Holidays lost in rush to win electronics battle

Etsuo Kono and Yu Toda / Yomiuri Shimbun Staff Writers

Domestic firms are operating through the summer holidays to meet increased demand for semiconductors, electronic components used in smartphones and flat-screen TVs.

Toshiba Corp., a leading maker of NAND-type flash memory devices, plans to dramatically expand its production capacity as the global chip market is anticipated to balloon to its biggest-ever size this year.

To catch up to Samsung Electronics Co. of South Korea, the second-biggest semiconductor maker in the world, Toshiba and other Japanese firms need to liquidate unprofitable operations while shutting down or consolidating some manufacturing plants.

To meet brisk demand for its NAND-type flash memory devices, which are used in smartphones such as Apple Computer Inc.'s iPhone, Toshiba will forgo summer holidays from Thursday to Monday and continue operating its plant in Yokkaichi, Mie Prefecture.

Renesas Electronics Corp., which was established in April with the merger of NEC Electronics Corp. and Renesas Technology Corp., has suspended operations at its head office from last Saturday until Aug. 15 for summer holidays, but will continue operations at 10 domestic plants throughout the period.

The plants are operating at about 90 percent of capacity, up by about 20 percentage points from the same time last year. Renesas Electronics' flagship product, the LSI system, has been selling well to producers of digital household appliances such as flat-screen TVs and car navigation systems.

Elpida Memory, Inc., seeing brisk demand for DRAMs used in mobile phones, will not take summer holidays and will continue operating its sole domestic plant in Hiroshima Prefecture.

According to U.S. research firm iSuppli Corp., the global semiconductor market shrunk in 2008 and 2009. But in 2010, semiconductor shipments are anticipated to total 310.3 billion dollars (about 26.7 trillion yen), up 35.1 percent from a year before, representing the market's fastest growth in a decade.

Semiconductor prices have been heading upward, with flash memory devices rising from 1.58 dollars per gigabyte in the October-December quarter of 2008 to 1.98 dollars per gigabyte in the January-March period of this year.

As a result, Toshiba's semiconductor division chalked up an operating profit of 22.2 billion yen for the April-June period of this year, emerging from a deficit of 36.2 billion yen for the same period a year earlier.

The domestic semiconductor industry's international competitiveness is also looking up.

Toshiba had a 22.1 percent share of the global flash memory market in 2005, far less than the 53.4 percent held by Samsung. But Toshiba's share was 33.8 percent in the January-March quarter of this year, compared with Samsung's 38.5 percent.

Toshiba plans to invest about 500 billion yen by fiscal 2012 in the construction of new manufacturing facilities in its Yokkaichi factory, increasing the plant's flash memory production capacity 1.4-fold.

Elpida has seen its share of the global DRAM market increase from a few percentage points in the mid-2000s to 17.4 percent, the world's third largest, at the end of 2009.

Analysts said the remarkable improvement in the performance of Japanese firms is due to increased demand for semiconductors with high read-write capabilities, a result of smartphones and digital household appliances becoming more sophisticated.

Weighed down by costs

Japanese firms in this field must address the problem of high costs.

Toshiba has been closing in on Samsung in the flash memory market, but still lags in the overall semiconductor business. Toshiba's operating profit ratio was a mere 8 percent in the April-June period of this year, compared to the 30 percent ratio recorded by the Korean powerhouse in the same period.

This underlines the need for Toshiba to separate unprofitable semiconductor operations from the profitable flash memory business, analysts said.

Renesas Electronics was formed by consolidating the semiconductor divisions of NEC, Hitachi Ltd. and Mitsubishi Electric Corp. The latter two first merged to establish Renesas Technology, which later merged with NEC Electronics.

Due to excessive production capacity, Renesas recorded an operating deficit of 300 million yen in the April-June period of this year.

Renesas Electronics urgently needs to restructure, with a focus on reducing its workforce by 4,000 and curbing costs by outsourcing semiconductor production to manufacturers in Taiwan and the United States, analysts said.

Masaharu Sato, a senior analyst at Daiwa Securities Capital Markets Co., said, "Corporate competitiveness is determined by miniaturization of semiconductors [which requires an enormous amount of investment], and how far each maker can go in that regard."