be
said that the American policy of attempting to bring back commercial semiconductor technology to the
military sector was impossible.

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January 2004
Japan
The difficulties of the semiconductor industry included not only the speed of growth, but also the violent
instability of growth rates. There was a cycle to these growth rates that is known as the "silicon cycle".
This economic cycle in the semiconductor industry is repeated in a roughly regular 4 year cycle of boom
and bust. The silicon cycle fits almost perfectly with the movements of the Japanese semiconductor
industry in the 1980s. 64K DRAM (1980), 256K DRAM (1984) and 1M DRAM (1988) led to peaks in the
industry created by Japan. Figure 7 shows the growth rates for DRAM in Japan and you can see that it
also fits the silicon cycle. The production and sales of the Japanese semiconductor industry are
specialized in products that experience this large variability in growth. In other words, the market
orientation of the industry is strong and it tends to concentrate on products with high growth rates.
Memory accounted for 20% of sales in the Japanese semiconductor industry at the beginning of the
1980s, but grew unsteadily and at the beginning of the 1990s had increased to about 30%. Even when
examining only DRAM, it accounted for over 15%. From this we can see that the concentration on the
specific product of DRAM was significant. As a result, a 90% share of 256K DRAM was achieved by the
middle of the 1980s and a share of almost 75% was maintained into the latter half of that decade. As a
result of Reaganomics, the demand for semiconductors in America increased at a pace that exceeded
the volume of supply. At that time, many American semiconductor manufacturers had withdrawn from the
DRAM market and Japanese companies were proactive in supplying cheap and high-quality DRAM.
Figure 8 indicates the global semiconductor share of the 7 major DRAM manufacturers from 1982 to
1993. In the beginning of the 1980s, Hitachi and NEC expanded their share and Toshiba increased its
share from the middle of the 1980s and in 1987 had the top global share. Japan was becoming a
semiconductor colossus. Japan had originally been dominant in commercial electronics industries such
as calculators and AV equipment and there was a lot of domestic demand for semiconductors in
commercial applications. Table 4 shows the sales ratio by application for Japanese IC in 4 year
increments. We can also see from this table that calculators were driving Japanese semiconductor
demand. In the beginning of the 1970s, as household appliances began using IC, the demand for
televisions and sound equipment increased. In the latter half of the 1970s, demand bulged for VTRs.
The Japanese semiconductor industry, which was strong in commercial applications, made progress
from the 1980s with the expanded production of industrial electronics, specifically computers. At around
this time, the demand for DRAM expanded as the memory capacity of computers was increasing.
However, the peak that should have come according to the silicon cycle in 1992 did not come and the
era of the next-generation 4M DRAM was delayed to 1993. Additionally, the semiconductor industry as a
whole entered into minus growth and the Japanese DRAM share decreased. We can see in Figure 8 that
the share of Toshiba dropped suddenly after reaching the global top position and instead the share of
Samsung Electronics increased. The drop in share held by Japanese companies was influenced by the
emergence of Korean companies. Samsung Electronics is a Korean semiconductor manufacturer that

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January 2004
began the manufacture of DRAM in 1982 and earned a 7% share in just 5 years. The growth of
Samsung Electronics's share accelerated rapidly from 1988. Eventually, Samsung Electronics went on
to exceed the Japanese DRAM share from the 1990s and break through to the top global position. The
activities of Japanese companies accounted for around 90% of the DRAM markets in the mid-1980s, but
the emergence of Korean companies and the recovery of American companies led to sluggish business
performance by Japanese companies.

Friction between the Japanese and US Semiconductor Industries
Table 5 displays the annual growth rate of semiconductor production from 1972-1993. As we can see
from the table, the growth rate in America from 1985-1989 was 8.2% while the Japanese growth rate
was 21%. At that time America was dealing with budget deficits and trade deficits and the American
economy was worsening. The trade balance for high-tech products also went from a surplus to a deficit.
The deficit towards Japan in particular continued to expand and whispering began about trade
imbalances. This happens because the domestic demand for semiconductors increased with
Reaganomics in America at a pace such that demand exceeded supply and the Japanese companies
that had the capacity to fill in that gap were actively exporting semiconductors to the United States. The
American semiconductor industry was losing share to Japanese companies and felt threatened by the
Japanese. The SIA (Semiconductor Industry Association) was established in 1977 in order to lobby the
government. First SIA approached the ITC (International Trade Commission) and with the support of the
ITC requested the help of the U.S. Senate in an inquiry into the international competitiveness of the
semiconductor industry. This inquiry was made by the ITC and in November of 1979, the Subcommittee
on Trade of the Committee of Ways And Means from the House of Representatives held a hearing where
representatives from the semiconductor industry testified. At this time, the relationship between the SIA
and the Department of Commerce was already growing. In June of 1979, a representative of the SIA
visited the Department of Commerce and delivered a document detailing the SIA's views. As a result, the
SIA and the Department of Commerce rapidly grew closer and this led to the Monterey meeting in 1980.
This meeting was held based on a proposal by the SIA and was an opportunity for the SIA and high-level
government officials to discuss the response to the semiconductor industry. The topics debated at this
meeting were various, including problems with access to the international market, competition in the
American market, problems with the role of government, quality issues between Japanese and US
semiconductors and differences in the international structure for financing. The interest of the
participants was focused on global competitiveness issues of the semiconductor industry. What is worthy
of our attention here is that the purpose of this meeting was to improve the relationship between the
industry and government, which originally had not been intimate. The industry felt threatened that the
American semiconductor industry would lose to Japan and hoped to elicit some kind of policy response
from the government. The Department of Commerce hoped to elevate its position within the government

