Digital Sun Rising
From the glittering consumer electronics bazaar of Tokyo’s Akihabara district to high-tech component and assembly plants scattered across Japan, this country’s electronics industry is on a roll.
Bolstered by explosive domestic growth in use of personal computers and the Internet--and a sharp weakening of the yen--Japanese firms suddenly find themselves extraordinarily well-positioned to take advantage of new opportunities created by the global shift from analog to digital technology.
Long the world’s champion producers of consumer electronics, Japanese companies are now churning out rapidly increasing quantities of digital cameras, personal digital assistants, mobile phones, personal computers, digital copiers, car navigation systems and other toys and tools of the multimedia age.
Looking to potentially huge markets of the future, Japanese firms also are gearing up to make digital video disc (DVD) video players, DVD-ROM and DVD-RAM computer drives, and large flat-panel plasma television screens that may one day hang on many living room walls.
Overall, Japanese electronics firms are predicting that total production in the fiscal year ending March 31, 1998, will rise 5%--and that profits will leap 12.1%, according to recent surveys by the Electronics Industries Assn. of Japan and the Bank of Japan.
“My take on the industry here is it’s resurgent,” said Joseph Osha, an electronics analyst at Merrill Lynch Japan Inc.
The dynamics of the global electronics industry are very different than they were a decade ago, when Japan’s domination of the consumer electronics business and its growing power in computer chips and other components led many analysts to predict the impending death of the U.S. high-tech industry.
Since then, the rise of the personal computer--and, more recently, the Internet--have played to U.S. firms’ strength in rapid product innovation, software development and marketing. With Intel and Microsoft controlling the key PC technologies, and new technologies and companies pouring out of Silicon Valley at a furious pace--even as manufacture of traditional consumer electronics products like TVs and stereos moved out of Japan to cheaper Asian locations--it appeared a few years ago that some big Japanese electronics firms might be at risk.
But now they’ve found their footing again. Japanese firms are clearly the technology leaders in important growth areas such as liquid crystal and plasma displays, powerful yet lightweight batteries, and DVD technology for video players and high-capacity computer data storage.
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In some of these areas, such as DVD, the key technologies were primarily developed in Japan, while in many others Japanese firms are applying high-quality mass production expertise to technology invented elsewhere.
“They don’t have to be ahead. All they have to be is informed,” said Stephen Anderson, a professor at the Center for Global Communications in Tokyo. “They may not need to hold the patents if they can buy the rights. . . . Even if they aren’t first with any given innovative technology, they’ll package and integrate the technologies better than anyone.”
He cited as examples liquid crystal and plasma displays, which were developed first in the United States but have been commercialized primarily by Japanese firms.
While the personal computer revolution was slow to take hold in Japan for cultural and linguistic reasons, it has now hit with a vengeance: In the year that ended March 31, 1996, the number of personal computers produced in Japan jumped 70%, to hit 6.4 million. The next year, production rose an additional 45%, to 9.3 million units worth $17 billion. This year, output is expected to jump 30% more, to about 12 million units with a value estimated at $23 billion.
Although these figures include rapidly growing exports, they primarily reflect the explosive spread of personal computers within Japanese offices and homes: Total personal computer sales in Japan were up 74% in 1995 and 37% last year. About 8.1 million units, both domestic and foreign, were sold here in 1996, or one for every 15 Japanese.
After a slow start, Internet usage is also growing at an extraordinary pace. In the six months from July 1996 to January 1997, according to Japanese government statistics, the number of host computers in Japan that are connected to the Internet skyrocketed by 48% to 700,000, second in the world only to the United States.
Mamoru Iwasaki, 21, a college student planning to enter the computer industry, said that four years ago he knew very few people who had personal computers at home.
“Now, almost all the people I know use computers in one way or another,” Iwasaki said. “I also get a lot of information through the Internet, which was almost impossible four years ago.”
Also boosting Japanese electronics firms is a rapid improvement in the country’s communications infrastructure. Led by telecommunications giant Nippon Telegraph & Telephone Corp., which is two-thirds government-owned, Japan is rapidly wiring itself with optical fiber cable and other advanced communications systems. The goal is to be better-wired than the United States by the year 2010.
In addition to creating the infrastructure for various multimedia-related technologies and services, this effort also has created a huge equipment and materials market that is boosting Japanese firms’ profits.
“The demand situation and our technology situation match very well, so our future should be bright,” said NEC Corp. President Hisashi Kaneko earlier this month at a reception celebrating the opening of a $560-million semiconductor production line in Hiroshima.
Despite the upbeat mood, a variety of serious challenges remain. One of the biggest is rising competition from East Asian neighbors, especially South Korea, in areas like DRAM memory chips and liquid crystal displays. Samsung Electronics Co. in particular has shown a willingness to make huge investments to win market share regardless of the danger of driving down prices through oversupply.
