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U.S. Semiconductor Companies Chipping Into Japanese Market

April 24, 1991

TOKYO (AP) _ Jiggle-free Panasonic camcorders and high-end Sony compact disc players may say ″Made in Japan″ on the outside, but some of their most sophisticated circuits inside are now made by American companies.

U.S. semiconductor companies say they finally are cracking the Japanese market, thanks to improved quality, a stronger commitment to selling in Japan and an effective trade pact.

″Previously, American companies weren’t here″ making a strong effort to sell semiconductors, said Hiroyuki Mizuno, vice president of Matsushita Electric Industrial Co.

″But now they’re here, and now we need them.″

In the past five years, foreign companies’ share of the Japanese semiconductor market has risen from a long-stagnant 9 percent to 13.2 percent, according to the U.S. industry.

That’s about $800 million a year in additional sales for foreign chips, 95 percent of which are supplied by U.S. makers, officials say.

Many of the additional chips are higher-profit, custom-designed semiconductors rather than the standard models that earlier dominated Japanese sales by foreign makers.

Foreign market share, however, remains below a 20 percent goal set in a bilateral semiconductor agreement due to expire in July.

A new round of U.S.-Japanese talks on semiconductors started Tuesday in Tokyo.

While previous agreements demanded the elimination of particular Japanese trade barriers, the 1986 semiconductor pact went a step further and specified a market share. Such targets are controversial on both sides of the Pacific because of potential conflicts with free-market principles.

U.S. and Japanese officials disagree over whether Tokyo committed itself in the pact to a 20 percent foreign market share or merely agreed to the figure as a target.

But U.S. semiconductor industry officials say the goal has helped increase market access, and they are demanding that Japan pledge in the agreement now being negotiated that foreign chips reach 20 percent by December 1992.

″A 20 percent share is essential for becoming integrated into the Japanese economy,″ said Gary Bonham, industry affairs manager for LSI Logic Corp., a U.S. chip maker.

Most major Japanese semiconductor users have set internal quotas for foreign chip purchases because of the target, said Roger Mathus, director of the U.S. Semiconductor Industry Association’s Japan office.

But Japanese trade officials say a market-share guarantee would require unacceptable government interference in private enterprise.

Japanese news reports say the government is willing to again refer indirectly to a 20 percent goal in exchange for the lifting of $165 million in punitive tariffs imposed by Washington because of Japan’s alleged failure under the current agreement to open its semiconductor market.

Both sides say U.S. companies are learning many of the necessary elements of competing successfully in Japan - quality, market commitment, timely supply, and entry into the customers’ small ″families″ of regular suppliers.

The most successful have invested in research and development programs here and have created long-term relations with Japanese clients, U.S. industry officials say.

Between 1986 and 1988, U.S. chip makers established 18 design centers and 27 quality assurance and test centers in Japan.

Two years after it was founded in 1984, LSI Logic-Japan opened a sales and design center in Osaka in hopes of selling to Matsushita, the world’s largest consumer electronics company.

LSI Logic officials say the move helped convince Matsushita, which manufactures Panasonic products, that they were willing to do whatever it took to join the company’s small group of preferred vendors.

After several small-volume orders, Matsushita approached LSI Logic in 1988 about designing chips for the Palmcorder, a camcorder that uses sophisticated circuits to compensate for camera motion caused by shaky hands.

″As a result, we are very happily selling lots of Palmcorders, and American semiconductor makers are happily selling chips to us,″ Matsushita’s Mizuno said.

Similarly, chips made by Texas Instruments Inc. are helping make sweet music in Sony’s better compact disc players.

Sony wanted to improve the audio quality of its CD players by using digital filters, but the existing equipment was too expensive. TI, which started manufacturing in Japan in 1968, took up the challenge as a way to focus more on consumer electronics, said Norman Neureiter, director of TI Japan.

″Because Americans don’t have much of a consumer electronics industry at home, they in general haven’t developed many (chips) which would be appropriate for that industry,″ he said.

Engineers from the two companies reportedly moved from a preliminary design on the back of a napkin to production within six months.

U.S. chip makers also have successfully battled a poor quality image that many agree was at least partially justified, Neureiter said.

Changes in consumer electronics also are favoring U.S. makers. More and more products are using digital circuitry, where American firms excel.

But an uphill battle remains.

Japan’s leading semiconductor makers are part of highly integrated, cash- rich electronic giants such as Toshiba, Hitachi and Matsushita, while their U.S. counterparts generally specialize in chips.

In 1989, Japanese semiconductor firms invested 85 percent more than U.S. companies in plants and equipment, according to Dataquest Inc., a U.S. research company.

And U.S. chip companies have to survive without a strong domestic consumer electronics sector.

″But it’s hard enough to develop a consensus on what to do in our own industry, let alone develop policies for rebuilding consumer electronics,″ said LSI Logic’s Bonham.