Japanese Semiconductor Industry Analysis

DataQuest nn a company of MiJf The Dun &Bradstreet Corporation

June 8, 1989

JAPANESE SEMICONDUCTOR INDUSTRY SERVICE

ERRATA

Dear Client:

In our May research bulletin number 1989-12 entitled "Sony Expands in Silicon Valley: First Step Toward the Video Computer?", Table 2 was incorrectly referenced. Please substitute the enclosed revised research bulletin for the one previously issued.

We apologize for any confusion this may have caused. If you have further questions, please call Maria Valenzuela at (408) 437-8423,

Denise G. Zertuche Document Administrator Components Group

1290 Ridder Park Drive, San Jose, CA 95131-2398 (408) 437-8000 Telex 171973 Fax (408) 437-0292 DataQuest a company of IhcDunSi BradstiectOxporation

^m Research Newsletter

DATA SHOW I989

IhfTRODUCnON NEW PRODUCT ANALYSIS The 17th aninial Data Show exhilritkm fiar conqmters, data processiag products, and related Personal Computers products was held from October 24 through 27, 1989, at the Harumi Exhibiticm Center in Tokyo, The PC and workstation markets have Jiân. Under the main theme of "New HainK)nious e:q>anded steadily in reqxHise to a robist (temand. Interfiace betw^ Pe(q)le and Mbrmatitni," 155 The PC market is eq)ecially characterized by an coaq>imies (6 percent mcne than last year) exhibit^ increasing enqdiasis on laptop versions. As a result, ihsit latest products and tedmologies ^ Di^ Show li^c^s are shifting fircHn16-b k to 32-bit machines. 1989. Dataquest estimates that more than 213,800 We sxpect the Isqptop con^puter to serve as a major visitors, representing a 16 percmt increase from tool in systnn integration and strategic information last year, attended die exhibits. service based on a multivendor environment as a Major highlights of Data Show 1989 inchide result of this higher performance. the following: Dataquest observed the following major trends at the show: • Of the 33 companies exhibiting personal com puters and/or word processors, 25 showed 32-bit • Laptop PCs PCs and 19 displayed liq>tc^ PCs. • Woikstôns were displayed by 38 cranpanies. - Shifting from 16-bit to 32-bit version—e.g., Oki, NEC, and Seiko-Epson • Peripheral equipmoit prodiKts, including handy terminal equipment and storage devices, were - Applying color LCD (display)—e.g., exhibited by 76 companies. Maûshita, NEC, and Sharp • Handy terminals were displayed by 13 coaspa.- - Miniaturization of the Japanese A4-size notebook—e.g., IBM and NEC (see Table 1) nies. • Artificial intelligence (AI) products were shown • Desktop PCs by 13 coitq)anies also. - Introduction of OS/2 with Presentation • IC cards and their related products were Manager presented by 12 conq>anies. - Adopting window function for desktop This newsletter provides Dataquest's analysis publishing—e.g., Sliarp of the new products. It examines the future oudook for PCs, electronic scheduler (notebook) {ffoducts, - Introduction of multitask features and word processors. These items will serve - Applying CD-ROM drive—e.g., Fujitsu and increasingly as a major application market for ICs Sony as well as for IC cards as next-goieration storage media. - Application as AI workstation—e.g.. Old

01989 Oataqoeit Incoiponted Occember-Repnductioa Prohibited O00ST6S ISIS Newflelten 1989 1989-28

The content cfîis report r^jresents our interpretation and analysis of information gerterally available to the public or released by responsible individuals in the subject compaiues, but is not guaranteed as to accuracy or completeness h does not amtmn material provided to us in confider\ce by our clients Individual companies report&i on and amdyzed by Dataquest may be clieras cftfus and/or other Dataquest services This information is nolfiimiîed in cormection with a sale or offor to sell securities or in connection with die solicitation qftm offer to buy securities This firm and its parent and/or their cîcers, stockholckrs, or members of their fonuUes may.jimn time to time, have a long or dwrt position in the securities mentitmed and may sell or Imy such securities.

Dataquest Incorporated, 1290 Ridder Park Drive, San Jose, CA 95131-2398 / (408) 437-8000 / Telex 171973 / Fax (408) 437-0292 DATA SHOW 1989

TABLE 1 Comparison of Available Portable PCs Products Ret Nianber J-3VXSS PC-286 PC9801N 5499 Product Name Dytabock Note Execdive 98 Note Ci>liDe Note

\i3[Bj£dCboEcr Toduba Sdki>£{»OD NEC IBM Size (mm) 310x254x44 315x235x35 31(5x253x44 297x210x45

^IVfeight(Kg) 27 22 29 20 CPU SOC86 UFD70116 equiv. V30 (UPD70116) 80086 Ck)ck (MHz) 10 10 10 8 Meaay (MB) 1^ 0.64 0.64 0.64 (w/RAM-dislc) (w/b RAMkiistO (RAMoid Max 2MB) (RAM Max 2MB) 1 Floppy Dislc 33 inch x 1 N/A 3J bcfa X 1 N/A (72CK/1JMB) O/FOnly) (1MB) O/FOnly)

IC Card N/A 2 N/A 2 (128K/64(»Q RAM (128K/512K) or ROM (128ig2MB) Modem Optica Yes (1,200 bps) Option Yes (i;20(V2,400 bps) N/A » Not Available Source: Dataquest December 1989 Electronic Schedulers In this increasingly con:q)etitive market, Casio announced a very smaU (185 x 83 x 25inm) Pocket calculators are, without doubt, typical pocket-size Word processor—the PW-100—at the of the products that have undngone signMcant show. This product is able to transfer data to its changes with the recent advances in semiconductor family word processor and PCs through a RAM technology. Today's calculators ^ipear as mul card (RM-21B). IC cards are used here as a storage tifunctional electronic schedulers, which deserve medium. the name of hand-held PCs. Sharp, a pioneer in die electronic scheduler market, focuses on developing new IC-card application-software packages to enhance functions of electronic schedulers as well IC Cards as Memory as notebook PCs, in addition to minor changes in existing models using the currently available IC When the 64K DRAM dominated die mem cards. One of die major exhibitioiis was NEC's ory business, VCRs and PCs provided the major new-generation electnmic notebook with a bar-code memory IC consun:q)tion sources. This troid has readCT (see Table 2). not changed; now 2S6K and 1Mb DRAMs are used mainly in the manufacture of PCs and of5ce auto mation equqnnent. Originally, the IC menKwy card Pocket-size Word Processor found its primary market in mask ROMs for TV The J^anese word processing madcet appeals games. EEPROM and SRAM IC cards are installed to continue miniaturizing the word processor itself increasingly in the notebook-size PCs, pocket word from notebook size to pocket size. In the process, processors, and electronic schedulers. notebook-size word processors are conq>eting with In the PC market, for PC miniaturization, IC notebook-size PCs, and the pocket-size word cards (and/or RAM cards) are gaining acceptance processors are competing with electronic schedul as an auxiliary monory alternative to floppy disks. ers, thereby losing in this niche market. Depending on prices of memory ICs, the IC cards

0005768 01989 Dauqueat Incorporated December^eprodiictiaa Prohibited JSIS Newtlatten 19S9 1989-28 DATA SHOW 1989

TABLE 2 Specification Comparison of Etet^ronk Schedulers # Product Name DK-500O PA-7500 TBA ManaSactata Casio Siaip NBC lyis^ (Pat) 191x48 96x64 16Gbc64

Maaxy QS) 32 (•+«*) 16 TBA RAM caid option IC Card Y«s Yes No, for SRAM aOfa ROM cavd

Hand Copier Yes. CP-9 Yes, CE-50/eCP TBA PC Yes, wUi FA-llO Yes, wMi IC cad TBA type m-7C10 Odier 33" VDD W &ff code reader TBA > To Ba AsuouiKcd Souice: Dttxjnait Decembor 1989

TABUS 3 Floppy Disk versus IC Card

Floppy Di^ SIAM Mask ROM (35-indi) IC Card IC Card Price Good Poor Fm Size Eur Good Good

Menxxy Capacity •• Good Fair Good AcceraUme Poor Good Good Power Constmqjtion Poor Good Good Sooicc: Dataquait December 1989 may compete with successfully and finally replace applications and then later expands into new appU- floppy disks (see Table 3). cations in the consumer electronics market The use of advanced electronics technologies will continue to boost die value of constmier elec DATAQUEST CONCLUSIONS tronics products. At the same time, these advanced Data Show 1989 successfully displayed a electronics devices are undergoing a major change number of new products for future ofBce and home in purpose—firom family use to personal use. automation. A major point iUustrated by the show Dataquest believes that PCs, word processors, is that further integration of memory ICs gives and electronic schedulers exetcplify the coming of strong indications that new applications will such a personalized electronics era. be created in data processing and consumer electronics. Masanori Murata In Japan, leading-edge semiconductor tech Kaz Hayashi nology usually is first introduced in the industrial

01989 Dauqueit IncoiporMsd Dccember-Repioductioo PrabibiMd 0005768 JSIS Newiletten 1989 1989-28 DataQijest k aconipanvof I ThcPim&ISndstiwtCoqHntlDn Research Newsletter

CURRENT TRENDS IN THE JAPANESE MARKET

IhTTRODUCnON these products, in time, individuals start to pur V^thin the past decade, m^y of the latest chase some of these items for their home or p^- electronic consumer items to sweep the North sonal use. This is especially true of the Jq}ai^se American and European maikets have originated in market for personal computers, the complex Japan. These products include videotape cassette Jiânese-language word processors, and facsimiles. players, headphone sterns (Walkman), and CD Recently, a larger number of individuals have heeo. players, to name a few. purchasing these typically office-only items for This newsletter pies«ite Dataquest's analysis their prrvrate use. of recent trends in the currmt Jiânese market The information gained may provide die reader with some insights into penetrating a specific product Electronic Data Processing Segment market, supplying materials or manufacturing soft Dataquest has observed that personal com ware to enhance a product segment, or prâring puter production in Japan has been growing at a for a similar trend in a region other than Ispaa. nqjid pace. The production growth rate is mme than 60 percent for the first eight months of 1989, compared with the same period last year. The ELECTRONIC EQUIPMENT fastest-growing market segments are the k^top per PRODUCTION VERSUS sonal computer and the 32-bit personal conq>uter. SEMICONDUCTOR CONSUMPTION The introduction of Toshiba's low-price and truly Figure 1 graphically illustrates the most portable Dynabook personal computer (de&ied as a recent electronic equipment production figures notebook type) has changed die prasonal con released monthly by the Japanese Ministry of sumer's mind about personal computers. According Industry and Trade (MTTI). Semiconductor con to Toshiba, approximately 80 percent of all the sumption information, also provided by Mill, is Dynabooks sold in Japan are intended for personal plotted against the electronic equipment ^n'oduction use. Currently, Toshiba is competing with IBM, line. Both lines are calculated on a 12-month to NEC, and Seiko-Epson in the notebook personal 12-month rate of change. computer market. Fujitsu and Matsushita have announced plans to enter this market Other growing markets within the electronic MARKET TRENDS data {n'ocessing segment are for office conûteis, workstations, laser printers, and Japanese word Office Automation Segment processors. Large financial institutions, such as banks and investment groups, always have been big One typical market trend in Japan, as in the consumers of informadon system pxxiucts; how rest of the world, is that the largest corporations are ever, Dataquest has observed an increase in small the first to purchase new products. With the spread and medium-size enterprises investing in this area. of technology, product success, product improve Laser printer production has increased as a result of ments, size reduction, price competitiveness, and heavy exporting of this product outside Japan. the entry of other manufacturers into the market, The demand for Japanese word processing small to medium-size companies begin purchasing systems continues to be strong. Production in 1989

I&1989 Dataquest Incorporated December-Reptoductioa Prohibited 0003762 JSIS Newsletters 1989 1989-27

77K content of this report represents our interprettuion and analysis cf information generally available to the public or released by responsible individuals in the subject companies, but is not guaranteed as to accuracy or amtpleteness. It does not ccmtain material provided to us in amfidence by our clients Individual conqmnies reported on and analyzed by Dataquest may be clients of this and/or tHher Dataquest services. This ir^rmation is not furnished in connection with a sale or o^r to sell securities or in connection with the solicitation cf an (^r to buy securities This firm and its parent and/or their officers, sUKkholders, or members of ^ir families may, from time to time, have a long or short position in the securities meruioned and may sell or buy such securities.