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January 2004
through trade issues that are typically seen as less important than national defense or diplomatic issues.
When the Department of Commerce began listening to the views of the semiconductor industry, they
came to understand that the industry was confronted by a variety of issues, not only damage from Japan.
These issues included difficulties in access to the Japanese market for the American semiconductor
industry, financing issues, the lack of skilled laborers and issues with R&D. Eventually the Department of
Defense came to represent the SIA lobby and made an effort to encourage interest in semiconductor
industry issues within the government. In September of 1979 they issued a report and in order to
promote the importance of the semiconductor industry, they enacted a detailed analysis of the industry.
In the conclusion of the report, they pointed out the possibility that the Japanese semiconductor industry
could become a powerful competitor to the American semiconductor industry. In this way, at the end of
the 1970s, the SIA and the Department of Commerce were beginning to stand on the same platform.
Furthermore, the Monterey meeting in 1980 was an event that symbolized the deepening relationship
between the SIA and the Department of Commerce. This is how SIA was successful in creating a
relationship with the Department of Commerce and bringing their attention to the American
semiconductor industry. One year after the Monterey meeting, the SIA announced a report and specified
the issues faced by the American semiconductor industry when competing with overseas companies.
They also proposed policy responses to resolve these issues. This report had a political tone and the
principal object of the report was the role of semiconductors in the commercial market. The SIA report
released in 1983 described the difficulties in accessing the Japanese market and the use of low prices
as a weapon by Japanese companies as they entered into the American market. In later semiconductor
negotiations between Japan and America, the US government requested action by the Japanese
government regarding the barriers to access to the Japanese market and to resolve the issue of
dumping. From this, we can see that the American side was negotiating based on these reports. In 1982,
the SIA launched a collaborative research organization called the SRC, or the Semiconductor Research
Corporation, with the purpose of strengthening R&D in the semiconductor field. SIA described one of the
purposes for launching the SRC as to promote semiconductor R&D in coordination with universities.
Providing capital for this to universities became one of the central activities of SRC. One of the primary
triggers for the establishment of the SRC was the threat around the Japanese semiconductor industry.
SIA hoped to strengthen R&D in order to resist that threat. From the 1980s, the risk involved in R&D was
increased as product lifecycles became shorter. This rapid increase in the cost of research, etc. for
high-tech industries increased the incentive for collaborative R&D. SRC was established as a result of
this trend in R&D frameworks. Because of sudden increases in capital investments in the semiconductor
field and R&D costs, the American semiconductor manufacturers faced difficulties with financing and
approached the Pentagon in order to obtain R&D financing. Because of the nature of the issue, it is
unclear what method SIA and SRC used to approach the Pentagon, but it is believed that Larry Sumney,
president of the SRC, used his own contacts at the Pentagon and made a connection between the SRC

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January 2004
and Pentagon. In 1987, management of development projects related to design and manufacturing
technology for IC was transferred to the SRC and the government provided the SRC with financial
support. The SIA continued working with the Pentagon to obtain even greater funding. Some of the
reasons that SIA determined it would be best to seek financial support from the Pentagon or that 60% of
the R&D funding in the government was allotted to the Pentagon and the SIA determined that it would be
easier to obtain financing from the Pentagon. American industry is fundamentally based on free
competition. If the Department of Commerce supplied financing to a specific industry this might be taken
as an industrial policy so the SIA believed that it would be impossible to obtain financing from the
Department of Commerce. Based on these points, SIA determined that it would be possible to obtain
financing from the Pentagon under the name of national defense. Through SIA lobbying activities, the
Pentagon also realized that semiconductors were a necessary component of high-tech weaponry and
the superiority of American military power was based on this electronic technology. Activities by SIA to
earn financing from the Pentagon were successful with the establishment of Sematech, a semiconductor
R&D association based on industry-government cooperation. A policy statement was made establishing
this in a report released in February of 1987 called "Defense Science Board on Defense Semiconductor
Dependency", by the Defense Science Board. This report is written from the viewpoint of the argument
for high-tech industries as a base for economic security. In this view, because semiconductor
technologies established for commercial applications can also be used for military applications, the
weakening of the American semiconductor industry is an issue of American national security. The
argument made in this report was as follows. 1. The supremacy of American military power is dependent
upon American supremacy in military technology. 2. Electronics technology is central to supremacy in
military technology. 3. Semiconductor technology is key to obtaining supremacy in electronics
technology. 4. Achieving semiconductor mass production technologies is key to being top in
semiconductor technology. 5. Semiconductor mass production technologies are born in the commercial
market. 6. America is losing in competition for mass production technology in the commercial market. 7.
America will soon be dependent on foreign sources for cutting-edge technology. This is a difficult
condition to accept. This report by the Defense Science Board indicates that commercial semiconductor
technology is the basis for high-tech weapons and indicates the danger to national security that occurs
from depending on overseas sources for cutting-edge technology. The establishment of Sematech as an
industry-government cooperative R&D association was proposed as a part of the strengthening of the
American semiconductor industry. The Defense Science Board paid attention to a report released by the
Senate Armed Services Committee in December of 1980, papers by Defense industry researchers and a
1985 report by the U.S. National Science Foundation, etc. The dependence on foreign produced
components first gained attention in the 1980 report and this dependency was detailed in specific in the
1985 report. As a result of the influence of these reports, this dependency was also discussed in
magazines and interest in the issue of dependency increased. The Defense Science Board then