The market for DRAMs--the most common type of memory chips--is in any case extremely cyclical, with risks exacerbated by the rise of newer players like Samsung. A plunge in DRAM prices last year took a big bite out of the profits of NEC and other chip vendors.
Another uncertainty is that the digital convergence of audio-visual home entertainment products with personal computers brings consumer electronics giants like Sony Corp. and Matsushita Electric Industrial Co. not just new opportunities but also new competitors like Compaq Computer Corp. and Hewlett-Packard Co.
And even in areas of tremendous Japanese strength and opportunity, such as DVD products and plasma displays, several more years of investment and expensive marketing will be needed to turn today’s gee-whiz curiosities into reliable cash cows.
Japanese firms are keenly aware of such risks and are moving to counter them. For example, NEC--a major supplier of telecom gear, a powerhouse in computers, and a leading maker of memory chips--now is building new strength in nonmemory semiconductor technology as well.
NEC’s new Hiroshima line will produce 64 megabit DRAMs, currently much more profitable, and starting this fall it will also make “system on a chip” semiconductors that combine logic and memory functions on a single silicon chip. NEC says these sophisticated new chips will be the core of its semiconductor business in the future.
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A weaker yen, which makes Japanese exports more competitive in dollar terms and more profitable in yen terms, is partly responsible for the industry’s expectations of sharp profit growth. The dollar has strengthened dramatically against the yen over the last two years, rising from a post-World War II low of 79.75 in April 1995 to a recent trading range of about 125 yen.
But solid growth in sales and profits now seems likely for years into the future even if the yen strengthens again, analysts here say.
“I think DVD as a home entertainment technology will be a steady income source for companies like Sony,” Anderson said. “In addition, there are lots of other products [where Japanese can make money]. These would include the next-generation high-definition television in its digital rebirth, as well as types of liquid crystal display and flat-panel display technology.”
Taro Omura, an analyst at Sakura Research Institute, cited cameras as an example of how the trend toward digitalization is creating new opportunities.
“The camera industry seemed to be mature, and not too many people were paying attention to it,” Omura said. “Due to the development of digital still cameras, that is now changing. Consumers can play on their personal computers with the pictures they’ve taken. This is something they couldn’t do before digital still cameras came out.”
Also growing in popularity are personal digital assistants (PDAs) like the Sharp Zaurus, the Panasonic Pinocchio and the Toshiba Genio, which was unveiled at a recent Comdex show here and is due to hit the Japanese market in June. About 700,000 PDAs were sold in Japan in 1996. The most advanced models coming out this year are usable not just as personal organizers but also as mobile phones and even as wireless Internet access devices.
Anderson predicted that PDAs with wireless modems will largely replace mobile phones to “become the next-generation devices for telecom services.” Company employees may soon need to carry around PDAs with networking capabilities even within their office buildings, to check e-mail and refer to databases while away from their desks, he said.
Pockets of technological leadership are spread among many Japanese firms. Sharp, for example, is not only a dominant force in liquid crystal displays but also is especially strong in flash memory, a kind of semiconductor that retains data even when the power supply is turned off, and solar cells.
TDK Corp. is a leader in ceramic capacitors and magneto-resistive heads used for hard drives, while Rohm Co. is extremely strong in certain kinds of ASIC (Application Specific Integrated Circuit) chips. Ricoh Co. is a leader in digital photocopiers that can be linked directly with computers to serve as fax machines and printers.
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Sony Corp., in addition to its broad expertise in mass production of consumer products, is a leader in lightweight but powerful lithium-ion batteries and various key optical technologies, including charge-coupled devices, which function as a kind of electronic eye.
Sony President Nobuyuki Idei recently coined the phrase “Digital Dream Kids” as a new corporate slogan. It is used primarily in-house but also in some advertising--and its symbolism could apply widely within the Japanese industry.
“This is a digital era, and the key word for Sony people is “dream,” explained Sony spokesman Masanobu Sakaguchi. “ ‘Kids’ means we have to be young--and always dreaming of digital products. . . . Everybody [in Sony] knows ‘Digital Dream Kids.’ Especially the engineers have this phrase in mind as they make efforts in new research and development.”
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Etsuko Kawase of The Times’ Tokyo bureau contributed to this report.
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Digital Sun Rising
Japanese electronics companies are on a roll as they exploit a host of new opportunities in digital computer and communications products. Domestic production by category, in billions of dollars at $1 equals 125 yen.
* Industrial electronics
(includes telecommunications, mobile phones, computers, personal computers, etc.)
1997: $107.9
* Electronic components and devices
(includes semiconductors, liquid crystal displays, etc.)
1997: $79.3
* Consumer electronics
(includes televisions, VCRs, car navigation devices, etc.)
1997: $18.4
Sources: Ministry of International Trade and Industry (1990-1996), Electronics Industries Assn. of Japan (estimates for 1997).
