Full Circle

UMC has closed down its Japan-based fab citing both uncertain demand and the uncertainty of Japan’s electricity supply. UMC will switch its Japan production to Taiwan and Singapore.

The sorry end of the fab brings to a close a strange tale showing how wondrous can be the workings of a boardroom thinking.

Back in the 1980’s, when Japan ruled the semiconductor world with over 50% global market share and six Japanese chip companies were in the world top ten, a strange delusion set in at Japan’s big steel companies.

‘Look’, these metal magnates said to each other, ‘these chip guys are in an industry growing at 20% a year while our industry is flat or declining’.

‘And look again’, they said to eachother,’ this semiconductor business is rather like the steel business – it requires massive amounts of capital investment like the steel industry does, and this IC business is process driven just like the steel industry is, and the barriers to entry are very high just like our business’.

A marriage between the steel industry and the semiconductor industry would be, the steel bosses concluded, a perfect fit, and a way to diversify out of a mature industry into a growing one.

So Nippon Steel, Kawasaki Steel, NKK and Kobe Steel set up semiconductor companies and built fabs.

But then, of course, they had a much more difficult problem to face: how to fill the fabs.

This problem they mostly solved by opening up the fabs to foundry business.

And this, a decade further on, is how UMC came to pick up its Japanese fab in 1998 when it took a 56% stake in the semiconductor subsidiary of Nippon Steel.

In 2009 UMC bought out the 44% of Nippon Steel which it didn’t own.

Then came the huge appreciation of the Yen which made semiconductor manufacturing in Japan very expensive, and then came the tsunami.

UMC Japan lost $20m in the first half on sales of $45m and now it is to go into oblivion.

Sayonara to a curious tale.

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