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January 2004
released a report in 1987. With this apprehension over the possibility of a dependency upon foreign
sources for cutting-edge semiconductor technology, the Pentagon began focusing on the semiconductor
industry. This is how the SIA deepened their relationship with the Department of Commerce and the
Pentagon and was able to gain support for the American semiconductor industry. The SIA, fearing that
as the US trade deficit continued to expand, the Japanese semiconductor industry would continue to
take market share, submitted a petition under Section 301 of the US Trade Act of 1974 against Japan for
unfair trade in June of 1985. Section 301 of the US Trade Act seeks corrective measures versus unfair
trade by foreign countries and the US president can apply retaliatory actions to foreign countries. SIA
emphasized the following in its argument that Japan was in violation of article 301.
1. Because of structural barriers to importing in the Japanese electronics industry, the market share of
American manufacturers in the Japanese semiconductor market was small. (The share of
American-made semiconductors in the Japanese market - 11%, the share of Japanese made
semiconductors in the American market - 17%)
2. The structural impediments in the Japanese market towards American products are permitted by the
Japanese government.
3. The US market has been damaged by Japanese dumping.
The SIA's petition was accepted at the US Trade Representative's Office by Clayton Yeutter and he
announced that he would begin the necessary investigation. Within two weeks after the 301 petition,
Micron Technology made an anti-dumping petition against 7 Japanese semiconductor manufacturers
(Fujitsu, Mitsubishi, Hitachi, NEC, Oki Electric, Toshiba and Matsushita). This petition claimed that
Japanese companies were dumping 64K DRAM in the American market. 3 months later, AMD, Intel
Corporation, and National Semiconductor made an anti-dumping petition against 8 Japanese
semiconductor manufacturers (Fujitsu, Hitachi, Matsushita, Mitsubishi, NEC, Oki Electric, Ricoh and
Toshiba). The American semiconductor manufacturers claimed that EPROM exports were being
dumped in America. In 1986, TI claimed patent infringement violations against 8 Japanese
semiconductor manufacturers and 1 Korean manufacturer. TI claimed that semiconductors exported to
the US were in violation of their patents. An exceptional aspect of this is that the Department of
Commerce, without waiting for the industry to bring a case, began an investigation of Japan for dumping
of 256K DRAM. In response to these cases, the president of the Electronic Industries Association of
Japan came to the US to defend against these claims. According to the calculations of the American
semiconductor industry, the share of American-made semiconductors in the Japanese market was 11%,
but if the share included the semiconductors manufactured by TI and Motorola at their factories in Japan,
then the share would be 19%. However, that argument was overturned and the Department of
Commerce accepted the cases against Japan. After accepting these cases, the Japanese and American
governments began negotiations in August of 1985. The Americans desired to obtain share for American
manufactured semiconductors based on concrete numbers from a cost price monitoring system to

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January 2004
prevent dumping (towards the US market and third country markets) and the Japanese market. Japan
could agree with their import efforts, but emphasized that their other demands were difficult to accept
and the negotiations were almost brought to a standstill. The negotiations between the two countries
went poorly and in order to find a potential path for resolution, the Japanese and US semiconductor
industries called on the Chairman of Sony, Akio Morita, and the Chairman of Motorola, Robert Galvin, in
March of 1986 for a meeting between the industries. While they were unable to produce a conclusion
that would satisfy the semiconductor manufacturers of both countries at this meeting, it did constitute a
breakthrough towards resolution. Galvin has written that he looks back on this meeting saying "without
negotiations between the industries, it would have been impossible for the semiconductor negotiations to
be resolved." Difficulties in the negotiations continued and they were interrupted several times, but a
basic agreement was made on July 31, 1986 and on September 2 of the same year, the US-Japan
Semiconductor Agreement was signed. The contents of the agreement were as follows.
(1) Price monitoring to prevent dumping
Japanese manufacturers would submit documents about their production costs and sales prices and
based on the documents submitted, the Department of Commerce would determine a fair market value.
(the FMV system) (This meant monitoring export prices for the American and third country markets.)
(2) To increase the ratio of foreign manufactured semiconductors purchased
The ratio of foreign manufactured semiconductors to be purchased in the Japanese market was not
indicated as a specific value, but MITI submitted a side letter to the US stating that it would make an
effort to increase the share to 20%. The American government, which perceived that a share of 20% had
been promised because of the existence of the side letter, claimed that the US manufactured
semiconductor share had not reached 20% in the Japanese market and in March of 1987 announced
sanctions against Japan before enacting them a month later. These were the only sanctions enacted
against Japan during the negotiations between the US and Japan. Because the market share had not
reached 20% at the end of the term of the agreement in 1991 a new US-Japan Semiconductor
Agreement was started. The agreement in 1991 avoided dumping issues and was focused on achieving
a share of 20%. The negotiations over semiconductor frictions were traumatic for MITI. They took over 1
year and were the worst experience for MITI since the period after World War II. It is likely that the
existence of a perception gap between the American and Japanese governments led to this negotiation
ending in the worst possible way. The Vice Minister for International Affairs at MITI, Yoshihiro Sakamoto,
wrote about political decisions that "economic negotiations between Japan and the US after World War II,
regardless of importance had never before been undertaken without taking the Japan-US alliance into
consideration." Sakamoto also wrote, "The determination that because a country is dependent on
another for national security, they must be willing to accept some amount of otherwise unacceptable
economic conditions surely is unpopular both internationally and domestically." However, unlike the
considerations on the Japanese side, the Office of the United States Trade Representative did not touch

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January 2004
on the issue of national defense that was on the rise within the United States and focused only on
economic problems based on the SIA reports during the negotiation. The demands of the SIA were
strictly for the resolution of the economic issue of strengthening the competitiveness of the American
semiconductor industry. As a result, there was a perception gap that frustrated the negotiations between
the Japanese government, which took the Japan-US alliance into consideration during economic
negotiations, and the American government, which never mentioned issues of national defense and
focused strictly on economic negotiations.
There was an incident involving Fairchild Corporation during these negotiations that became a subject of
debate within the United States. In October 1986, Fujitsu announced that an agreement had been
reached to purchase Fairchild Corporation from its parent corporation Schlumberger. The prices of
Fujitsu products had increased as a result of the fair value system in the semiconductor agreement and
Fujitsu was faced with a situation in which its exports to the US had almost ceased. Fujitsu needed to
own a factory that would enable it to do continuous production in America and avoid the limitations of
price monitoring through local manufacturing. In 1979, Fairchild, which had come to be known as the
mother of the semiconductor industry for having produced so many revolutionary technologies, was
purchased by Schlumberger, a French oil exploration company. Schlumberger was searching for a
company that they could sell Fairchild Corporation to after its operations deteriorated in the 1980s. This
led to the purchasing plan with Fujitsu. The interests of both companies matched in the purchasing plan
between Fujitsu and Fairchild and the purchase seemed to be a logical choice. However, the Pentagon
and Department of Commerce opposed this purchase because they feared dependency on Japanese
technology and blocked the plan. At this time, the problem of dependency on foreign countries for
semiconductor technology was already attracting attention and this contributed to the blocking of the
purchase by the Pentagon and the Department of Commerce. In October of 1986, when Fujitsu
announced the purchasing plan, a draft of the report on the issue of dependency on foreign countries for
semiconductors by the Defense Science Board was being circulated. This issue was also taken up in
magazines and apprehension was increasing regarding the issue of dependency. When the report of the
Defense Science Board was officially announced in February of 1987, fears about the purchasing of
Fairchild by the Japanese company Fujitsu increased dramatically. This is because, as the report of the
Defense Science Board indicated, the national defense issues caused by dependency on foreign
countries for semiconductor technology would be actualized by this purchasing plan. In this way, the
purchase by Fujitsu became a major political problem and developed into a debate involving the
Secretary of Commerce and Defense. Eventually, in March of 1987 the cancellation of the plan was
announced and the purchase did not occur. Later, Fairchild Corporation was purchased by an American
company, but that company's performance was sluggish and Fairchild Corporation, which was known as
the mother of the semiconductor industry, faced severe operating conditions. Eventually this American
company was left with no choice but to sell its factory. The factory was sold to the Japanese