Dataquest Incorporated, 1290 Ridder Park Drive, San Jose, CA 95131-2398 / (408) 437-8000 / Telex 171973 / Fax (408) 437-0292 CURRENT TRENDS IN THE JAPANESE MARKET

FIGURE 1 Japanese Electronic Equipment Production versus Semiconductor Consumption (12/12 Rate of Change)

Percent 50-

Electronic Equipment Production Semiconductor Consumption 40-

20-

10'

-10

1935 1969

0005762-1 Source: Dataquest December 1989

is estimated to exceed 2.9 million units, with reve the product competitiveness of overseas manufac nue of approximately ¥300 billion compared with turers and the production shift of Japanese 1988's 2J million units and revenue of ¥215 bil manufacturers to offshore locations. lion. Supporting this high rate of growth is the Color television set production is slowing trend for word processors to move into the home. also. The main reason cited for this slowdown is Most word processors now are sold through that much of television manufacturing has been consumer oudets, rather than specialty office auto relocating closer to specific markets. Advantages of mation dealerships. Even the midrange to lower- moving closer to the markets include reducing end items are enjoying increasing sales. Increased shipping costs, reducing material costs, avoiding sales in these areas can be attributed to increased import duty charges, avoiding import quotas, and value-added features such as large-size LCD dis gaining possible tax savings. plays, artificial intelligence dictionaries, and 48-dot The political scene in China is casting a long, matrix printers. dark shadow on the Japanese manufacturers' con sumer exports to that region. Hitachi announced that its initial export plan for fiscal 1989 (ending in Consumer Segment March 1990) will be reduced from an e^)ected ¥30 billion to only ¥20 billion. Matsushita also Japanese consumer electronics production has revised its initial plan (for all products except been sluggish. Home VCR production is estimated consumer electronics) from approximately to be below last year's level in revenue. Dataquest ¥100 billion to between ¥70 billion and ¥80 billion estimates that more than 70 percent of all J^anese for its fiscal period. Toshiba's exports to China for households now own VCRs. Reasons for the rise in the first half of fiscal 1989 (April 1989 through percentage of Japanese households with VCRs are September 1989) decreased by almost 20 percent,

0005762 01989 Dataquest Incorporated December-Reproductimi Prohibited JSIS Newsletters 1989 1989-27 CURRENT TRENDS IN THE JAPANESE MARKET ccnnpaied widi the same period in the previous Japanese semiconductor ccmsumption for 1989. fiscal year. These conq)anies predict th^ they will Dataquest recommends tfattt interested parties care not obtain new orders from China for the fully observe die activiijes widiin each of die major remainder of fiscal 1989. electronic equqanent segments, siK:h as personal con^tos, VCRs, and facsimile machines. The Jaiînese ecxmomy ranains strong, with Telecommunications Segment real GNP expected to increase for the next two quarters. We have observed diat o^tal spending in Iblecommunications equipnent production is the electronic equqsnît area remains strong. Data- also down as a resuU of Mppon Teleîai^ and quest's discussions with executives &om the top Telephone's (NTT's) decrease in coital investmait manufacturers in Japan reveal that many remain and production shift out of Jjân. Althougjb such optimistic aboiU dieir coiiq)any's performance for major manufacturers in this segment as Fujitsu, die second half of fiscal 1989, which will conclude NEC, and Oki repented their telecom sales fc^ the in March 1990. The traditional bonus s^tson during first half of fiscal 1989 to be fiat (^ below parity, Decemb^ also provides stimulus to increase Aey e;q>ect d^nand to pkk up in the second half. individual ^poiding. All of these factors contribute CeUnlar and cordless telephone production is stiU to die overall good production levels. voy active. A large number of these items are One area where Dataquest recommends being e^qxated. caution is in ejqxuts from Japan. Total Japanese Facsimile exports to die United States are dectcomc equqjment productioDi dropped off dur decreasing; however, production is expected to ing die early part of fiscal 1989. Jeqian is still maintain its high growth rate because of an an export-oriented country, exporting almost inoease in penetration into the smaller Jiqjanese 60 peicent of ail VCRs manufactured and neady enterprises and a higher demand for facsimile sys 40 percent of all computer products. Poor computer tems in all departments of larger corporations. sales in the United States have had an adverse Exports of facsimiles to Europe also have been effect on diis particular aisa of production; how increasing. ever, indications are that the U.S. computer market may be improving. Dataquest forecasts that Japanese electronic equipment production will grow at positive growth DATAQUEST CONCLUSIONS rates of 7.6 percent for 1989 and 2.2 percent for 1990. Dataquest believes that the three majcff appli- csuions in die Jânese market currently are office automation equipment, consumer electronics, and lone Ishii communications. We believe that these three •• • Hideaki Nemoto categories will make iq) 87 percent of the total

(S1989 Dat!U)ucsI Incoiponted December—Reproduction Prohibited 00037«3 JSIS Newsletters 19g9 1989-27 Dataoyest Wi acompanyof The Dun & BradsUcct Corporation ^mmmm^r^ E ^search Newsktter

JAPANESE coNSOFtTiA

INTRODUCTION still strongly influ^iced by MTTL Furthermore, * The Japanese have used consortia as a means high-tedbnology industries in Jq>an receive roughly of oiabliag companies to shaie the high lisk and the sasxic priority as do n^onal security and defense in die United States; consequently. Mill high cost associated with devek^nng new tech can, in some soise, be thought of as die equivalent nologies. Jn fact, more than 50 consortia related to of a defoise department the electronics industry now exist in Japan. Although other industrial countries also have Figure 1 presents an organization chart of the organized government-sponsored consortia, the Jjqpanese government in terms of its electronics R&D projects. Mm and the Science and Technol number of successfully executed Japanese consortia ogy Agency (STA) are key organizations that con is noteworthy. duct major technical R&D projects. Both of these This newsletter discusses some of the motives institutions have unique roles in promoting joint for the Japanese to use consortia. It also examines research programs. why they have been so successful

FORMATION OF A JAPANESE JAPANESE CONSORTIA.- BORN OF CONSORTIUM NECESSITY Nowadays, many Japanese consortia start life Following World War n, the Jjq)anese govern as a concept of someone, or some branch, at ment began the task of bringing the Japanese Mm. The Japan Key Technology Center (Japan economy back from a state of nearly total deple Key-TEC) is one sudi branch of MITI and was tion. Political influence and financial influence chartered in 1985 as a government mediator in were widespread throughout the postwar period as arranging joint research consortia. Cutrendy, Japan Japanese government of5ces, such as the Ministry Key-TEC has approximately 70 ongoing research of International Trade and Industry (Mm), syste projTCts with 39 of these existing in the domain of matically proceeded to manqnilate Japanese indus the electronics technology sector. Some of Japan tries witii litde regard for such relatively trivial (at Key-TEC's active electronics research programs the time) issues as antitrust, intellectual property, include the foUbwing: and free trade principles. To a degree surprising • Research and development of basic technology even to itself, die Japanese government was suc for the second-generation optoelectronic ICs cessful ia revitalizing the devastated economy to (OTRQ the extent that Japan now stands as one of the leading economic powers of the world. This suc • Research of electronic dictionary for natural- cess has had one negative repercussion, however; it language processing is, as ofren happens, dif&cult to abandon a success- fiil system. For Mm, reUnqvushing its authority • Research of advanced information-processing image information system has been particularly dif&cult as so much of its past glory has been directiy related to its success in • Research of basic coherent optoelectronic regulating industry. To this day, research and measurement technologies for coherent light development (R&D) activity throughout Japan is communications

101989 Dataquest Incorporated December-Reproduction Profaibited 0005664 JSIS Newsletten 1989-22

The content of this report represents our interpretation and analysis of ii^rmation generally available to the public or released by responsible individuals in the subject companies, but is not guaranteed as to accuracy or completeness. It does not contain maierial provided to us in cor^idertce by our clients. Individual companies reported on and analyzed by Dataquest may be clients of this and/or other Dataquest services. This infijrmatkm is notfttmished in connection with a sale or of^r to sell securities or in connection with the solicitation cfan q^r to buy securities. This firm and its parent and/or their officers, stockholders, or members of their fiimilies may, from time to time, have a lot^ or short position in the securities mentioned and may sell or buy such securities.

Dataquest Incorporated, 1290 Ridder Park Drive, San Jose, CA 95131-2398 / (408) 437-8000 / Telex 171973 / Fax (408) 437-0292 JAPANESE CONSORTIA

FIGURE 1 Japanese Government Organization Chart

Science and Research and Development Prfmo Minister's Office Technology Agency Corporation of Japan (STA) (JRDC)

Ministry of International Agency of industrleU [Large-scale Project] Trade and Industry Science and Technology [Basic Research for (MITI) (AIST) Future Industries]

Japan Key Technology Center (Japan Key-TEC)

Japan Information Processing and Development Center (JIPDEC)

ICOT Sixth Supe rconductivlty

0005664-1 Source: Dataqueic December 1989

• Research and development of synchrotron radia JAPANESE VERSUS U.S. CONSORTIA tion application technologies (SORTEQ From the Japanese perspective, one of Japan's • Research and development of high-level artifi most successful ventures during the postwar period cial intelligence system description language was the formation of government-sponsored • Research on amorphous magnetic material and consortia, sometimes referred to as "families" of electronic devices companies. In past years, Japanese companies gained both government subsidies and captive mar • Research and development of advanced technol kets as benefits of joining the various consortia. ogies for large-area TFT circuitry Such early practices led other countries to accuse Japan of regulating trade. These accusations were, Japan Key-TEC's primary functions are to in fact, well founded, as the Japanese government identify areas in which to establish consortia, to was aware of the economic trade-offs of a regu determine the administrative structure of the lated trade policy and was willing to sustain the consortia, and to finance the consortia by locat ing funding sources within the government. cost to home constimption in exchange for gains to Most consortia are superficially structured as its strategically designated producers. The govern companies, often even including an artificial ment chose to intervene in the process of resource name. Researchers usually come both from par allocation rather than to allow the mechanisms of ticipating companies and from the government free trade to dictate this process. It did this, laboratories sponsoring the consortia. perhaps, because it was obvious that electronics, Research and Development Corporation of semiconductors, and related systems industries fit Japan (JRDC) and Japan Information Processing the Japanese economy and eventually would have and Development Center (JIPDEC) also conduct been dominant industries in Japan under a free- government-supported consortia in a similar man trade policy anyway. The Japanese merely wished ner to Japan Key-TEC. to accelerate the maturity of these industries.

0005664 01989 Dataquest Incorporated December-Repioductian Protaibited ;SIS Nawsletten 1989-2S JAMNKE CONSORTIA

Japan's electzf^aks success has stimulated competiticni, in effect creating more bureaucracy much craitroversy about die true value of the IGcee- and infighting. Indeed, some ccmqjanies probably trade modeL la paiticuliff, there is contcovorsy in retain their extensive consortia memb^shqis just the United States as to whethn consortia or some because traditiooal bu^ess philosophy requires other i»Bctice was the key to success of the them to nf

(01989 Dauquest Incorporated Dccember-Reproductiai Prohibited 0005664 JSIS Newsletters 1989-25 Dataoyest ^m aconunnyof ^il'Mi^S^ liKlMn&BiadslicetCorparalian 'I^^V^-mffmi * m^BMi. pWM Research Bulletin

VISUAL EVOLUTION AT ELECTRONICS SHOW

SUMMARY definition television (EDTV). Ttie advanced S-VHS The 1989 Electronics Show, sponsored by the YCR&, which are rîdly becoming popular, were Electronic Indiistries Association of Japan (EIAJ), demonstrated through the use of videocassettes and* was held in Osaka in October and reflected die received a grefU: deal of attrition from the attraiding current interest in the consume: electronics market. public. Table 1 indicates the Jq>ane8e companies Participants included 466 companies and organiza that presented new CH: existing consume products tions from 19 countries. The five-day show at the ôw. attracted a|q)roximately 255,000 visitors, widi a Extended-Definition TV notable increase JB attenctees from the Newly Industrialized Economies (NIEs). Of the st^-of-the-art consumer electronic products that were displayed, EDTV attracted the NEW VISUAL PRODUCTS most attrition. EDTV broadcasting service started on August 24, 1989, in Japan. The new Jsânese Many companies exhibited new products EDTV syston enables existing TV systems to related to high-grade visual equipment, including receive ghost-free broadcasts. The EDTV manufac large-screen TV, projection displays, and extended- turers actively promoted their products at the Osaka

TABLE 1 Japanese Participants in Visual Equipment Markets Satellite Digital liquid Broadcast Portable Audio Company Color TV Crystal TV Receiva" VTR Camcordo* Tape Recorder TV Phone

Casio * •••• M^ *. Gtizen * - • Fujitsu * 4i * * * Hitadii * * * * * * f JVC * * * * * * Matsushka * • Ik * * * * Nfitsubisbi * * * * * HI

:|c ^ti • * NEC *•• * * * Pioneer * * * Sanyo * * * p.- * * * Sony * * * •p:- * * * Toshiba * * * * * * Source: Dataquest December 1989

®1989 Dataquest Incoipoiated December-Repiodoctioii Prohibited 0005725 JSIS Newsletters 1989 1989-26 The content of this report represents our interpretation and analysis of information generally available to the public or released by responsible individuals in the suhjei i companies, hut is not guaranteed as to accuracy or completeness It does not contain material provided to us in confidence by our clients. Individual companies reported on and analyzed by DATAQUEST. may be clients of this and/or other DATAQUEST services This information is not furnished in connection with a sale or offer to sell securities or in connection with the solicitation of an offer to buy securites This firm and its parent and/or their officers, stockholders, or members of their families may, from time to time, have a long or short position in the securities mentioned and may sell or buy such securities

