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 1980s, 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 eachother, ‘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.

Tags: semiconductor business, semiconductor industry, semiconductor manufacturing

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