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January 2004
manufacturer Matsushita Electronics Industries. The Department of Commerce and the Pentagon
stopped the purchase of Fairchild Corporation by Fujitsu, but irregardless an American company bought
Fairchild Corporation and this led to the ironic result of the factory being bought from them by a
Japanese company. This Fujitsu-Fairchild incident was at the root as debate intensified regarding
economic security after the announcement of the report by the Defense Science Board and unease
spread about threats to national security and economic competitiveness posed by dependency on the
Japanese semiconductor industry. However, this incident was not necessarily viewed in the same way in
Japan. The interpretation by the Nikkei Shimbun of the announcement of the decision by Fujitsu to make
the purchase was, "The decision by French company Schlumberger Corp. in 1979 to purchase Fairchild
Corp. was not opposed by the Pentagon. 7 years later, when an attempt by a Japanese company to
purchase the same company was rejected, the US government showed through this incident the
difference in the depth of the US-France and US-Japanese relationship." A high official at the Embassy
of Japan in the United States said that, "regardless of the fact that Fairchild was already under the
control of the French company Schlumberger, the view of the Secretary of Commerce that Fairchild
Corporation should not be sold to a Japanese company is illogical." The Pentagon and the Department
of Commerce feared the competitiveness of Japanese companies and interpreted this incident as an
issue of dependency on foreign countries for American military technology. The relationship between the
two countries and the view emphasizing the illogical nature of obstructing the purchase was probably a
lack of awareness by the Japanese of the economic security issue. Like the Japan-US semiconductor
negotiations, this incident was also influenced by economic security arguments.

5) The Japanese and US Semiconductor Industries (3) - 1990s to the Present
The U.S.
In 1993, the total output of semiconductors by American semiconductor manufacturers overtook the
Japanese. The reasons for this were the corporate growth of Intel Corporation and the sluggishness of
Japanese semiconductor companies. The reason for the growth of Intel Corporation was the MPU. Intel
had achieved real predominance in the MPU market and this success led to the recovery of the company.
Intel Corporation's share in this market was approximately 70% and the share held in combination with
other American companies was above 90%. Currently, MPUs are the technology driver that have taken
the place of DRAM as the brain of the computer. MPUs have become the exclusive territory of Intel,
which is competitive in this field. From the middle of the 1980s, the personal computer market in the US
expanded rapidly due to the miniaturization of computers and drops in price caused by intense
competition. With the dissemination of the Internet in 1995 and 1996 as well as Windows 95, the
personal computer rapidly became commonplace in the home and sales of Intel MPUs expanded. The
big business "Wintel" developed. Microsoft achieved an average growth in sales annually of 34% over

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January 2004
the 5 fiscal years between 1994 and 1999. The growth rate of net profit for the same time period was as
high as an average of 47% per year. The sales volume during the 1999 FY approached the $20 billion
mark at $19.75 billion and in the 2002 FY exceeded the $20 billion mark at $28.37 billion. Intel
Corporation achieved an average growth in sales annually of 25% over the 5 fiscal years between 1993
and 1998. The growth rate of net profit was as 22%. In 1998, Intel Corporation saw sales exceeding
Microsoft at $26.27 billion and at the peak of the semiconductor market in 2000, sales rose to $33.7
billion. This was 14 continuous years of increased sales. However, in 2001, the demand for
semiconductors plummeted as the IT bubble burst and the sales volume for the 2001 FY was $26.5
billion, a reduction of 21% from the 2000 FY sales. Sales began to recover in the 2002 FY with a sales
volume of $26.8 billion. Figure 9 shows the global semiconductor market scale for the fiscal years from
1990-2002. As can be seen from the figure, the semiconductor market in the 2000 FY exceeded $200
billion and the growth in scale was as much as 36.8% in comparison with the previous year, but during
the 2001 FY sales were under $200 billion, a 13.5% reduction in comparison with the previous year. The
sales volume decreased for the first time in 15 years during the 2001 FY at Intel Corporation, but their
share remained top in the semiconductor market. Table 6 shows the global semiconductor market
rankings from 1973-2001. This table displays the rankings each 4 years from 1973. As we can see from
this table, Intel was number 8 in 1989 and has remained on top since overtaking Japanese companies in
1993. The strengths of Intel Corporation include their protection of intellectual property rights in order to
prevent the copying of their MPUs and their use of second resources. A second resource has the
purpose of stabilizing the supply of products to consumers and indicates permitting the production of an
almost identical product as that of the company that developed the technology with or without providing
the technology. Intel Corporation provided second resource rights actively to companies with relatively
high production capacities. During the period of expanding demand for MPUs, Intel or second resource
manufacturer MPUs took share. Second resource rights for the 80286 MPU, which was announced in
1982, were only provided to mid-size companies and were not provided to large companies like NEC. In
this way they hoped to prevent the copying of their technology. In 1991, the Intel Inside logo was
announced. A campaign was begun to increase Intel's brand strength and the company's growth took off
with the announcement of the Intel Pentium processor in 1993. In preparation for a ubiquitous era, Intel
Corporation developed high-performance low-power consumption processors for cellular phone
applications and also has developed a solution business.
This recovery of the American semiconductor market is also thought to be one of the results of the
establishment of Sematech in 1987. The establishment of Sematech was achieved because it was
proposed in a report on technology by the Defense Science Board. The Department of Defense, fearing
a threat to national defense from dependency on Japanese made semiconductors, took action and
started an industry-government joint R&D organization and provided funding. The Department of
Defense and 14 private semiconductor manufacturers invested in this plan and, with the goal of