Dataquest Incorporated, 1290 Ridder Park Drive, San Jose, CA 95131-2398 / (408) 437-8000 / Telex 171973 / Fax (408) 437-0292 VISUAL EVOLUTION AT ELECTRONICS SHOW

show, because it was the first large-scale exhibition service to stimulate the current sluggish demand for held since the new broadcasting service began. TV sets. HowevCT, prices for the EDTV sets are Table 2 summarizes the major features of the more than ¥100,000 higher than prices of ordinary EDTV sets di^layed by major suppliers. sets; we believe that a price reduction is needed before EDTV gains wide consumer acceptance. DATAQUEST CONCLUSIONS The Broadcasting Technology Association (BTA) has begun development of second- In the Japanese color television market, tha:e generation EDTV, A^ch is e^)ected to be available is an increasing demand for television sets with in the next six to seven years. The second- high-quality pictures and larger screens. These generation products are expected to have higher- preferences reflect the Japanese consumers' regard quality pictures and screens with 9:16 aspect for high-grade durable goods. With the rapid shift ratios—the same as the high-definition TV oir- of purchasing trends from "anjrthing available" to rendy under development. "something of value," it is natural to see a strong In order to move EDTV into a major market, demand for color TV sets with higher qualities. we expect television manufacturers to step up This aim for the best available product is also promotional measures, including advertising, soft observed in other consumer electronic equipment. ware inq)rovements, and price reductions. With this favorable environment, TV Hideald Nemoto manufacturers expect the EDTV broadcasting Sumiko Takeyasu

TABLE 2 EDTV Comparison Connector Size Product Price Vertkal Horizontal for Ghost Company (Inches) Code (Yen) Resolution Resolution Free Merits/lfechnology Fujitsu 29 BS-29D35 410,000 450 X Broadcasting satellite, built-Jn ^T» 32 BS-32D35 480,000 450 — X Broadcasting satellite, built-in type 32 32V-D35 430,000 450 — X Audio-visual sunounding type Hitadii 33 C33-ED1 408,000 450 — X Ifi^-c^Kicity digital drcuits Lower price Matsushita 29 TH-29XD1 360,000 450 600 Thiee-dimensicn filter 67 VIF70 4,500,000 450 650 — Electronic conference use NEC 29 C-29ED1 368,000 450 560 X 29 C-29ED2 398,000 450 750 X C3iost-free tuner (GCT-IOOO/ ¥250,000) Scan converter (NSC-2100/ ¥480,000) Sanyo 32 C-32ED1 460,000 450 X Field monraies and line monones Shaip 33 33C-ED1 465,000 450 X — Sony 29 KV-29ED1 369,000 450 45 KX-45ED1 2,430,000 450 OEM production (monitor type) 45 KX-45ED1T 2,520,000 450 OEM production (tuner built-in type) Toshiba 34 34ED1A(N) 468,000 450 C3iost-*ee TV tuner (YT-CXSI ¥109,000) Source: Dataquest December 1989

00057Z3 ®1989 Dataquest Incoiporated December—Reproduction Prohibited ISIS Newsletters 1989 1989-26 Dataoyest acompanyof Inc Don & BradsticctCorporatio I n Research Bulletin

JAPANESE MARKET ACCESS THROUGH DISTRIBUTORS

To BE PART OF THE BEST companies seeking market share increases to align themselves with the top Japanese distributors. Japan is a nation of people who generally wish to be associated with die top in every field, i.e., attend the best universities and work for the Semiconductor Resales oldest and most respected companies. A large por tion of the Japanese population considers purchas The top 10 Japanese distributors, with semi ing designer labels to be the norm. Perhaps it is conductor sales in billions of yen from 1984 because they beheve that the label reflects their through 1988, are Usted in Table 1. regard for quality and status. What does aU this Of the top five distributors listed, only one— have to do with U.S. and European companies Ryoyo Electro—carries foreign-manufactured semi desiring to gain market share in the Japanese semi conductor products. This company began carrying conductor arena? The answer is simply this: In the Intel line in 1976. In 1985, only two of the top J^an, in order to be the best, one has to be part of 10 distributors carried foreign-manufactured the best. Perhaps it would be advisable for those semiconductors—^Marubun and Tokyo Electron. In

TABLE 1 Top 10 Japanese Semiconductor Distributors by Estimated Semiconductor Resales (Billions of Yen) 1984 1985 1986 1987 1988 Ifyosan ¥ 733 ¥68.0 ¥70.3 ¥ 763 ¥ 87J %oyo ElectiD 54J 40.4 49.1 58.8 843 Sanshin Electric 493 46.9 41.8 45.7 620 Satori Electric 40.1 392 38.0 315 40.9 Nissei Denshi 35J 210 13.0 26.8 40.7 Nissd Sangyo 58.0 33.8 30.8 301 38.9 Hitadii Electronic 11.0 16.0 14.8 32.0 37.8 Shinko Shoji 39.8 34.3 317 302 37.7

MaiubiBi 25.2^ 19.5 21.0 21.8 352 ^oden Trading 16.8 17.0 15.4 25.9 342 Total ¥ 403.7 ¥337.1 ¥325.9 ¥ 385.1 ¥ 4992 Total Distributor Saks ¥1,067.7 ¥9352 ¥910.6 ¥1,032.6 ¥1,448.7 Source: Dataquest November 1989

®1989 Dataquest Incoiporated November-Reproduction Prohibited 0005617 JSIS Newsletters 1989 1989-24

The content of this report represents our interpretation and analysis of information generally available to the public or released by responsible individuals m the siibjec t companies, but is not guaranteed as to accuracy or completeness It does not contain material provided to us tn confidence by our clients. Individual companies reported on and analyzed by DATAQUEST. may be clients of this and/or other DATAQUES,T services This information is not furnished in connectum with a sale or offer to sell securities or in connei tion wiih the solicitation of an offer to buy secuntes This firm and its parent and/or their officers, stockholders, or members of their families may. from time to time, have a long or short position in the securities mentioned and may sell or buy such securities.

Dataquest Incorporated, 1290 Ridder Park Drive, San Jose, CA 95131-2398 / (408) 437-8000 / Tfelex 171973 / Fax (408) 437-0292 JAPANESE MARKET ACCESS THROUGH DISTRIBUTORS

1988, however, three distributors—^Ryoyo Electro, • Are we aligned with a distributor that can possi Ryoden Trading (Burr-Brown), and Marubun (Burr- bly market our product in other parts of the Brown, Motorola, and Texas Instruments)—had world? foreign-made products on their shelves. • Do we have the image to sell our "designer label" to the discerning Japanese public? Market Share • Is it better to connect with an emerging younger The number one distributor in Japan— and smaller but perhaps more progressive dis Ryosan—^has lost market share, declining from tributor and grow into the market? 6.9 percent in 1984 to 6.0 percent in 1988. Ryosan • How did Burr-Brown, Intel, Motorola, and Texas is the main distributor for NEC; therefore, this loss Instruments connect with a distributor in the of market share is partly due to the drop in NEC's top 10? growth rate during the past several years. In addi tion, reports are that Ryosan is concentrating on • Are we involved with die Distributors Associa investing in the ASIC business, which has required tion of Foreign Semiconductors (DAFS) in an increase in personnel and related costs. StUl Japan? anotho: reason for Ryosan's drop ia market share is As a result of the U.S.-Japanese trade agree that distributor companies such as Ryoyo Electro ment, more opportunities do exist in the Japanese have expanded their positions in the merchant mar market now. Distributors cuirendy selling foreign- ket, gamering market share. made semiconductors are gaining market share. Dataquest believes that companies aligned with the top distributors will enjoy an increase in market DATAQUEST RECOMMENDATIONS share as well. Dataquest recommends that any semiconduc tor manufacturer wishing to increase its access to lone Ishii the Japanese market ask the following questions: Hideaki Nemoto • Are we aligned with the strongest and best dis tributor available?

0005617 ®1989 Dataquest Incorporated November—Reproduction Prohibited JSIS Newsletters 1989 1989-24 mrnrn. Dataqyest acdmpanyof The Dun & Bnidsttcet corporalK Research Newsletter

JAPANESE SEMICONDUCTOR INDUSTRY: QUARTERLY 1989 AND 1990 FORECAST

SUMMARY memo pads. Most major ROM mantifacturers in Dataquest's last Research Newsletter on the Japan have begun to step up production to meet the Jq>anese semiconductor industry forecast noted the current demands. Mask ROMs cutrendy are priced signs of a slowdown in Japan. The most recent at approximately ¥400 ($2.88), although they have J^anese semiconductor industry forecast predicts been observed to be decreasing in price. further slowing for the remainder of the year. Reports coming in from Japan indicate that prices for memory products are eroding. TRENDS IN PRODUCTION The actuals (based on WSTS statistics) show Contrary to what Dataquest believed earlier in that Japanese semiconductor consumption in the the year, industrial electronic equipment production second quarter grew 8.2 percent from die first has begun to fall off rather than remain strong. The quarter, within the range of Dataquest's prior consumer behavior in Japan traditionally has been predictions. The cmrrait forecast indicates that con- to purchase the most recent electronic item as it sun^tion wiU slow down in the third quarter but ^>peared on the market Now, however, saturation stUl will increase 4.5 percent In the fourth quarter, of the Japanese consumer electronics market will we expect consumption to decline 2.3 percent affect electronic equipment production and semi This Research Newsletter.presents recent conductor consumption in Japan. observations by Dataquest on the Japanese semi Dataquest recently reviewed the production conductor market activity in Js^an in terms of units rather than revenue. Starting in October 1989 and possibly running through March 1990, the products diat we AVERAGE SELLING PRICES expect to do well in the domestic and international markets include cordless telephones, facsimiles, One of the most significant areas to watch in workstations, electronic memo pads, laser disc the Japaaaese market is the average selling prices, players, CD portable systems, and video games. especially in the memory area. Using the volume Indications are that flat production is expected price for 1Mb DRAM, 120ns, Dataquest has for facsimiles, personal computers, printers (the observed a price decline of 10.2 percent firom exception being laser printers), floppy disk drives, December 1988 to September 1989. Speculation is factory-automation equipment camcorders, stereo that pricing for this product could decline to the equipment home appliances, and electronic devices level of ¥1,300 ($9.29) by die end of this year. for automobiles. Major memory semiconductor manufacturers have The areas thai Dataquest believes wiU turn begun to cut back on production, in efforts to avoid further downward include point-of-sale electronic contributing to this price decline. cash registers, musical instruments, and watches. The one bright spot in the Japanese market Again, saturation is the reason cited for these place is mask ROMs. The 1Mb and 4Mb mask products' continual decline. Dataquest has noticed ROMs have enjoyed an increasing demand in news articles reporting the beginning of price wars applications such as word processors, video games, in order to gain market share in the watch market IC cards, musical instruments, and electronic segment.

01989 Dataquest Incorponted October-Reproduction Prohibited 0005299 ISIS Newsletter! 1989-22

The content of this report represents our interpretation and analysis ofinpnnation generally available to the public or released by responsible individuals in the subject companies, but is not guaranteed as to accuracy or completeness k does not contain material provided to us in confidence by our^cliems Individual companies reported on and analyzed by Dataquest may be clients of this and/or other Dataquest services. This information is not fiimished in connectitm with a sale or offer to sell securities or in connection with the solicitation tfftm t^r to buy securities This firm and its parent and/or their officers, stockholders, or members of their families may, from time to time, have a long or short position in the securities mentioned and may sell or buy sut:h securities

Dataquest Incorporated, 1290 Ridder Park Drive, San Jose, CA 95131-2398 / (408) 437-8000 / Telex 171973 / Fax (408) 437-0292 JAPANESE SEMICONDUCTOR INDUSTRY: QUARTERLY 1989 AND 1990 FORECAST

EXCHANGE RATE UPDATE ccmtinue to be a problem until the second quarter The exchange rate used for forecasting was of 1990; any correction is heavily dependent on the based on ¥143, which is nearly 11 percent weaker strength of donand and the amount that suppliers than the Ql actual recorded at ¥129. Hiis continu cut back on MOS memory production. ing depreciation of the yen has widened the differ ence between the yen and dollar growAi rates. Using the first two quarters of actuals and the last Production Capacity two quarters of forecast figures, the possible Dataquest has estimated that between 82 and growth rate for 1989 over 1988 in yen could be 85 percent of the current Japanese semiconductor more than twice that stated in dollars (13.1 percent production capacity is being utilized. Overcapacity and 6.3 percent, respectively). is not expected to become a problem situation in Dataquest forecasts the Jsânese market in Japaa during die rertiainder of 1989. Additional yen and then coverts it to doUars, using die cunrent Dataquest projections indicate that we will see a available exchange rate for coinparison. shift to larger capacity utilization starting in the last half of 1992. THE FORECAST DATAQUEST ANALYSIS AND Japan's Economic Position RECOMMENDATIONS The Dun & Bradstreet Corporation's most Tables 1 through 4 show our latest quarterly recent projection for Japan's GNP is 4 percent The forecast for semiconductor consumption in Japan average Japanese employee received a wage for 1989 and 1990. The first two quarters of 1989 increase of 4 percent, effective April 1, 1989, with have been labeled with an A for Actual. Although the inflation rate being only 1 percent Therefore, the second quarter was up, we anticipate that the real income in Japan is expected to expand. third and fourth quarters will be down. Dataquest Mill has forecast that all Japanese manufac beUeves that the first quarter of 1990 will continue turers will slow their capital expenditure to to be slow; however, we expect the second quarter 15.5 percent during 1989.- Dataquest expects the to pull out ending the year with a modest growth Japanese semiconductor capital spending to grow of 3.5 percent as stated in yen. on the order of 2.0 percent in 1990. During the Dataquest recommends that semiconductor 1990s, we expect the Jânese semiconductor and manufacturers observe the following areas: consumer electronic equqiment conânies to con tinue moving manufacturing to North America, • Declining ASPs Europe, and Southeast Asia. • Declining Japanese consumer electroiuc equip ment demand inventory Levels • Slowing domestic ciîtal spending Dataquest has learned from various industry • Continuing movement of manufacturers offshore sources that the levels of inventory have been to North America and Europe increasing, up 7 percent in the second quarter over the first quarter of this year. Inventory levels may lone Ishii

