THE MICROELECTRONICS INDUSTRY STRUCTURE

High-volume, low-cost electronic packaging technologies are critical for many of today's consumer electronics markets. Control of electronic packaging technologies provides companies with the competitive capabilities to design and manufacture smaller and more sophisticated consumer products like camcorders, cameras, and digital databooks. With innovative merging of semiconductor, packaging, and display technologies, also evolving are second- and third-generation technologies that will increasingly affect the design parameters of future products. Firms with capabilities in materials, equipment, design, and advanced manufacturing will be the future producers of low-cost electronic packages.

In Japan, unlike in the United States, most companies that are heavily invested in downstream electronics markets are also vertically integrated and heavily invested in upstream technologies. Six vertically integrated firms produced 85% of Japan's semiconductors, 80% of its computers, 80% of its telecommunications equipment, and 60% of its consumer electronics products. In the United States, approximately 80% of all semiconductors are manufactured by merchant firms that manufacture few or no other upstream materials and equipment or downstream products. The absence of upstream involvement can be readily seen from Figure 1.6. This U.S. electronic industry's depiction of the electronics technology chain shows a total neglect in identifying those products that need to be targeted (Gover and Gwyn 1992, 18). Instead, it describes the broad range of markets for which the technologies can be applied, without providing the roadmaps for technology and component development. While upstream electronics technology has a significant impact on downstream market development, the technology can be most effectively developed with a knowledge of specific product development requirements.


Figure 1.6. Microelectronics world market structure 1990
(Gover & Gwyn 1992).

A firm's involvement in downstream products and markets provides the vision for setting priorities in developing future upstream technologies. Electronic packaging and other component technologies are becoming the critical technologies for advanced product designs and functions. Japanese firms have developed dominant positions in display technologies, in the miniaturization of low-cost, high-volume electronic packages, and in the development of advanced manufacturing equipment for ultrasmall component assembly. In order to introduce its "next-generation" products, Japanese firms have had to push the development of a number of technologies:

These developments now provide Japanese firms with the ability to either design-in greater functionality and performance for any given size product, or to reduce the size or cost of products at any given level of functionality or performance. These "intermediate" packaging capabilities are expected to provide much of the value added for future electronic products from supercomputers to cameras. In fact, Sony argues that 65% of a product's value added comes from key component and device contributions, as compared to only 12% coming from final assembly operations. Therefore, some Japanese firms are reducing dependence on suppliers for key components as a strategy to improve financial performance. To focus development efforts in these high-value-added "intermediate" device markets, firms need a vision of new product concepts or next-generation product developments.

Sony's historical success is based on a strategy of developing key components to support new product developments such as the transistor radio in 1955, the Trinitron in 1968, the Betamax in 1975, the Walkman in 1979, the CD player in 1982, and the 8 mm camcorder in 1985. Sony's introduction of the Trinitron color television was dependent upon the development of its single electron gun with three electron beams and an aperture grill. After eight years of development, Sony's technological breakthrough was considered the next generation beyond the shadow mask developed by RCA. Its Trinitron technology continues to provide Sony with a basic technology for use in advanced high definition television applications. Sony also developed the charge-coupled device (CCD) as an image-sensing device. After two years of basic research, Sony took five years to produce the first small CCD camera for use in the industrial market; it took five more years to develop the mass production technology required to enter the consumer market. Miniaturization of the video camera gave Sony a dominant position in the 8 mm video camera market.

Sharp has used a similar key device development strategy. It introduced the first commercial application of a LCD in an electronic calculator in 1973. Since then, it has pioneered the application of LCDs in Japanese word processors and PCs in 1986, the development of the world's first 14-inch color thin-film-transfer (TFT) LCD panel in 1988, and the development of LCD video projectors in 1989. Sharp's Hi-8 LCD ViewCam, introduced in 1992, was the world's first camcorder with a 4-inch color TFT LCD monitor. In 1993, Sharp's ViewCam surpassed both Matsushita and JVC products to take second place in the video camera market. Sony now plans a similar LCD camcorder to respond to Sharp's innovation. Ability to take the lead in critical component technologies is vital to developing market leadership.

In support of next-generation product development and miniaturization goals, the Japanese electronics industry is investing in upstream technologies. In 1992 Lloyd Thorndyke, CEO of DataMax, found that electronic packaging technologies of Japan's supercomputer makers were highly advanced. He commented on this in his report:

I was told that the Japanese super computer companies overtook U.S. companies in super computer packaging five years ago, and that now the lead is insurmountable. I tend to agree, but for a different reason. The newer technologies require increasingly greater capital and tooling funding to enter production. However, most U.S. super computer companies are relatively small, have low volumes, and limited capital money (1993, 31).

With their heavy commitment to consumer electronics products, Japanese firms have created a tremendous demand for upstream electronic technologies, including DRAM memory chips and many intermediate electronic component and parts technologies. Growing domination of these intermediate component and packaging technologies, including video display technology, provides competitive advantages for future product developments. For example, advanced display technology, integrating both display and packaging technologies, is expected to pull the development of other microelectronics technology into new consumer product applications ranging from hand-held computers to high definition television sets.

These conclusions are neither new nor surprising. The Council on Competitiveness reported (1991, 35) that the United States was losing badly or had already lost important electronic technologies in display materials, ceramics for electronics, electronic packaging materials, gallium arsenide materials, silicon materials, integrated circuit fabrication and test equipment, microelectronics memory chips, multichip packaging systems, printed circuit board technology, electroluminescent displays, plasma displays, vacuum fluorescent displays, and optical information storage. The Computer Systems Policy Project, composed of the major U.S. computer manufacturers, had come to a similar conclusion in 1990, determining that the United States was behind in displays, manufacturing technology, ultralarge-scale integrated (ULSI) circuit fabrication equipment and facilities, microelectronics, and electronics packaging. These studies identified six areas as needing special attention: optoelectronics, electronic packaging, electronics and semiconductor materials, display technology, ULSI fabrication equipment, and memory chips. It was estimated that these six technologies would represent a world market worth of over $100 billion by the year 2000. What is more important, it is expected that whoever dominates these areas of technology will also dominate the world market for electronics products that is expected to exceed $2 trillion in revenues.

It was clearly evident to the JTEC panel that Japanese companies do not intend to give their competitive advantages away. Recently, Sony has limited the number of outsiders who visit its operations, for fear of losing proprietary information. In cases where outsiders are allowed to visit Sony, they are shown production technology that the company is already selling to outside customers. The same is true with Matsushita, the world leader in semiconductor insertion equipment, where advanced equipment developed in-house is used for several years before being made available on the open market. As product life cycles continue to shorten, six-month or one-year delays in product availability can mean the difference between substantial profits and significant losses over the short life of a product. The component requisition problems are not political issues but rather competitiveness issues. Pragmatic business executives are not likely to sell their advanced microelectronics technologies or equipment if doing so creates competitors in critical downstream markets. Even U.S. semiconductor firms stopped selling components to downstream calculator assemblers once they realized the potential for profit in producing calculators themselves. As Texas Instrument's chairman Patrick Haggerty reflected (1976), "TI's biggest mistake may have been in not integrating forward into portable radios in the early 1950s." It was the development of portable radios that gave Sony its first major consumer market success.


Published: February 1995; WTEC Hyper-Librarian