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FujiPanaRene: Clinging to the wreckage

Posted: 09 Feb 2012 ?? ?Print Version ?Bookmark and Share

Keywords:chip manufacturing? chip design? Japanese IC industry?

There were signs that something was up when the Japanese consumer electronics bigwigs posted dismal financial results for the final calendar quarter of 2011. The country is just picking itself up from a very difficult year marked by the great March 11 earthquake. The signs were pointing to a systematic problem at the heart of Japan's electronics sector. It is a problem that has been known for more than a decade that has become more intense in the last couple of generations of silicon manufacturing process technology.

The problem started out as that of vertical integration. The equipment companies were paying a lot of money for captive semiconductor design and manufacturing and the chip divisions had a lack of independence and of purpose when it came to serving external customers. That downside to vertical integration has grown into a lack of scale that may effectively drive Japan out of chip manufacturing altogether. Not only had the electronics landscape disaggregated into equipment and chip companies but those chip companies had often split again into fabless and foundry.

We await more details but at first glance relieving Fujitsu and Panasonic of their semiconductor interests and passing them to the semiconductor-focused Renesas may seem like a step in the right direction. However, it is one of many steps that have been too little and taken too late by Japan Inc.

It should be good news for Fujitsu and Panasonic who will continue as equipment companies relieved of the cost of semiconductor R&D and manufacturing.

But at the same time, the plan is made more complex by simultaneously joining chip divisions together into an entity I shall call FujiPanaRene and segregating the design part of FujiPanaRene into what it seems will be a fabless operation and separating it from the manufacturing part of FujiPanaRene that is expected will go into a joint venture with Abu Dhabi controlled Globalfoundries Inc.

One could argue that Japan Inc. is seeking to addressbelatedlythe two key trends of the last decade, scale and foundry. One could argue that this is Japan Inc. and Abu Dhabi joining hands to try and secure the survival of chip making in Japan and eventually in Abu Dhabi.

According to a Nikkei report, the move will receive "several dozen billions of yen" from the Innovation Network Corp. of Japan and is aimed at ensuring the survival of the Japanese chip industry by creating a globally competitive system chip company. It will leave only Toshiba Corp. as the other semiconductor company making system chips.

The plan, which may seem radical, would only truly have been radical if Toshiba and Renesas could have combined forces to create a genuine rival to Samsung with $24 billion of annual semiconductor sales.

Clinging to the wreckage
So it this one more step in the belated ending of vertical aggregation in Japan? In most other parts of the world, in the U.S. and Europe, disaggregation happened long ago, separating the chip companies from the equipment companies they serve, but despite a number of changes in Japan over the last decade, the Japanese chip company landscape has remained behind the curve.


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