D00J299 01989 Dataquest Incorporated October-Reproduction Prohibited JSIS Newsletters 1989-22 JAPANESE SEMICONDUCTOR INDUSTRY: QUARTERLY 1989 AND 1990 FORECAST

TABLE 1 Estimated Japanese Semiconductor Consumption (Percent Change in Yen)

Adual A A F F Estimate Description 1968 Q1/S9 02/89 Q3«9 Q4/89 1969 Ibtal SmikxmdiiEKT 24.1% (3.7%) 82% 4.5% (23%) 13.1% TbiallC 27.7% (3.0%) 85% 52% (2.8%) 16J% Bqniar Digital 11.6% (14.5%) 42% (20%) (24%) (14.8%) Memny 36.4% (25.8%) (5.6%) {95%) (132%) (303%) Logic 12% (11.7%) 63% {0.1%) (0.7%) (113%) MOS Digital 45.7% 1.7% 9.8% 6.6% (3.9%) 26.6% Memoty 73.7% 82% 11.5% 10.8% (9.0%) 50.0% Nficio 20.6% (6.8%) 7.7% 3.6% 21% 7.0% Logic 38.8% (1.7%) 83% \5% 12% 11.6% Analog 0.1% (11^%) 8.0% 3.8% 1.0% 3.7%

Discrete 8.7% (43%) 7.0% Ll% 0 3.4%

OpioelectiaiJc 25.2% (113%) 12% 3.1% 0 (3.6%)

F F F F F Ql/90 Q2/90 Q3/90 Q4/90 1990 Ibtal Semicooductar (4.1%) 3.8% 08% 6.6% 3.0%

Total IC (3.8%) 4.0% 0.9% 6.1% 3.5% Bipdar Digital (25%) 28% 0.8% 25% (1.7%) Menxxy 6.1% 129% 5.1% 12% , 03% Logic (42%) 12% 0 27% (2.1%) MOS Digital - (43%) 52% 12% 6.8% 4.1% Memoiy • (7.6%) 9.5% 0 7.9% \5% MidD (1^%) 0.4% 4.6% 29% 7.1% Logic (1.0%) 1.9% 0.8% 7.8% 6.5% Analog (2.5%) 05% 0 5.0% 3.6%

Discrete {65%) 0.8% 02% 10.6% (12%)

OptodectTGoJc (23%) 82% 0.4% 3.7% 6.8% A ' Actiuli Sooice: WSTS/SIA (Actuals) F 9 DQ Foiacut Dataquest October 1989

<01989 Dataqueit Incorporated October-Reproductioa Prohibited 0005299 JSIS Newsletter* 1989-22 JAPANESE SEMICONDUCTOR INDUSTRY: QUARTERLY 1989 AND 1990 FORECAST

TABLE 2 Estimated Japanese Semiconductor Consumption (Billions of Yen) Actual A A F F Estimate Description 1988 Q1/S9 Q2/89 Q3/S9 Q4S9 1989 Ibtal SeoDCOoductar ¥2,7003 ¥7073 ¥765.0 ¥799.5 ¥781J ¥3,0533 Total JC ¥2,096.4 ¥561.4 ¥6113 ¥6433 ¥6253 ¥24413 Bipolar Digital 247.7 520 542 53.1 51.8 211.1 Mancxy 452 8.9 8.4 7.6 6.6 313 Logic 2023 43.1 45.8 45.5 452 179.6 MOS Digital 1365.1 393.7 4321 4605 4425 1,728.8 Menxxy 575.1 19Z7 214.9 Z382 216.8 8626 MioD 334.5 826 89.0 922 94.1 357.9 Logic 455.5 118.4 1282 130.1 131.6 5083 Analog 483.6 115.7 125.0 129.7 131.0 501.4 Disacte ¥ 426.7 ¥1042 ¥111J ¥1127 ¥1127 ¥ 441.1 ¥ 1772 ¥41.7 ¥422 ¥43.5 ¥43.5 ¥ 170.9 ExcfaaDge Rate (Yen per US$1) 130 129 138 143 143 138

F F F F F Ql/90 Q2/90 Q3/90 Q4/90 1990 Total Semicoaductor ¥7492 ¥777.6 ¥783.7 ¥835.1 ¥3,145.6 Total IC ¥6013 ¥625.4 ¥631.1 ¥6693 ¥23273 Bqxdar Digital 503 51.7 521 53.4 2073 Monxy 7.0 73 83 8.4 31.6 Logic 433 43.8 43.8 45.0 175.9 MOS Digital 4233 4453 450.6 4813 1.8003 Menxxy 2003 219.4 219.4 Z36.8 875.9 Miao 917 93.1 97.4 1002 383.4 Logic 1303 1328 133.8 1443 5412 Analog 127.7 128.4 128.4 134.8 5193 Dison^ ¥105.4 ¥1062 ¥106.4 . ¥117.7 ¥ 435.7 OptodectronJc ¥425 ¥46.0 ¥462 ¥47.9 ¥ 1826 ExdiaDge Rate (Yen per US$1) 143 143 143 143 143 A • Aotualt Source: WSTS/SIA (Acnuls) F > DQ Foncait Dataquest October 1989

0003299 (01989 Dataquest Incoiporated October-Repioductioa Prohibited JSIS Newsletters 1989-22 JAPANESE SEMICONDUCTOR INDUSTRY: QUARTERLY 1989 AND 1990 FORECAST

TABLE 3 Estimated Japanese Semiconductor Consumption (Percent Change in Dollars) Actual A A F F Estimate Descriptioa 1968 Qiy89 Q2m Q3^ Q4/89 1969 Iblat Semkxnductor 392% (6.7%) 1.1% a8% (23%) 63% IbtallC 4r32% (6.0%) 1.8% 1.6% C18%) 93% Bipolar Digital 25.1% (17.1%) (23%) (5.^) (2.4%) (19.8%) Memoy 533% (28.1%) (11.6%) (13.1%) (132%) (34.1%) Logic 202% (14.4%) (0.6%) (42%) (0.6%) (163%) MOS Digital 633% (13%) Z6% 25% (3.9%) 19.0% Menxxy 95.1% 4.8% 42% 7.0% (9.0%) 405% Micao 353% (9.7%) 0.8% 0 10% 0.6% Logic 553% (4.7%) 12% (10%) 1.1% 4.9% Analog 122% (142%) 1.0% 0.1% 1.0% (15%) Disaeie 215% (7.4%) 0 (23%) 0 (18%) Optodectronic 40.4% (141%) (53%) (0.7%) 0 (92%)

F F F F F Qiy90 Q2m Q3/90^ Q4/90 1990 Total Semicoaductar (4.1%) 3.8% 0.8% 6.6% (0.4%) Total IC ^.8%) 4.0% 05% 6.1% 0.1% Bqxte Digital (18%) 16% 0.8% 17% (5.1%) Memay 63% 122% 53% 1.7% (33%) Logic (4.1%) 1.0% 0 25% (5.4%) MOS Digital (43%) 52% 12% 6.8% 0.7% Menxxy (7.6%) 93% 0 8.0% (1.7%) MioD (13%) 03% 4.6% 19% 3.6% Logic (1.0%) 10% 7.8% 0.8% 19% Analog (23%) 0.6% 0 5.0% 02% Discrete (63%) 0.8% 0.1% 10.6% (43%) OpiDelectronic (23%) 8.4% 03% 3.7% 32% A ' Actuala Souice: WSTS/SIA (Actuals) F . DQ Forecaft Dataquest October 1989

01989 Dauqueit Incorporated October-Reproduction Prohibited 0005299 ISIS Newiletten 1989-22 JAPANESE SEMICONDUCTOR INDUSTRY: QUARTERLY 1989 AND 1990 FORECAST

TABLE 4 Estimated Japanese Semiconductor Consumption (Millions of Dollars) Aduai A A F F Estimate Description 1988 Qiy89 Q2/89 Q3fS9 Q4/89 1989 Total Samccoductor $20,771 $5,483 $5,544 $5391 $5,464 $22,082 Total IC $16,126 $4352 $4,430 $4,499 $4372 $17,653 Bipolar Digital 1,905 403 393 371 362 1329 Memaiy 348 69 61 53 46 229 Logic 1,558 334 332 318 316 • • 1300 MOS Digital 10,501 3,052 3,131 3.221 3,094 12,498 Memcxy 4.424 1,494 1457 1,666 1316 6,233 Micn> 2.573 640 645 645 658 2388 Logic 3,504 918 929 910 920 3,677 Analog 3.720 897 906 907 916 3,626 DisaetB $3,282 $ 808 $ 806 $ 788 $ 788 $ 3,192 Optodectionic $ U63 $ 323 $ 306 $ 304 $ 304 $ 1,237 Exchange Rate (Yen per US$1) 130 129 138 143 143 138

F F F F F Qiy90 Q2/90 Q3/90 Q4/90 1990 Total SenncoDductcr $5,239 $5,438 $5,480 $5,841 $21,998 Total IC $4,205 $4373 $4,413 $4,683 $17,674 Bqxdar Digital 352 361 364 374 1,451 Momy 49 55 58 59 221 Logic 303 306 306 315 1,230 MOS Digital 2,960 3,114 3,151 3366 12391 Memcxy 1,401 1334 1334 1,656 6,125 Mido 648 651 681 701 2,681 Logic 911 929 936 1,009 3.785 Analog 893 898 898 943 3,632 Discrete $ 737 $ 743 $ 744 $ 823 $ 3,047 Optodectionic $ 297 $ 322 $ 323 $ 335 $ 1,277 Exdiange Rate (Yen per US$1) 143 143 143 143 143 A I Actoali Soaice: WSTS/SIA (Aetuali) F . DQ Forecast Dataquest October 1989 t

0003299 (01989 Dataquest Incoiporated October-Reptoductioa Profaibited JSIS Newsletters 1989-22 ''-V'wf^+S^.'O Dataquest a company erf The Dun & Bradsticct Corporation Research Newsletter

JAPANESE SEMICONDUCTOR ALLIANCES: MEMORIES AND MICROPROCESSORS DOMINATE

IrfTROOUCHON ber of ASIC alliances has declined since 1986 and Scr^egic alliances among companies involved 1987 and seems to have stagnated since last year. in all aspects of the semiconductor industry have This newsletter offers a look at historical grown throughout most of the 1980s, primarily out trends in the number of Japanese semiconductor of necessity in an increasingly competitive industry alliances, characterizes those alliances we have so requiring ever rising capital investments. As the far observed in 1989, and notes recent trends in decade of the 1980s comes to a close, the rate of alliance types. new Japanese semiconductor alliances seems to be slowing. Dataquest believes that the new alliance rate of 120 per year constitutes a saturation level JAPAN'S ALLIANCE PACE SLOWS that should persist as long as the Japanese semicon ductor industry maintains its present trends in Dataquest has been tracking alliances in the alliances. Japanese semiconductor industry since 1980. As in years past, memories and microproces Rgure 1 shows the number of Japanese semicon sors constitute the product areas where the majority ductor alliances that we have recorded between of cooperation is occurring. By contrast, the num 1980 and 1988 and includes an estimate for 1989.

FIGURE l Number of Semiconductor Alliances Involving Japanese Companies (198(M989)

Number of Alliances lou- 160- • Historical Data 140q 1980-1987 Unear Fit • 1989 Estimate 120- •^ 100- 30- ^^B 60- ^""m 40- • 20- ^.^'-'^'" • nl 1 .^^

-20- 1 1 . , 1980 1982 1384 1986 1988 1990

0005092-1 Source: Dataquest October 1989

<91989 Dataquest Incorporated October-Reproduction Prohibited 0005092 JSIS Newsletters 1989 1989-21

7?!^ content t^this report represents our interpretation and analysis of mprmation generally available to the public or released by responsible individuals in the subject companies, but is not guaranteed as to accuracy or completeness It does not contain rriaterial provided to us in confidence by our clients Individual companies reported on and analyTed by Dataquest may be clients (rfthis andlor other Dataquest services This information is mtt furnished in connection with a sale or offer to sell securities or in connection with the solicitation of an offer to buy securities. This firm and its parent and/or their queers, stockholders, or members of their families may, from time to time, have a long or short position in the securities mentioned and may sell or buy such securities

Dataquest Incorporated, 1290 Ridder Park Drive, San Jose, CA 95131-2398 / (408) 437-8000 / Telex 171973 / Fax (408) 437-0292 JAPANESE 3EMCONOUCTOR ALLIANCES: MEMOmES AND MCflOPROCESSORS DOMINATE