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January 2004
strengthening research into semiconductor manufacturing technologies, worked to improve the
international competitiveness of the semiconductor industry. Previously, this kind of support was offered
when market mechanisms did not function well and for industries for which there are not commercial
development merits, but through Sematech, the government was supporting the maintenance of the
competitiveness of the semiconductor industry, a major American industry. This was not the only
exceptional thing about Sematech. American industries tend to believe in the free market and chafe
against government interference. A plan such as this in which the government offers support stands out
from traditional American free-market capitalism. For top semiconductor manufacturers, accounting for
as much as 80% of market share to join together in work that is close to applied research is something
that would have been unheard of considering the history of American corporate relations. The purpose of
this plan was to strengthen semiconductor manufacturing technology. This means that semiconductor
manufacturers and semiconductor manufacturing device manufacturers were joining in a cooperative
framework and this kind of corporate framework was an unprecedented concept in American corporate
history. In the Sematech plan, $100 million per year was provided over five years and activities began
fully in 1988. The success of Sematech was more organizational than technological. This created
cooperative relationships between competing companies. While Sematech received funding from the
government, it was operated under private leadership. The success of the program was its function of
bringing together these companies on projects targeting the achievement of a shared goal.
In 2003, Sematech began a global system of industrial coordination. 8 semiconductor related companies,
including Intel Corporation, TI, Toshiba and the Taiwan Semiconductor Manufacturing Company from
Taiwan began working jointly with Stanford University to develop the next next generation semiconductor
chip technology. This research is targeting the reduction of circuits to 32 nm45 nm, and products
based on this are targeted for 2012. If they are successful, this would produce a memory with 30 times
the current capacity. Approx. 400 million in research costs would be split between the participating
companies. In Japan, industry-government joint projects to achieve semiconductor manufacturing
technologies including "Asuka" and "MIRAI", a plan targeting 45 nm semiconductors, are underway. In
comparison, this new project is targeting one generation further beyond MIRAI. TI, which is participating
in this project, invested $3,000 million in July of 2003, announcing it would build a new factory in its
homeplace of Texas. This major investment, on the scale of $3,000 million, is the first of its kind since
IBM began operations in a new factory in America in 2002. American semiconductor manufacturers are
limiting investments as a result of the IT recession. With the expectation of expanding demand in the
cellular phone sector, etc. TI made the decision to target future profits. The factory to be constructed by
TI for 300 mm wafers requires large amounts of financing capacity for new and powerful manufacturing
devices, etc. and only large companies can construct these facilities. Second grade semiconductor
manufacturers such as AMD and Micron Technology, etc. have a policy of avoiding 300 mm wafers at
present. As the first major capital investment since the Dallas factory in 2001 for TI, this investment is

34
January 2004
expected to be almost 2 times as much as previous 200 mm wafer factories. Currently, the companies
planning to operate or build a 300 mm wafer factory include Intel Corporation, TI, and IBM in America. In
Asia, there are Samsung Electronics in Korea and Foundry in Taiwan. In Europe, there is Infineon
Technologies in Germany and in Japan there are only Toshiba and Elpida. The diameter of the wafer is
large, but many semiconductors can be made from 1 wafer and productivity is increased, offering the
advantage of decreasing the manufacturing cost of 1 chip. Samsung Electronics, which boasts the top
share in the DRAM market, has employed bullish capital investment to increase competitiveness. The
financing capacity necessary for massive investments is becoming a major factor affecting
semiconductor manufacturer cost competition in the future.

Japan
Intel Corporation became predominant in the semiconductor markets due to the success of
microprocessors (MPU). The presence of Japanese companies, which are not technologically strong in
this field, is diminishing. However, there was an opportunity for Japan to improve competitiveness in this
field in the 1970s. As previously described, Intel Corporation developed the MPU while developing LSI
for calculators on behalf of Busicom. The basic structure of MPU was developed by Intel Corporation
engineers, but it was Busicom that created the opportunity for the birth of this technology. The engineers
of Busicom, which spurred this development, moved to Intel Corporation and lead in the design and
development of the world's first personal computer microprocessor. Japanese companies, while being in
close proximity to the development of the microprocessor, were unable to make it a success. At that time,
the business strategy of Japanese companies was to improve on technology established in America and
use their financing ability to mass produce it. Instead of investing in technology with an unclear direction,
it was more efficient to purchase American technology. This is why they refrained from investing in
microprocessor technology, for which the direction was not yet established. This eventually led to the
sluggishness of the Japanese semiconductor industry, which was late in the development of MPUs. The
Japanese semiconductor market has struggled to grow since 1990 because industrial and commercial
use electrical devices which use semiconductors are on a decreasing trend for domestic production in
Japan since the Heisei recession, which began around 1991. The near 70% Japanese share of 1989 fell
to 47.9% in 1993. Share has been taken by American and Korean companies. As a result of the
US-Japan Semiconductor Agreement, Japanese semiconductor manufacturers were not able to be
certain of the direction of development and have withheld investment. This made them unable to
respond to a period of expanding demand for semiconductors. Just at this time, the cheapening prices of
computers expanded demand for PCs in America and semiconductor demand expanded rapidly.
However, Japanese semiconductor manufacturers were unable to respond to this demand, while Korean
companies, which had become more competitive, did respond to that demand. In 1992, Korean
manufacturer Samsung Electronics surpassed Toshiba as the world's top DRAM producer. Even when