Dataquest previously repented a steep decline reduction in the populati(»i of companies available in the 1988 number of newly fom^ Japan^e to Stan new ailiairces, becmise many companies alliances. This decline was in contrast to the trend already were involvol in ongoing alliances by between 1980 and 1987 of roughly 18 new alli 1988. From Ais standpoint, it would be more rele ances iulded each year. Between January and July vant perhaps to cteteimine the totd number of of this year, Dataquest already had observed active alliances at any one point in time as opposed 70 alliances involving Japanese semiconductor to simply reporting the number of new ^liance companies. If this rate continues for the remainder formations per year. Although this figure would be of the year, 1989 is likely to end with 120 new much more difficult to determine, it would be more Japanese alliances. Although our estimate for alli likely to give an accurate representation of the ance activity in 1989 represents a sharp increase interaction of Japanese companies with their for over 1988, this number would still fall below the eign counterparts. 1987 figure of 124. Our estimate for 1989 is also far below the number of alliances we would have anticipated based on our extrapolation from a linear LARGE CORPORATIONS ENTER regression of the 1980 to 1987 trend shown in MULTIPLE AGREEMENTS Figure 1. We believe that the 1988 figure of 46 was perhaps due to a combination of random statistical Evidence suggests that many Japanese com fluctuation and a true slowing of the pre-1987 panies are willing to enter into miUtiple, concurrent trend. alliances. The activities of three of Japan's largest We can explain partially the slowing rate of semiconductor suppliers, as shown in Table 1, new alliance formations since January of 1988 by a provide good examples. We find that Hitachi, NEC,

TABLE 1 Semiconductor Alliances Involving Hitachi, NEC, and Toshiba (January-Juiy 1989)

Conpany'l Company 2 Type of Product l>pe of Agreement Hitachi GoldStar Memoiy LA, SS Hitachi Hewiett-Packaid MPU TE Htufai Texas Insiruinaus Memory jy JD Hitachi Qay Muhiprodua L\ Ffitaciii Nsttional Soniaxi MPU LA, JD Hitachi VLSI Technology Memoiy FA NEC Texas bisBumems Memcny PC NEC MIPS Compiaa MPU lA SA, TE NEC MIPS Computer NfailtiprodiKt SA, FA JD NEC Birope \k]em Other JD NEC Matra Harris MPU LA NEC Kanematsu Electronic Equipment SA Toshiba Siemens ASIC SS Toshiba Motorola Nbiltiprochict TE, JD Toshiba Sun \fiaosystems MPU LA Toshiba Motorola Memory LA, SS Toshiba Fuji Film Nfcmoiy JD Toshiba Siemens ASIC SS, JV

Source: Dataquest October 1989

0005092 <91989 Dataquest Incorporated October-Reproduction Prohibited JSIS Newsletters 1989 1989-21 JAPANESE SEMiCONOUCTOR ALUANCES: MEMOfflES ANO MICROPROCESSORS DOMINATE and Toshiba each secured six new alliances cover SPEaFlC PRODUCT TRENDS ing several i»oduct categoric and a variety of êement tyfws. Despite eaiêr Dataquest {»%dic- Table 2 shows the number of Japanese semi tions of resistance by some fordgn ccnnpês to conductor alliances between 1984 and 1989, broken share or license their technology to Japanese ven down into prodiKt categories. Historically, the dors, Table 1 indicates a healthy number of new mem(H7 and microprocessor areas were particulariy alliances involving technology exchange agree ments, joint development arrangements, and joint lOiWfc in forming alliances. In the first half of ventures. 1989, we also observed much activity in com Dâqu^t classifies strategic alliances into the modity memories and microprocessors. foUovnng majOT categories, as used in Tables 1 iuid 3: Memories • LA—^Licensing Agreement • SS—Second-Source Agreement In the first half of 1989, the number of Japa nese alliances relied to memory chips had already • SA—Sales Agency Agreement exceeded the 1988 figure. The consensus among • FA—FJU) Agreement semiconductor vendors seems to be that cost- • AT—Assembly and Testing Agreement sharing in the next generation of memory chips is the most effective way of developing these • TE—Technology Exchange products with risk diversification. Thus, we see • JV—Joint Venture new alliances of every variety and combination covering all aspects of marketing memory • JD—^Joint Development products. Consequently, we expect the number of • IV—Investment these agreements to increase in spite of the fact that • CO—Coordination of Standard many of those U.S. companies participating in alli ances with Japanese companies are also part of the • PC—^Procurement Agreement restricted membership consortia Sematech and U.S. • OT—Other Memories.

TABLE 2 Japanese Semiconductor Alliance Product Type Breakdown (1984-1989) 1984 1985 1986 1987 1988 1989* Mubiproduct 3 - • 16 3 3 6 Menvxy 7 11 10 17 9 16 MPU 14 16 12 19 10 12 ASIC 4 9 22 21 5 7 Other Devios 2 15 12 21 8 3

CAD Tools - -• * 11 2 8 Equipment 13 17 14 23 3 10 Materials 13 - 11 7 4 4 Others - 3 4 2 2 4 Total 56 71 101 124 46 70 •As of July Source: Dttaquest October 1989

01989 Ditiquest Incorporiicd October-Reproduction Prohibited 0005092 JSIS Newsletters 1989 1989-21 JAPANESE SEiaCONDUCTOR ALUANCES: MEMORtES AND HICflOPROCESSORS OOMtNATE

Microprocessors be expected to affect first the number of alliances involving ASICs, the numbers in Table 2 do not In the imcropiocessor segmrat, several RISC indicate that such pressure has yet yielded the chip designs from various U.S. vendors are in desired result for AJSICs. competition to become the next major workstation standard. This ccmipetition is stimulating a sxags in licensing and technology exchange agreements. For DATAQUEST CONCLUSIONS the Japanese companies, such agreements are a way of penetrating the growing workstation mar Given the low statistical populations, the kets, which they have been unsuccessful at thus far. methodology of our study, and the ambiguity of For the U.S. companies, more licensees mean more joint-venture announcements, systematic and ran volume and therefore a better chance at establish dom uncertainty become potential concerns for us ing a standard. in trying to identify trends. Dataquest [deviously predicted that strategic alliances were shifting from fewer vendor-vendor ASICs relationships to an increasing number of vendor- user alliances. As shown in Table 3 and discussed Although the political pressures for increased in the preceding para^phs, this prediction is true, U.S. vendor access to the Japanese market might in part, for microprocessors. Japanese companies

TABLE 3 Japanese Semiconductor Alliances by Product Type (January-July 1989) T>pe of Ftaduct Company 1 Company 2 lype of Agreement MuUpodua Toshiba Mot(»ola TE, JD Muloprodua SC Hightech GigaBit Logic SA JD Nfultqxodua NEC MIPS Qnnputa- SA FA IV Multpoduct Fujitsu VIA Technology IV Muitiprodua Hitadu Cray LA Multiixodua Japan LSI Card Sumitomo Bakeiitc JD Nfenxxy t&tadn CjoldStar LA SS Menxxy NEC Ttxas Insimments PC Moncxy Tdkyo Election XicOT SA Memoy Hitachi Texas Instruments JV, JD Manaty Seiko ^son Raiiitron . JD Memory Sony AMD JV Menxxy Sanyo Mosaid JV Moncry NMB Semkon&ictor Ramtron JD Menory Sanyo Nfotorda SS Vfemory Toshiba \fotoroia LA SS Memory Hitachi VLSI Technology FA Memory Kawasaki Steel Harris FA JD Memory Toshiba Fuji Film JD \femory Nissan Motors Intel PC Memory Matsushita Sgnetics SA (Continued)

00OS092 <91989 Dataquest Incorporated October-Reproduction Prohibited JSIS Newsletters 1989 1989-21 JAPANESE SEkNCONOUCTOR ALUANCES: UGMOfHES ANO IMCROPROCESSORS CRJHINATE

TABLE 3 (Continued) Japanese Semiconductor Alliancn by Product l>pe (Janiutfy-July 1989) Type of Product Company 1 Company 2 lype cf Agreement Memoy Manibua Cmkyst Senwoa SA MPU I&acM newkOrPadsti IE MPU NEC h/BPS Compder LA, SA. TE MPU NQlsubt^ S-MOS SS MPU Toûba Sun N&rosystBins LA MPU wfSlSUH&^ "Neis^ JD MPU NEC Mfdra Hams LA MPU Hhadn Naikniid Semiooa LA, JD MPU Tayctai Motos Nfotorola PC MPU IXasemioan btteÊtted Device SA MPU Sony iAEPS Computer SS MPU Rijttsu Saa MkiDsystans SS MPU Honda Motors Nfoton^ PC Source: Dutquest October 1989 often obtain RISC licenses for the purpose of being most volatile and perhaps the best gauge of the both vendOT (i.e., a chip manuf^turer) and user ability of U.S. and Japanese groups to accommo (i.e., a system buildo"). date «icfa other in intimate vendor-user relation In the area of memories, vendor-vendor alli ships. No clear pattern of the Jânese role as ances are still common. Memories and primarily vendor or Mser has emerged as yet in the microprocessors constitute the {sxxlua areas where recently formed alliances. the majority of cooperation is occuning. Although joint ventures involving ASIC products have stag Junko Matsubara nated or even declined, this area is potentially the

®1989 Duaquesi Incorporated October-Reproduction Prohibited 0005092 JSIS Newsletters 1989 1989-21 DataQuest icatTixanvpt ihc DffliaL'BndsttHt CorporaEDn

'M^M X^-WP'o^ ^^ Research Newsletter

NEW MARKETS, NEW STRATEGIES: CHALLENGES FOR TODAY'S JAPANESE ELECTRONICS COMPANIES

Growth in consumer electronic equipment tors are expected to grow to more than 50 percent markets is beginning to slow down. In addition, the of the applications market Japanese domestic markets are increasing in sig To decrease dependency on increasingly com nificance. These forces, coupled with the need to petitive consumer products, most electronics com develop new global strategies, are creating serious panies are strengthening their other nonconsumer challenges for the Japanese electronics industry. product areas. Some examples of action taken by What steps are the leading companies taking to the top companies are as follows: ensure they are in the right position to face these new pressures? What do these changes mean for • Matsushita placed a priority on developing its semiconductor suppliers? information equipment, semiconductor, and This newsletter will examine these questions automotive electronics segments. in terms of the issues and challenges facing the • Sharp and Sony announced goals to increase Japanese electronics industry. revenue from nonconsumer products to 50 per cent of total corporate revenue within the next few years. (Sony will invest specifically in its SLOWER GROv\n'H OF CONSUMER NEWS workstation and semiconductor areas.) ELECTRONIC EQUIPMENT • Mitsubishi stated its intention to increase reve An important issue for electronics companies nue from its telecommunications equipment, is the gradual slowdown of consumer electronics computers, and semiconductors. production in Japan. Some of the reasons for the slowdown are as follows: • Manufacturers are moving more production DEVELOPMENT OF THE JAPANESE offshore. DOMESTIC MARKET • Competition, especially from newly industrial Another issue challenging electronics compa ized countries (NICs), is increasing. nies is the recent increase in domestic demand. • F*rofit maigins have become tighter because of Historically, Japanese companies have emphasized increased competition and, for exports, the fluc exports and spent littie time evaluating opportuni tuation of exchange rates. ties in the domestic markets. Some of the reasons for this new interest in the domestic markets are as Consumer electronics production is expected follows: to decrease by more than 3 percent in 1989 and remain flat in 1990. By the end of 1989, consumer • Increased demand for office automation equip electronics applications will shrink to less than ment due to a small installed base (especially 25 percent of the semiconductor applications mar since the introduction of laptops, which are more ket. Simultaneously, the industrial electronic equip convenient for Japanese employees, and 32-bit ment sectors are experiencing stronger growth. In PCs, which can handle Japanese-language 1989, data processing applications for semiconduc software)

<£)1989 Dataquest Incorporated September-Reproduction Prohibited JSIS Newsletters 1989 1989-20

The content cfthis report represents our interpretation and analysis qfir^rmation generally available to the public or released by responsible individuals in the subject companies, but is not guaranteed as to accuracy or completeness. It does not contain material provided to us in confiderux by our clients. Individual companies reported on and atmlyTed by Dataquest may be clients of this and/or other Dataquest services. This irîrmation is notjumished in ccmnection with a sale or o^r to sell securities or in connection with the solicitation tân cêrto buy securities This firm and its parent and/or their t^cers, stockholders, or members of their pntiUes may, from time to time, have a long or short position in the securities mentioned and may sell or buy sut^ securities.