35
January 2004
Samsung Electronics entered into the DRAM market, they had not expected to become successful in
this business. At this time Japan was working to maintain overwhelming competitiveness. There were
also no semiconductor consumers in Korea and the only actual consumers were in foreign markets. As a
result, Korean semiconductor companies did not enter the market to respond to domestic demand, but
from the very beginning chose the path of globalization for international competitiveness. In 1986,
Samsung Electronics developed its own proprietary 1M DRAM. In 1988, Samsung Electronics had a
monthly production capacity of 1 million units. In Japan, 1M DRAM was developed in 1984 and mass
production was begun in 1987. The peak of 1M DRAM was in 1991, but Japanese companies began the
transition to the next generation 4M DRAM in 1990. At this time, Samsung Electronics expanded their
share of 1M DRAM to 13.8% in 1990 and established a monthly production capacity in 1991 of 8 million
units. Japanese companies were 1 year earlier in the establishment of mass production capacity for 4M
DRAM than Samsung Electronics. However, Samsung Electronics's production capacity for 4M DRAM in
1993 reached a monthly capacity of 8 million units, exceeding the monthly capacity of 6 million units held
by NEC, Toshiba and Hitachi. By concentrating on one generation of memory older than Japanese
companies, Samsung Electronics avoided confronting the massive competitiveness in next-generation
memory held by Japanese companies. Prices stabilized because there were almost no competitors in
the previous generation market, allowing Samsung Electronics to achieve profits. Concentrating on the
remaining market for previous generation chips also worked effectively when investing. That is because
there are established customers and the direction of investment is determined, reducing investment risk.
Samsung Electronics aggressively entered the Asian market and along with the North American market,
Samsung Electronics focused on these 2 pillars for its business. Samsung Electronics, which is part of a
larger corporate syndicate, utilized its financing power to do concentrated investment and with increased
competitiveness was successful in obtaining share. The current bold investment of Samsung Electronics
continues and the capital investment in semiconductors and LCD in 2003 has reached 577 billion.
Samsung Electronics President Lee states that they are able to make massive investments because
manufacturing costs are approximately 30% lower and product prices are conversely 30% higher. The
sources of demand which had been limited largely to personal computers now diversified to cellular
phones, gaming devices and digital home electronics, etc. Samsung Electronics, which had achieved
huge growth until it overtook Japan, was also highly concentrated in specific products. Figure 10 shows
the concentration ratio in DRAM by Toshiba, NEC and Samsung Electronics. The concentration ratio of
Toshiba and NEC are lower than Samsung Electronics, but amongst Japanese companies they are
relatively high. Based on this, the concentration ratio in DRAM by Samsung Electronics in 1992 was
approximately 80% and this was a miraculous figure. Samsung Electronics is the Semiconductor
Division of the Samsung Group. Their success was a stimulus for other large zaibatsu-type group
corporations, and the group corporation now known as LG entered into the semiconductor market in the
late 1980s. The top 10 companies in the global DRAM market in 1993 included Hyundai Electronics and

36
January 2004
LG Electronics along with Samsung. Samsung Electronics began taking share in the DRAM market that
had been previously dominated by the Japanese. Japanese semiconductor manufacturers lost
competitiveness and currently are being restructured by major semiconductor manufacturers. Figure 11
shows these restructuring activities in a diagram. ASPLA is a company that develops cross-industry
cutting edge processes. 10 major semiconductor companies invest jointly in the company, (Fujitsu, NEC,
Rohm, Sanyo Electric, Sony, Matsushita, Oki Electric, Renesas Electronics, Sharp and Toshiba). This
company develops standard System LSI processing and design technology in collaboration with the
National Institute of Advanced Industrial Science and Technology. This effort targets the overwhelming
reduction of development fees that cost 20 billion for 1 company through standardization. ASPLA is a
joint company established in December of 1999 through the integration of the DRAM businesses of the
only DRAM manufacturers in the country at present, Elpida Memory, NEC and Hitachi. Elpida Memory
expanded the capacity of its factory on the grounds of NEC Hiroshima. They obtained 112.8 billion in
June of this year. A 12 billion donation by Intel Corporation is included in the funds that were procured
and, with cooperation from Intel Corporation on a technological level, they hope to produce cutting-edge
products. The Hiroshima factory of Elpida produces DRAM manufactured for use in cell phones and
digital appliances that require short-term delivery cutting edge technology. Large DRAM for use in PCs
are contracted for production to Taiwan's Powerchip Technology Corporation (PSC) and China's
Semiconductor Manufacturing International Corporation (SMIC). This setup is the result of the
perception that the risk of price changes is high for DRAM and the utilization of foundries to produce
stable profits is indispensable. Contracting production to the foundries has the merits of decreasing
capital investment risks and making it possible to produce semiconductors at a discounted cost. The
Elpida business model is to produce high-performance DRAM as much as a half-year before other
companies and sell these chips to primarily non-PC fields such as cellular phones and digital terrestrial
televisions, etc. The manufacturing facilities owned by Elpida are equipped with technology a generation
ahead of their competitors such as the Korean company Samsung Electronics and the German company
Infineon Technologies. Using this technology, they have achieved a 60% share of DRAM for cellular
phones. In the world of DRAM, a half years difference can connect to a difference of 100 billion in
profits. Elpida has focused its resources on these early profits. The monthly production of 300 mm
diameter silicon wafers in February 2004 was 16,000 units and the company has plans to increase this
to five times its current capacity. Figure 12 shows the global market share in DRAM for 2002. The Elpida
share was 4% for 2002 and there is a clear advantage held by American and Korean companies, but the
company is currently laying the groundwork to target growing to within the top three in global share. NEC
has engaged in business reforms such as creating a strategy in 1999 to split the company, separating
those businesses projected to be competitive and listing them on the market. The NEC semiconductor
division was split off and NEC Electronics, which was established in November 2002, was listed on the
market on July 24, 2003, according to the strategy. By actualizing potential value, the group is targeting