Dataquest Incorporated, 1290 Ridder Park Drive, San Jose, CA 95131-2398 / (408) 437-8000 / Telex 171973 / Fax (408) 437-0292 NEW MARKETS, NEW STRATEGIES: CHALLENGES FOR TODAY'S JAPANESE ELECTRONICS COMPAfMES

• Increased capital investments and equipment local management, Matsushita established four purchases by Japanese companies as they regional headquarters that will have complete expaiKl, automate, and network facilities d«;ision-making powo: • Increased spending among Japanese consumers as a result of governmental programs and pressures DATAQUEST RECOMMENDATIONS

The challenge today is to continue to develop Dataquest recommends that semiconductor strategies that address the complex overseas mar manufacturers selling into the Japanese market kets while simultaneously creating new strategies should check their marketing strategies and fore for the emerging domestic market. Increased casts and then ask themselves the following domestic demand also has decreased dependence of questions: Japanese companies on exports. The influence of export markets on semiconductor demand within • Is the slowdown in consumer applications being Japan is likely to be reduced. For example, despite monitored? the recent slowdown of PC sales in the United • Are growing opportunities in industrial elec States, the Japanese production of PCs continues to tronic equipment applications being explored? experience solid growth rates. Some examples of how companies are facing the challenge of • Customers are now trying to develop domestic developing domestic strategies are as follows: products and strategies and there will be new applications for semiconductors; has the com • Hitachi established a sales operations group spe pany anticipated Uiese events? cifically for the domestic market to reinforce • Are both the trends in exports for Japanese existing operations and develop marketing electronics companies and trends in domestic strategies. maricets being accounted for in the company • Sharp stated that it plans to strengthen its forecast? domestic sales organization. • Has the company been monitoring and anticipat • Matsushita opened a Human Electronics Institute ing the shift of production overseas? Have busi to study consumer behavior, needs, and' ness strategies been adjusted to either follow the lifestyles, mainly in the domestic markets. business or pursue new customers in Japan? A semiconductor manufacturer that is not yet doing much business in Japan with the top elec INTERNATIONALIZATION tronics companies should reexamine the situation and look for new opportunities in industrial appli In addition to these major changes, companies cations such as data processing, medical, and must continue to expand overseas in order to cope telecommunications equipment. Semiconductor with a shrinking domestic work force and resolve manufacturers should talk to die Japanese R&D conflicts between traditional management labs and try to develop "design-win" relationships. philosophies and new international demands. The increase in facilities overseas, coupled with the These changes—the shifting Japanese elec decrease in the work force, has expanded the num tronic equipment markets, the movement overseas, ber of foreign employees in Japanese companies. and new management strategies—are important not This situation is putting pressure on current only for electronic equipment manufacturers, but management to change. also for the semiconductor manufacturers that Sony, one of the historical leaders in develop supply the Japanese electronic equipment ing overseas business strategies, recently manufacturers. announced the appointment of two foreigners to its board of directors. It wants them to help create and Len Hills implement its European and North American strate Sumiko Takeyasu gies. In another move to give more authority to

JAPANESE SEMICONDUCTOR INDUSTRY: QUARTERLY 1989 AND 1990 FORECAST

Reports indicate a continuation of strong mar at the expense of consumer electronics, which ket conditions for Japanese semiconductor declined to a forecast 23.4 percent in 1989. manufacturers; domestic industrial equipment demand is strong, capital spending is up, and exports have continued at a brisk pace. However, Capital Investments there are also signs that the forecast slowdown has begun; consumer electronics demand is down and Semiconductors demand has been boosted by electronic equipment inventories are up. the strength of total domestic capital spending. For Growth of Japanese semiconductor consump fiscal year 1989, manufacturers forecast capital tion in the first quarter of 1989 was down investments of ¥37.8 trillion, an increase of 3.7 percent over the fourth quarter of 1988 (based 8.7 percent over 1988, according to the Japanese on yen), but preliminary estimates for the second Economic Planning Agency. In the second quarter quarter show that the market recovered, growing of calendar year 1989, capital investments between 8 and 10 percent over the first quarter. The increased 5.6 percent over the first quarter. following is a look at the factors that are driving Semiconductor-related capital spending also our most recent Japanese semiconductor consump has been strong. It is expected to reach 20 percent tion forecast. in 1989. Despite the surge in semiconductor-related capital investments, there is no cause for alarm. Japanese manufacturers appear to have better con trol over supply and demand than they did in 1984, INDUSTRIAL ELECTRONIC EQUIPMENT and there is no sign of overcapacity in the market. As we said in our May forecast newsletter, Dataquest still expects computers and other data communications equipment to drive semiconductor Exchange Rates consumption. This is because industrial electronic The yen's drop in value during the second equipment, specifically data processing, has shown quarter affected Dataquest's forecast in two ways the strongest growth of the semiconductor applica exports have strengthened and differences between tion markets. Demand for PCs grew approximately yen and dollar growth rates have increased. 80 percent in value during the first four months of Strong exports of electronic equipment have 1989 over the same period in 1988. Facsimiles, helped to maintain growth of semiconductor con word processors, and workstations also are sumption. In the first five months of 1989, exports expected to remain strong in 1989. of consumer electronics, specifically color TVs, In addition, industrial electronic equipment as VCRs, and CD players, increased 8.6 percent over a fjercentage of total IC consumption has been the same period in 1988. Exports of industrial increasing in Japan. Specifically, data processing equipment were up 3.5 percent and computer equipment as a percentage of total IC consumption exports were up 12.4 percent during the same in Japan has been increasing steadily since 1984, period. Total Japanese exports increased 8.6 per reaching a forecast 51.2 percent in 1989. As shown cent in June 1989 over the previous month. This in Figure 1, industrial equipment has been growing follows two months of negative 6.0 percent growth.

The content of this report represents our interpretation and analysis qfirt^mtation generally available to the public or released by responsible individuals in the subject companies, but is not guaranteed as to accuracy or completeness. It does not contain material provided to us in confidence by our clients Individual companies reported on and analysed by Dataquest may be clients of this and/or other Dataquest services. This irrfijrmation is not furnished in connection with a sale or offer to sell securities or in connection with the solicitation of an q^r to buy securities This firm and its parent and/or their officers, stockholders, or members of their fitmilies may, from time to time, have a long or short position in the securities mentioned and may sell or buy such securities.

Dataquest Incorporated, 1290 Ridder Park Drive, San Jose, CA 95131-2398 / (408) 437-8000 / Telex 171973 / Fax (408) 437-0292 JAPANESE SEIMCONDUCTOR INDUSTRY: QUARTERLY 1989 AND 1990 FORECAST

The lov/et yen in 1989 has increased the January to April have grown steadily, increasing differences in growth between the Japanese semi 2.1 percent in A{nil over March. conductor market and the growth in other regions. For example, the forecast percent change of semi conductor demand in yen from 1989 over 1988 is DATAQUEST RECOMMENDATIONS 12.9 percent. This compares with a forecast U.S. Tables 1 through 4 show our latest quarterly market growth of 15.0 percent in 1989. However, if forecast for semiconductor consumption in Japan the yen figures are converted to dollars, the growth for 1989 and 1990. Although the first quarter was rate for the Japanese market in 1989 drops to down signiflcandy, this is not a cause for alarm. 8.1 percent. Dataquest forecasts the Japanese mar Numbers for the second quarter have not yet been ket in yen and then converts it to dollars for finalized, but preliminary estimates show the semi comparison. conductor market recovered to between 8 and 10 percent over the first quarter. Dataquest is exp^dng a gradual slowdown from the third quar CONSUMER ELECTRONIC EQUIPMENT ter of 1989 through the second quarter of 1990. Another factor to watch carefully is decreas Growth should pick up again in the second half ing demand for consumer electronics. We forecast of 1990. that consumer electronics will grow only 2.8 per Dataquest recommends that semiconductor cent in 1989. It is expected to decrease 3.2 percent manufacturers watch the following areas carefully in 1990 and flatten out in 1991. As shown in in the near future; Figure 1, consumer electronics represented an esti mated 26.7 percent of the total IC application • Domestic industrial equipment demand market in 1988; it is expected to decrease to • Exchange rates and the effect on the growth of shghdy less than 21.6 percent by 1992. exports A more immediate concern is the increased inventory of consumer electronic equipment Con • Domestic capital spending growth sumer electronics manufacturers had expected • Decline of consumer electronic equipment much higher growth during the first half of 1989. demand This did not occur, in fact growth of equipment {sxxluction in Afnil and May was slightly negative. Bridget O'Brian Consequently, semiconductor inventory levels fix)m HideaJd Nemoto

FtGURE 1 E^raiMed Japanese SemkoBductor Applicatioa Mark^s

Percentage Rfl

• Data Processing A Consumer • Communications 4> Transportation 50- X Industrial

401 1 «—

Ak *—

30-

20-

» • ,0< » • • ' —^C 1* **—' X X 1 ' \ T 0 1 1984 19B5 1986 1987 1988 1939" ' Forecast

coa4«3g-i Source: Dtiaquesi Augiui 1989

®1989 Daiaquest Incorporated Augusi-ReproduciioD Prohibited 0004838 JSIS Newsletters 1989 1989-19 JAPANESE SEMICONDUCTOR INDUSTRY: QUARTERLY 1989 AND 1990 FORECAST

TABLE 1 Estimated Japanese Seraicondiwtor C(»sum|rtkm (Pemnt Change in Yen)

1988 Q1/S9 Q2m Q3/89 Q4/S9 1989 Total SemioonductCH- 24.1% P.7%) 102% a7% (H%) 129% Total IC 27.7% (3.0%) 10.9% 12% (02%) 16J% Bipolar Digital 11.6% (14.5%) 6J% (5.6%) (23%) (14.9%) Memory 36.4% (25.8%) (15.7%) (133%) (13.8%) (36.9%) Logic 72% (11.7%) 11.1% (4.4%) (0.7%) (10.0%) MOS EMgital 45.7% 1.7% 11.8% 24% 03% 272% Manoiy 73.7% 82% 15.9% 6.0% 0.4% 54.9% Mao 20.6% (6.8%) 6.1% 1.6% (1.1%) 3.8% Logic 38.8% (1.7%) 9.0% (32%) Ll% 93% Analog 0.1% (11.5%) 9.8% 0.1% (0.9%) 25% DisoEte 8.7% (4.3%) 7.3% (25%) (4.4%) 0.6% Optoelectronic 252% (11.3%) 9.1% 0.4% (5.7%) (0.7%) Ql/90 Q2/90 Q3/90 Q4/90 1990 Total Semiconductor (3.2%) 1.4% 23% 3.8% 1.8% Total IC (24%) 1.0% 2.0% 27% 3.1% Bipolar Digital (3.1%) 26% 0.9% 28% (3.1%) Memory 5.4% 11.9% 4i% 43% (6.7%) Logic (4.2%) 1.4% 03% 26% (26%) MOS Digital (1.8%) 0.6% 27% 21% 4.7% Memoiy (1.8%) 03% 25% 24% 7.1% Micro (0.5%) 4.0% 4i% 0.4% 6.4% Logic (28%) (1.1%) 1.7% 28% (0.8%) Analog (41%) 1.9% 0.1% 5.0% 0.2% Discrete (6.3%) 0.7% 1.9% 10.5% (52%) Optoelectronic (7.2%) 8.8% 6.9% 3.9% 13% Source: Dataquest August 1989

0004g3» M989 Dataquest Incorporated August-Reproduction Prohibited JSIS Newsletters 1989 1989-19 JAPANESE SEMICONDUCTOR INOUSTRY: QUARTERLY 1989 AND 1990 FORECAST

TABLE 2 Estimated Jai^nese Sankoaductor CoBsamptiiNi (Billioiis

Source: Dauquest August 1989

<91989 Dataqucsi Incorporated August-Reproduction Prohibited 0004833 JSIS Newsletters 1989 1989-19 JAPANESE SEMICONDUCTOR INDUSTRY: QUARTERLY 1989 AND 1990 FORECAST

TABLE 3 Estimated Japanese Semicondiwtor Consumptkm (Percent Change in Dolivs) 1988 Q1/S9 01/89 Q3/89 Q4» 1989 Total SemicondudDr 392% (6.7%) 3.0% 0.7% (1.1%) 8.1% Total IC 432% (6.0%) 3.6% 12% (02%) 113% Bipolar Digital 25.1% (17.1%) (0.4%) (5.6%) (23%) (183%) Memory 533% (28.1%) (212%) (133%) (13.8%) (393%) Logic 202% (14.4%) 3.9% (4.4%) (0.7%) (13.8%) MOS Digital 63.5% (13%) 43% 2.4% 03% 21.7% Memory 95.1% 4.8% 8.4% 6.0% 0.4% 48.1% MioD 353% (9.7%) (0.9%) 1.6% (1.1%) (0.6%) Logic 553% (4.7%) 1.8% (3.2%) 1.1% 4.8% Analog 122% (142%) Z6% 0.1% (0.9%) (1.9%) Discrete 21.9% (7.4%) 03% (23%) (4.4%) (3.6%) Optoeiecstmic 40.4% (14.1%) 20% 0.4% (5.7%) (4.9%) Qiy90 Q2/90 Q3/90 Q4/90 1990 Total Semiconductor (32%) 1.4% 23% 3.8% 02% Total IC (2.4%) 1.0% 10% 17% 13% Bipolar Digital (3.1%) 16% 0.9% 18% (47%) Memory 5.4% 11.9% 43% 43% (8.7%) Logic (42%) 1.4% 03% 16% (4.1%) MOS Digital (1.8%) 0.6% 2.7% 11% 3.0% Memoiy (1.8%) 03% 23% 14% 53% \ficro (03%) 4.0% 43% 0.4% 47% Logic a.8%) (1.1%) 1.7% 18% (2.4%) Analog (4.1%) 1.9% 0.1% 5.0% (1.4%) IDisaete (63%) 0.7% 1.9% 103% (6.8%) Optoelecntxiic (72%) 8.7% 6.9% 3.9% (0.3%) Source: Daiaquest Augusl 1989

0004838 131989 Daiaquest Incorporaied Augiut-Reproduciion Prohibited JSIS Newsletters 1989 1989-19 JAPANESE SEMICONDUCTOR INDUSTRY: QUARTERLY 1M» AND 1»90 FORECAST

TABLE 4 Estinurted Japaaese SemioHidiKtor CoomimptfaMi (fttiUk^ of Doilws) ISW Q1/S9 Q2/89 Q3/89 am 1989 >n 1 n • 1 locu oenuooujucior $201772 $5,483 $5,650 $5,687 $5,626 $22,446 Total IC $16,126 $4352 $4,510 $4,566 $4y559 $17,987 Bqxjiir Digital 1,90S 403 401 379 370 1,554 Memory 348 69 54 47 41 211 Logic 1,558 334 347 332 330 1343 MOS Digital 10501 3,052 3,188 3,266 3,276 12,783 Memay 4,424 1,494 1,619 1,716 1,723 6,552 Micro 2,573 640 635 645 638 2^58 Logic 3,504 918 935 905 915 3,673 Analog 3,720 897 920 921 912 3.651 Discrete $3,282 $ 806 $ 810 $ 790 $ 755 $ 3,163 Opioelecaonic $ 1363 $ 323 $ 330 $ 331 $ 312 $ 1,2% Exchange Rate (Yen per US$1) 130 129 138 138 138 136 Qim Q2/90 Q3/90 Q4/90 1990

Total Semiconductor 30»4HO $5425 $5,651 $5,866 $22,490 Total IC R451 $4,497 $4,588 $4,714 $18050 Bipolar Digital 359 368 371 382 1,480 Vfemoiy 43 48 50 52 193 Logic 316 320 321 330 1,287 MOS IXgital 3,217 337 3324 3394 13,172 Memoiy 1,692 1,697 1,739 1,782 6,910 Micro 635 660 690 692 2,677 Logic 890 880 895 920 3485 Analog 875 892 893 938 3498 Discrete $ 707 $ 712 $ 726 $ 803 $ 2,948 Optoelectionic $ 290 $ 315 $ 337 $ 350 $ 1292 Exchange Rate (Yen per USSl) 138 138 138 138 138 Source: Dauquest August 1989

©1989 Dataquesi Incorporated August-Reproduction Prohibited 0004838 JSIS Newsletters 1989 1989-19 fe^ Dalaoyest -ii^t^'V;'."S'vv^f^M^i^^-f-^-' mo acompanyof '^rw^'X^^^'^/S lEn lliTheDunSTBradstieetCoe Dun & Biadstrcet Corporatioi n miWit4^.

_.''•'• '^ITjiS?' Research Newsletter

JSIS Code: Newsletters 1989 1989-18 0004769

CLOSING THE GAP: WILL JAPAN BECOME THE WORLD'S LARGEST PRODUCER OF FAB EQUIPMENT?

INTRODUCTION Dataquest's Semiconductor Equipment and Materials Service (SEMS) has completed its 1988 worldwide wafer fabrication equipment data base. This newsletter is the second in a series of newsletters that will discuss various aspects of the 1988 data base. We will discuss the worldwide wafer fab equipment market and how it is supplied by European, Japanese, and U.S. equipment vendors. The intent is to provide a high-level view of this subject. The information in this newsletter is drawn from Table 1 of the "Wafer Fab Equipment—Import/Export Data" section in the SEMS Equipment and Materials notebook.

WORLDWIDE WAFER FAB EQUIPMENT MARKET Table 1 presents the front-end or wafer fab equipment market for the years 1984 through 1988. The first line in the table gives the total worldwide market for all wafer fab equipment. The subtotal fab equipment market, given on the second line, includes all lithography, etch and clean, deposition, diffusion, ion implantation, and CD/wafer inspection equipment. For these equipment categories, detailed company-by-company sales are determined, and it is this detailed company analysis that forms the basis for the information presented in this newsletter. Not included in the subtotal are other process control equipment, factory automation, and other miscellaneous equipment used in the front end. For these categories, Dataquest estimates the size of the market but does not perform a detailed company-by-company survey.

77K content of this report represents our interpretaticn and analysis tfinprmalion generally available to the public or relemtd by responsible individuals in the subject companies, but is not guaranteed as to accuracy or completeness It does not contain material provided to us in confidence by our clients. Individual companies reported an and analyzed by Dataquest may be clients of this and/or other Dataquest services. This information is not furnished in connection with a sale or offer to sell securities or in connection with the solicitation 4 an qUer to buy securities This firm and its parent and/or their officers, stockholders, or members of their fiunilies may. from time to time, have a long or shon position in the securities mentioned and may sell or buy sttch securities.

Dataquest Incorporated, 1290 Ridder Park Drive, San Jose, CA 95131-2398 / (408) 437-8000 / Telex 171973 / Fax (408) 437-0292 Table 1 Worldwide Wafer Fab Equipment Market (Millions of Dollars)

1984 1985 199$ 1987 1998

Total Wafer Fab Equipment Market $3,520 $3,356 $2,713 $3,148 $4,894 Stibtotal Fab Equipment Market $2,812 $2,740 $2,228 $2,600 $4,162 Subtotal Percent 80% 82% 82% 83% 85%

Source: Dataquest August 1989

In 1988, detailed company data, represented by the subtotal fab equipment market, accounted for $4,162 million of the total $4,894 million fab equipment market. This represents 85 percent of the total market and includes virtually all of the major equipment used in IC manufacture. Henceforth in this newsletter, the terminology "wafer fab equipment market" refers to the detailed company data. The reason that this discussion is included here is to maintain data integrity across the equipment data base and all of the publications based on the data base.

WORLDWIDE FAB EQUIPMENT MARKET BY REGIONAL OWNERSHIP OF EQUIPMENT COMPANY Table 2 shows the worldwide wafer fab equipment market broken down by regional ownership of equipment companies for the years 1984 through 1988. In 1984, combined sales by European and Japanese equipment companies were $1,129 million, while U.S. equipment company sales were 49 percent more at $1,683 million. By 1988, combined European and Japanese company sales were $2,238 million, but U.S. company sales grew to only $1,924 million, 14 percent less than combined European and Japanese company sales. From 1984 to 19SS, European and Japanese company sales doubled, while sales by U.S. companies increased by only 14 percent. Or, looking at sales growth in another way, U.S. company sales had a compound annual growth rate (CAGR) of only 3.4 percent during the 1984 to 1988 period, while European and Japanese companies each had CAGRs in excess of 18 percent.

Figure 1 graphically shows the shift in market share among the three international suppliers. In 1984, U.S. equipment companies had 60 percent of the world equipment market, but by 1988, their share had slipped to 46 percent. Meanwhile, Japanese company share, which was 33 percent in 1984, grew to 44 percent in 1988. U.S. equipment companies, which in early years pioneered the wafer fab equipment industry and then rose to dominate the world market, are now essentially at parity with their Japanese counterparts.

Percent Share CAGR 1984 1985 199§ 1997 1988 1989 1984-1988

European Companies $ 204 $ 240 $ 260 $ 315 $ 401 9.6% 18.4% Japanese Companies 925 967 814 1,076 1,837 44.1 18.7% U.S. Companies 1.683 1,533 lrX54 1.209 1.924 46.2 3.4%

Total $2,812 $2,740 $2,228 $2,600 $4,162 100.0% 10.3%

Note: Columns may not add to totals shown because of rounding. Market shares have not been normalized to reflect the effects of the currency exchange rates.

Source: Dataguest August 1989

Figure 1

Worldwide Wafer Fab Equipment Market Shares by Regional Ownership of Equipment Company

y U.S. Companies ^^ Japanese Compsmies y'f^i European Companies

1984 1988

0004769-1 Source: Dataquest AuguK 1989

© 1989 Dataquest Incorporated August JSIS Newletter REGIONAL FAB EQUIPMENT MARKET BY REGIONAL OWNERSHIP OF EQUIPMENT COMPANY # Table 3 lists the percentage of market share for European, Japanese, and U.S. fab equipment companies by region for 1984 and 1988. Note that in 1988 U.S. equipment companies had a 76 percent share of the U.S. market, and Japanese companies had a 78 percent share of the Japanese market. Thus, Japanese and U.S. companies each have comparable shares of their home markets. In the European and Rest of World (ROW) markets, U.S companies have the dominant market share. Table 3 also compares 1984 and 1988 market shares for the three international suppliers for the regions.

Table 3 Regional Wafer Fab Equipment Markets by Regional Ownership of Equipment Company (Percent Share)

Change 1994 1995 1984-1988

United States European Companies 7"^. 11% 4% Japanese Companies 6 13 7% U.S. Companies _a2 _Ifi (11%) 100% 100% Japan European Companies 2% 3% 1% Japanese Companies 68 78 10% U.S. Companies -IQL _2a (10%) 100% 100% Europe European Companies 26% 32% 6% Japanese Companies 6 13 7% U.S. Companies _6a _55 (13%) 100% 100% Rest of World (ROW) European Companies 11% 7% (4%) Japanese Companies 20 35 15% U.S. Companies _M .33. (9%) 100% 100% Worldwide European Companies 7% 10% 3% Japanese Companies 33 44 11% U.S. Companies -fin _i6 (14%) 100% 100%

Note: Columns may not add to totals shown because of rounding.

Source: Oataguest August 1989

© 1989 Dataquest Incorporated August JSIS Newletter Figure 2 looks at the same data in another way and compares the 1984 and 1988 market shares for U.S. equipment companies in each of the regions and worldwide. Note that both in every region and worldwide, U.S. companies have lost market share since 1984. For instance, U.S. companies had 30 percent share of the Japanese equipment market in 1984, but by 1988, their share had fallen to 20 percent. Even in the European and ROW markets, where U.S. companies still dominate, they are losing share to European and Japanese companies. Likewise, Figures 3 and 4 show the market share trend for Japanese and European companies. Japanese companies have gained market share in every region and worldwide since 1984; European companies have gained share in every region except ROW, but they still have managed to gain share worldwide.

Figure 2 U.S. Equipment Company Sales Percent Share of Regional Market

Percentage 100

Unitad States Japan Europe ROW Worldiwlde

0004789-2 Source; Daiaqueit Augui[ 19S9

Percentage so

United States Japan Europe ROW Worldwide ao

Figure 4 European Equipment Company Sales Percent Share of Regional Market

Percentage 35

United States Japan Europe ROW Worldwide

0004760-4 Source: Pfttaqu«st August 19S9

© 1989 Dataquest Incorporated August JSIS Newletter SUMMARY The message of this newsletter is that U.S. equipment companies, which once dominated the fab equipment industry, no longer do so. On the other hand, the Japanese equipment industry has grown very rapidly to become essentially at parity with the U.S. companies in 1988. Also, the shift in relative market share between the U.S. companies and the Japanese companies has been rapid: U.S. company share has slipped 14 percentage points since 1984, while the Japanese companies have gained 11 points.

In addition, U.S. companies are losing their international competitiveness as they have lost market share in all regions, while their Japanese counterparts have gained market share in all regions. Japanese companies have made particularly rapid gains in ROW, a region where the U.S. companies historically have been strong. Japan has become the world's largest producer of semiconductors, and this has provided the impetus to build a strong Japanese equipment industry to support that production. As the Japanese equipment industry matures, it will seek overseas markets, particularly as Japanese semiconductor producers establish overseas facilities. Thus, U.S. and European equipment companies face increasing competition not only in Japan, the world's largest equipment market, but also in their respective home markets as the Japanese semiconductor producers expand worldwide production.

Noteworthy also are the gains being made by the European equipment companies. Although they accounted for only 10 percent of the total market in 1988, this is up from 7 percent in 1984. This gain is largely because of the European companies' increased penetration into their home market and in the United States as well. Japan is the world's largest producer of semiconductors. Japan is the world's largest market for semiconductor equipment. Will Japan also become the world's largest producer of wafer fab equipment? (This document is reprinted with the permission of Dataquest's Semiconductor Equipment and Materials Service.)

Len Hills Joe Grenier

JSIS Code: Newsletters 1989 1989-16 0004495

A VIEW FROM JAPAN: ASIC BUSINESS GOES GLOBAL

SUMMARY Both last year and this year, Japanese chipmakers rushed to announce the construction of semiconductor fabs that include the front-end process. They will be constructed in the United States and in Europe (see Table 1). In the process, many started production of ASICs, accompanied by the construction or expansion of design centers (see Table 2). This newsletter describes the role of ASICs in leading a semiconductor segment that is on its way to rapid globalization.

Table 1 Offshore Production by Major Japanese Semiconductor Manufacturers

Company Production Site Outline

NEC Roseville, CA (U.S.) Integrated production, producing 256K DRAMs, plan new factory for 4Mb DRAM production

Scotland, U.K. Integrated production for 1Mb, 256K DRAMs, increasing 1Mb DRAMs

Toshiba Sunnyvale, CA (U.S.) Integrated production for ASIC since early 1989, assembly for 1Mb DRAMs

Toshiba Semiconductor Assembly for 1Mb DRAMs, plan front- West Germany end process in Europe

(Continued)

The content of this report represents our interpretation and analysis cf information generally available to the public or released by responsible individuals in the subject companies, but is not guaranteed as to accuracy or completeness It does not contain material provided to us in confidence by our clients. Irulividual ampanies reported on and analyzed by DiOaquest may be clients of this and/or other Dataquest services This information is notjumished in connection with a sale or offer to sell securities or in connection with the solicitation erf an q^r to buy securities. This firm and its parent and/or their cfficers, stockholders, or members of their families may, fitmi time to time, have a long or short posititm in the securities mentioned and may sell or buy such securities.