37
January 2004
an increase to its overall strength. The construction of a state-of-the-art semiconductor line was begun at
the Toshiba factory. The company is investing 350 billion. In the march quarter of 2002, the company
fell into the red and sold the principal cause, the DRAM division, to American company Micron
Technology in 2001. Toshiba developed technology to greatly reduce time and processing costs and is
targeting the application of this technology to next-generation semiconductors that it is developing in
conjunction with Sony and hopes to put this into use around 2005. Fujitsu and AMD are planning a
business merger in flash memory. It is their expectation that they will be able to share development
investment risks. Renesas Electronics was established in April 2003. It is a new company based on
investments from Hitachi and Mitsubishi Electric. Their core product is microcomputers and they plan
sales of approximately 900 billion for the new fiscal year. If they achieve this they will be at a level
comparable with the domestic top manufacturer Toshiba and follow Intel Corporation and Samsung
Electric, rising to the 3rd rank globally. Because the demand for DRAM in cellular phones with cameras
and flat-screen televisions is expanding, there is hope for the recovery of the Japanese semiconductor
industry.
Including those that are currently conceptual, there are currently over 10 industry, academia and
government joint projects in the semiconductor field. ASPLA, which was described earlier, is also one of
these projects. In the MIRAI project, new materials that will be indispensable for next generation
semiconductor processes are being researched for the 7 year period, starting in 2001 and process
technologies will be developed to utilize these advancements. The project activities are targeting
linewidth 65 - 45 nm device technologies. The Asuka project, started in April of 2001, is based in the
private sector and the project is working towards cutting-edge semiconductor technology. The
development of 90 - 65 nm SoC technology is planned for this project and the project is targeting the
standardization of this process technology. The following 2 goals comprise the purpose of the Asuka
project. The project will work towards standardization, creating common platforms and fundamental
technologies that businesses need for SoC R&D. The second goal is to work as a point of contact for
industry, enhancing exchanges and cooperation with public laboratories and universities to ensure the
establishment of basic and fundamental semiconductor technologies. As a result of the success of the
VLSI Technology Research Association in the 1970s, Japan surged forward in the 1980s. Depending on
the management of the project, similar results might be expected to those of the 1980s. However there
are multiple projects and there is some criticism of redundant themes and the inefficiency of splitting
resources. Future issues will include reviewing the contents of the projects and improving inefficiencies
to pursue synergistic benefits.
Updated: January 6, 2004

Doshisha University Professor Yuzo Murayama created this document in cooperation with Hiroko
Kidouchi. This document was created based on in class discussions of the case studies about the

38
January 2004
Japanese and US semiconductor industries.

Copyright 2003 Doshisha University, Professor Yuzo Murayama These materials may not be
duplicated or altered without the express permission of the MOT Consortium. Neither part nor all of this
printed material may be stored on a copying or search system, be used in a spreadsheet or transmitted
in any method (electronic media, mechanical, photocopying, audio recording, etc.) without the express
permission of the MOT Consortium.

39
January 2004
Tables and Figures

Figure 1: Types of IC
Source: Kikuchi Masanori, "Nyumon Bijuaru Tekunoroji, Handotai no Subete"
Nippon Jitsugyo Publishing, 2001
IC
Memory
Microcomputers
System LSI
R
A
M
R
O
M
D
R
A
M

S
R
A
M
E
P
R
O
M
F
L
A
S
H
M
E
M
O
R
Y
M
P
U

M
C
U

40
January 2004
Supplementary Figure 1, Explanation of the Abbreviations

Source: Kikuchi Masanori, "Nyumon Bijuaru Tekunoroji, Handotai no Subete"
Nippon Jitsugyo Publishing, 2001

ICIntegrated Circuit
RAMRandom Access Memory
(RAM is a volatile form of memory, and even if it is powered, information disappears from the memory
after a certain amount of time passes. This memory can be written or read from at any time.)
DRAMDynamic Random Access Memory
(This memory must be refreshed regularly because even if it is powered, information disappears from
the memory after a certain amount of time passes. This memory can be written or read from at any
time.)
SRAMStatic Random Access Memory
(This memory does not require refreshing because information is stored in the memory until the
power is cut off. This memory can be written or read from at any time.)
ROMRead Only Memory
(In this non-volatile memory, information is stored even when the device is not powered. This
memory is for reading only.)
EPROMErasable Programmable Read Only Memory
(When the IC is manufactured, it is blank and the required information is written afterwards. The
information stored on this read only memory can be erased by exposure to ultraviolet light.)
Flash memory
(After initial programming the information is not lost even when power is cut off from this electrically
batch re-programmable memory.)
MPUMicro Processing Unit
(Micro Processing Unit: An MPU is the IC that acts as the head of a PC and reads programs that are
stored in ROM, receives data sent from input devices through the RAM, processes that data
according to the program (calculations, etc.), and commands the execution of programs.)
MCUMicro Controller Unit
(Micro Controller Unit: An MCU is an IC with more onboard functions than an MPU. It is more
compact than MPU and is widely used in household appliances, etc.)
LSI: Large Scale IC (Large Scale Integrated Circuit: An LSI is an integrated circuit with a degree of
integration of 1000 or more transistors.)

41
January 2004
Figure 2: Moore's law
Shifts in the number of transistors in Intel Corporation MPU products

Source: Intel Corporation home pagehttp://www.intel.com/research/silicon/mooreslaw.htm
September 14, 2003

Moore's Law: Moore's Law is a prediction about semiconductor technology by one
of the founders of Intel Corporation, Gordon Moore.
He announced at a conference in 1965 that, "The degree of integration
of semiconductors would double every 18 to 24 months."

42
January 2004
Figure 3: A map of the San Francisco area

Source: ASAHI NET Homepage <http://www.asahi-net.or.jp/~sh3m-on/SiliconV/SVmap1.htm>
August 30, 2003

Figure 4: A map of the Silicon Valley region

Source: ASAHI NET Homepage <http://www.asahi-net.or.jp/~sh3m-on/SiliconV/SVmap1.htm>
August 30, 2003

43
January 2004
Table 1: Government procurement of IC (1962 - 1968)

Source: Daniel I. Okimoto "Nichibei Handotai Senso", Chuokoron-Shinsha, 1985

Table 2: Shifts in sources of demand in the US semiconductor market

Source: Yuzo Murayama, "Tekuno Shisutemu Tenkanki no Senryaku, Sankangaku Renkei
he no Michisuji"
Japan Broadcast Publishing, Co. Ltd., 2000
Year
Total procurement
($1 million)
The percentage of total
procurement by the
Department of Defense
1962 4 100%
1963 16 94
1964 41 85
1965 79 72
1966 148 53
1967 228 43
1968 312 37
Source of demand
Percentage of semiconductor output
1965 1969 1972 1974
Household
appliances

Semiconductors 14% 10% 18% 25%
IC 1 4 10 15
Used in Computers
Semiconductors 24 30 27 28
IC 35 44 40 35
Government use
IC 55 36 25 20
Industrial use
IC 9 6 25 30

44
January 2004

Figure 5: The percentage of imports amongst Japanese IC demand (1968 - 1974)
0
200
400
600
800
1000
1200
1400
1600
1800
2000
1968 1969 1970 1971 1972 1973 1974
100 M
30
27
30
36
22
26
36

Source: Yutaka Aida, "Denshi Rikkoku Nippon no Jijoden Ep. 5" (Documentary),

Table 3 The top 5 companies in vacuum tubes, transistors and IC

Source: Yuzo Murayama, "Tekuno Shisutemu Tenkanki no Senryaku, Sankangaku Renkei
he no Michisuji"

45
January 2004
Figure 6: The global share of major companies (1982 - 1993)

0
2
4
6
8
10
12
1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993
Share by Company
(%)
Year
TI

Source: Hiroyuki Itami, "Nippon no Handotai Sangyo, Naze Mitsu no Gyakuten ha Okotta ka",

46
January 2004
Figure 7: Japanese DRAM growth rates (dollar-based) 1983 1992


47
January 2004
Figure 8: The global DRAM share of major companies (1982 - 1993)
0
2
4
6
8
10
12
14
16
18
20
1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993
Share by
Company (%)
Year
TI


48
January 2004
Table 4: Sales ratios by Japanese IC demand


Table 5: Average annual growth rates of semiconductor manufacturing


49
January 2004

Figure 9: Shifts in the global semiconductor market (1990 - 2002)

0
50,000
100,000
150,000
200,000
250,000
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
$ Million
Year

Source: "Handotai Sangyo Keikaku Soran 1994-2002 Nendo ban", Sangyo Times Inc.

50
January 2004

Table 4. Semiconductor Companies Global Sales Rankings

51
January 2004
Figure 10: DRAM Concentration Ratio by Company (1982 - 1993)

0
10
20
30
40
50
60
70
80
90
1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993


52
January 2004
System LSI
DRAM DRAM
Flash
Memory
Micro Comp
System LSI
Flash
Memory
Micro Comp
System LSI
DRAM
Matsushita
AMD
System LSI
Flash
memory
Flash
memory
System LSI
DRAM SOI
Micron
Contri
bution,
Separa
ted
Alliance
Sold
Fujitsu
Planned est. 2003.7
FASL
Sony
IBM
Toshiba
ASPLA (Advanced SoC Platform Corporation) Est. on July, 2002
NEC Hitachi
Mitsubishi,
Semicon., etc.
NEC
Electronics
Renesas
Technologies
Est. 1999.12 Est. 2002.11 Est. 2003.4
Elpida Memory
Dev. Alliance
Sold
2001
Dev.
Dev. Al l i ance

Figure 11: Restructuring activities amongst major semiconductor companies
Source: "Shukan Daiyamondo", Diamond, Inc., June 14, 2003

53
January 2004

Figure 12: 2002 Global DRAM share

13%
13%
6%
4%
4%
32%
17%
11%

Source: Nikkei Shimbun, June 4, 2003

54
January 2004

Reference Materials

Yutaka Aida, "Denshi Rikkoku Nippon no Jijoden Ep. 1 - 6" (Documentary), Tokyo, Japan Broadcast
Publishing, Co. Ltd., 1995 - 2001
Andrew S. Grove, "Intel Senryaku Tenkan", Tokyo, Shichiken Publishing, 1997 (U.S. Title: Only the
Paranoid Survive", Crown Business, 1999)
Izumi Hiroshi, "Nyumon Electronics Handotai no Nakama Tachi", Tokyo, Seibundo Shinkosha Publishing,
Co., Ltd., 2002
Hiroyuki Itami, "Nippon no Handotai Sangyo, Naze Mitsu no Gyakuten ha Okotta ka", Tokyo, Japan
Broadcast Publishing, Co. Ltd., 1995
Kikuchi Masanori, "Nyumon Bijuaru Tekunoroji, Handotai no Subete", Tokyo, Nippon Jitsugyo Publishing,
2001
Clyde V. Prestowitz Jr., "Nichibei Gyakuten, Seiko to Suitai no Kiseki", Tokyo, Diamond, Inc., 1988 (U.S.
Title: Trading Places: How We Are Giving Our Future to Japan and How to Reclaim It, Basic Books,
1993)
Makoto Kuroda, "Nichibei Kankei no Kangaekata, Boeki Masatsu wo Ikite", Tokyo, Yukihaku Publishing,
1989
Yoshihiro Sakamoto "Me wo Sekai ni, Kokoro wo Sokoku ni, Kokueki to ha Nanika wo Toitsuduketa
Tsusho Kosho no Genba kara", Tokyo, Zaikai Co., Ltd., 2000
Daniel I. Okimoto "Nichibei Handotai Senso", Chuokoron-Shinsha, 1985
Chong-Moon Lee (Ed.) "Shirikon Baree, Naze Kawari Tsuzukeru no ka, Part 1", Tokyo, Nikkei Shimbun,
2001
Yuzo Murayama "Amerika no Keizai Anzen Hosho Senryaku, Gunji Hencho kara no Tenkan to Nichibei
Masatasu", Tokyo, PHP Institute, 1996
Yuzo Murayama, "Tekuno Shisutemu Tenkanki no Senryaku, Sankangaku Renkei he no Michisuji",
Tokyo, Japan Broadcast Publishing, Co. Ltd., 2000

"Shukan Daiyamondo", June 14, 2003
"Shukan Toyo Keizai Plus, Rinji Zokan", April 2, 2003
"Nikkei Business" February 24, 2003
"Nikkei Shimbun"
"Handotai Sangyo Keikaku Soran 1994-2002 Nendo ban", Sangyo Times Inc.

Webpages:

55
January 2004
ASAHI NET http://www.asahi-net.or.jp/~sh3m-on/SiliconV/SVmap1.htm
ASPLA http://www.aspla.com/
Intel Corporationhttp://www.intel.co.jp/ Head Office http://www.intel.com/index.htm
Texas Instruments http://www.tij.co.jp/
Toshiba http://www.toshiba.co.jp/index_j3.htm
IBM Japan http://www.ibm.com/jp/
Hitachi http://www.hitachi.co.jp/
NEC http://www.nec.co.jp/
Motorola http://www.mot.co.jp/

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