Dataqiiest Incorporated, 1290 Ridder Park Drive, San Jose, CA 95131-2398 / (408) 437-8000 / Telex 171973 / Fax (408) 437-0292 Table 1 (Continued) Offshore Production by Major Japanese Semiconductor Manufacturers

Company Production Site Outline

Hitachi Dallas, TX (U.S.) Integrated production for 256K SRAMs, ASICs since May, assembly for 1Mb DRAMs

Hitachi Semicon Europe Assembly for DRAMs, micro, plan West Germany integrated production for ASICs

Fujitsu San Diego, CA (U.S.) Assembly for 1Mb DRAMs

Gresham, OR (U.S.) Integrated production for ASICs . since September 1988, plan 256K DRAMs

Fujitsu ME Ireland Assembly for DRAMs, plan front-end process in Europe and start from ASICs

Mitsubishi Durham, NC (U.S.) Plan integrated production for ASICs since January 1990, plan 1Mb DRAM assembly, investing in European production site

Matsushita Investigating U.S. production site

Source: Dataquest July 1989

State or Bipolar Bipolar CMOS CMOS Company City Province Gate Array CBIC Gate Array CBIC

Fujitsu San Jose CA * * * Atlanta GA * * * Newton Center MA * * * Hichardson TX * * * Matsushita San Jose CA * * Chicago IL * * New York NY * *

Mitsubishi Sunnyvale CA * * Boston MA * * Durham NC * *

NBC Mountain View CA * Santa Ana CA * * * Chicago IL * * * Natick MA * * * Raleigh NC * * * Portland OR * * * Dallas TX * * * Oki Sunnyvale CA * * Stoneham MA * *

Hitachi Irvine CA * San Jose CA Fort Lauderdale FL * Itasca IL * Boston MA * TX * Dallas t Toshiba Los Angeles CA * * Sunnyvale CA * * Atlanta GA * * Burlington MA * * Dallas TX * *

Source: Dataquest July 1989

United States NEC plans to build a fab for 4Mb DRAM production and recently started trial production of ASICs at the Roseville, California, fab that currently manufactures 256K DRAMs. Hitachi is adding a front-end process facility to its Dallas, Texas, fab and planned to start 256K SRAM production in May. This will be followed by full-scale ASIC production in the future. Fujitsu commenced front-end processing of gate arrays and other ASICs in September 1988 and production of 256K DRAMs last spring. Mitsubishi Electric is building a front-end process facility in Durham, North Carolina, that is scheduled to start manufacturing ASICs in January 1990. Toshiba added an ASIC front-end process line to its Sunnyvale, California, fab where it is assembling memories early this year.

Europe Four Japanese chipmakers—Fujitsu, Hitachi, NEC, and Toshiba operate semiconductor fabs in Europe. NEC has an integrated production facility. Fujitsu has been conducting feasibility studies since last year and will make an official announcement soon; Hitachi and Toshiba plan to follow suit. Again, all companies have chosen ASICs as their first products.

At the same time, Japanese chipmakers have been steadily expanding design centers in the United States. Toshiba, which currently operates five design centers, plans to establish three additional centers by the end of 1989; Mitsubishi will double its total number of centers by adding three. NEC will start U.S. production of masks for gate arrays that currently are being manufactured in Japan. This increasing pace of offshore production by Japanese chipmakers appears to be driven by the following factors:

It is triggered by the United States' new trade act; it primarily reflects the industry's intention to reduce U.S.-bound semiconductor exports to help alleviate the heating trade friction. At the same time, the 1992 unification of the European Community (EC) urges Japanese chipmakers to boost local production. The EC committee's decision in February 1989, which requires foreign semiconductor chipmakers to install the front-end process before obtaining the certificate of origin, particularly exhorts local production.

Major semiconductor users such as electronic and electric equipment makers are ahead in offshore production, motivated by trade friction and appreciation of the yen. To meet potential demand from these users, Japanese chipmakers are expected to boost capacities in overseas supply bases. A primary example is found in Europe, where there is significant demand for an increase in local contents.

Under these circumstances, why do these companies start with ASICs? Several factors are involved, some of which follow.

© 1989 Dataquest Incorporated July JSIS Newletter To ensure sustainable growth of their ASIC business, it is very important for chipmakers to have design and production bases near users. This is because ASICs essentially are semicustomized ICs that are produced by incorporating specifications required by users into the chipmakers* standard specifications. For this reason, ASIC suppliers cannot increase sales by means of exports as they can with memories that are suitable for standard design and volume production. Now that the semiconductor business is poised to serve worldwide markets, a key to present ASIC makers* survival seems to be having design and production bases in the three core markets of Japan, the United States, and Europe, in order to satisfy the needs of users in each market. ASICs are produced in small lots. This means that ASIC chipmakers can gradually increase production capacity according to sales growth, unlike memory production, which requires large-scale production facilities in the beginning. As a result, ASIC manufacture involves much less risk that is related to overseas investments. In addition to users that can enjoy more customized services with shorter lead times, the integrated ASIC design and production units established in major regional markets offers ASIC chipmakers an advantage in that market trends can be quickly identified. Because semiconductor business as a whole, including memories and other standard devices, is increasingly application specific in order to meet users' diverse needs, keeping abreast of market trends certainly becomes pivotal to successful semiconductor business in worldwide markets. As can be seen in the automobile and electronic equipment industries, the Japanese semiconductor industry is entering the age of globalization, characterized by production bases in major regional markets. It is interesting to see that ASICs are at the forefront of this process.

S. Kurama

JSIS Newletter © 1989 Dataquest Incorporated July mfe DataQuest a company of njT^Sj^fe' The Dim& Bradstcect Corporabon ;• .0 -~-y'-l'':''^ -i " "--Is ;,.!« •.;?-= •iij'^- '^'i^'.i:^':* wfla'J^'ff 9^^^ Research Newsletter

JSIS Code: Newsletters 1989 1989-15 0004222

VENTURE CAPITAL: A CREATIVE DIMENSION FOR SUSTAINED ECONOMIC GROWTH IN JAPAN

SUMMARY Japan's emergence as a financial powerhouse frequently is overshadowed by the wide publicity received by its industrial sector. Nonetheless, the world is now to witness the magnitude and strength of Japan's banking and investment community. Japanese daily investment decisions are an essential part of world financial markets. Also, within the investment community, we are seeing glimpses of Japan's burgeoning venture capital industry. Since the early 1980s, Japan's venture capital industry has progressed cautiously to its current investment of more than ¥278.0 billion ($2.1 billion). Although this sum is dwarfed by the total U.S. venture capital investment of more than $30.0 billion, its significance is in its 18.7 percent growth rate from 1987 to 1988.

This newsletter will address the following questions: What effect will Japan's venture capitalists have on U.S. venture capitalists? How does Japan's venture capital industry compare with the U.S. venture capital industry? Is the Japanese venture capital industry important? What effect will the Japanese venture capital industry have on the country's development? • Will the availability of new venture capital create an entrepreneurial spirit in Japan?

The content of this report represents our interpretation and analysis of information generatiy available to the public or released by responsible individuals in the subject companies, but is not guaranteed as to accuracy or completeness It does not contain material provided to us in confidence by our clients. Individual companies reported on and analyzed by Datatptest may be clients of this and/or other Dataquest services This inprmation is notfitmished in connection with a sale or q^r to sett securities or in connection mth the solicitation cfan (^r to buy securities. This firm and its parent and/or their c^ers, stockholders, or members (rf their families may, fivm time to time, have a long or short position in the securities mentioned and may sell or buy sudi securities.

Dataquest Incorporated, 1290 Ridder Park Drive, San Jose, CA 95131-2398 / (408) 437-8000 / Telex 171973 / Fax (408) 437-0292 t i BACKGROUND Success in today's fast-paced, competitive environment demands a constant flux of new ideas. Fostering and generating new, innovative ideas has been one of the strengths of entrepreneurial hotbeds such as northern California's Silicon Valley and Boston's Route 128. A key ingredient for this type of entrepreneurship is the wide availability of venture capital and the sharing of equity between the founders and investors. Quite often, the capital investment for developing new products and markets has come from venture capital firms. With the investment risk covered by venture capital firms, entrepreneurs are afforded a means to pursue the development and commercialization of a new product. The successful commercialization of these new products generates the revenue and profits needed to fund future product generations, thereby renewing the product development cycle and compounding revenue growth.

HOW DO JAPANESE VENTURE CAPITALISTS RATE? Japanese venture capitalists can be characterized as more conservative than their counterparts in the United States (see Table 1). Their conservatism is probably, in part, a reflection of the source of their funds. Japanese venture capital funds usually originate from banks and security firms, whereas U.S. venture capital funds traditionally have originated from wealthy individuals and, more recently, from pension funds.

Table 1 Japanese versus U.S. Venture Capital

Japan United States

Size V278 Billion >$30 Billion ($2.1 Billion)

Number of Venture Capital Funds 85 >600

Source of Funds Banks Individuals Investment banks Pensions

Entry Stage Second and later Seed and later

Primary Licensing Capital growth Consideration Strategic alliances - Seed: 10-20 times Distribution investment Manufacturing - 1st: 10 times investment Joint development - 2nd: 5-7 times investment

(Continued)

Japan United States

Secondary Consideration Capital growth

Time Horizon 3-10 years 1-5 years

Impediments to Lifetime employment Qualified management team Start-Up Vertically integrated Short-term profit demands companies Conservative public markets

Focus for Domestic Investment Service industry High technology

Focus for Foreign Investment High technology High technology

Source: Venrock Associates Dataquest June 1989

Japanese venture capitalists rarely invest seed money in a foreign start-up. Typically, they invest later on in the funding process when a tangible product or technology has been demonstrated fully. A key aspect of Japanese venture capitalists is their drive to develop long-terra strategic alliances with the start-up firm, which contrasts with U.S. venture capitalists, who focus on capital growth in a range of 5 to 20 times their investment. These strategic alliances between corporations, which back Japanese venture capitalists and start-ups, cover a gamut of areas including distribution rights, manufacturing support, and joint development. Japanese venture capitalists recognize the internationalization of technology development and are structuring their investments to seek the competitive advantage.

JAPANESE VENTURE CAPITAL: LEVERAGING FOR ECONOMIC GROWTH Japan's future economic growth will be derived largely from its broad-based, domestically generated products and technologies. But this growth is being supplemented shrewdly by venture capital investment in small, new technology start-ups established outside of Japan. These start-ups exchange their knowledge of new technologies, products, and markets for funding, distribution rights, and/or manufacturing capabilities. Thus, the larger Japanese firm, using this strategic infusion of new technologies coupled with its manufacturing and marketing prowess, gains a stronger competitive position.

JSIS Newsletter © 1989 Dataquest Incorporated June 3 WHERE ARE THE JAPANESE ENTREPRENEURS? i Recently, finding Japanese start-ups in high-technology areas has been rare. Employment within Japan's traditional industrial base is commonly associated with a variety of workers' benefits, of which "lifetime" employment is the most widely publicized. Good employee benefits and a strong company culture make the transition from company employee to entrepreneur relatively unattractive.

Another hurdle that the Japanese entrepreneur and venture capitalist must overcome is the length of time before an initial public stock offering (IPO) can be made in Japan. An IPO in Japan can take up to seven years versus the three-to-four-year IPO for a U.S.-based corporation. The difference in IPO timing reduces the rate of return dramatically. Furthermore, vertical integration of large Japanese companies makes it difficult to penetrate the market. Frequently, the market is owned by the large conglomerates. Entrepreneurs can find themselves trying to compete with their former employers, and sometimes the former employers control the supplier as well as the customer base. Without a reasonable chance to succeed, an entrepreneur in Japan would probably find that the risks outweigh the rewards.

However, entrepreneurial opportunities do exist in the relatively new and growing service sector. Japan's emphasis on expanding leisure time has led to a growth industry, which offers an ample supply of opportunities, entrepreneurs, and venture capital. U.S. venture capitalists may find that, through entering Japan's service sector start-up market, they can ferret out opportunities in the industrial sector.

DATAQUEST RECOMMENDATIONS Growth opportunities exist in Japan for the venture capitalist, the CEO of an established corpwaration, and the start-up entrepreneur. The venture capitalist can develop an international presence, which may help foster a new entrepreneurial well spring. Without an international presence, U.S. venture capitalists limit their perspective of developing markets and technologies. CEOs with a maturing product line may consider investments in start-up companies as an avenue to enhance their product lines and maintain a window into leading edge technologies. More and more established firms are overcoming the not-invented-here (NIH) syndrome and are actively pursuing corporate development through capital investment in start-ups that offer new technologies and markets. The start-up company can take advantage of capital investment and international business connections to penetrate foreign markets faster and more skillfully.

Economic growth is won by those who successfully master the blending of capital and management to introduce new technologies and products. Venture capital is key to this process.

Len Hills

JSIS Code: Newsletters 1989 1989-14 0003953

TRADE ISSUE DEBATED AT DATAQUEST CONFERENCE AS SUPER 301 APPROACHES

OVERVIEW Super 301 is a provision of the 1988 Omnibus Trade Act passed by the U.S. Congress. According to this provision, the U.S. Trade Representative (USTR) must identify "priority countries" and "priority practices" that inhibit U.S. trade in world markets and then take actions against those countries and practices. The USTR must report on priority practices and countries by May 30, 1989. The Semiconductor Industry Association (SIA) has stated that Japan has not made any progress in opening its markets to foreign suppliers of semiconductor components in the last 10 years. The SIA believes that it is very likely that Japan will be placed on the Super 301 list. Japan's Ministry of International Trade and Industry (MITI) counters the American claim with an assertion that foreign market share has increased since 1986. MITI further contends that continued low levels of foreign purchases reflect product mismatches, not trade barriers. On April 17, 1989, MITI assembled approximately 160 Japanese companies in Tokyo and instructed them to submit action plans concerning how they would increase semiconductor purchases from foreign suppliers. MITI also introduced an 11-point, step-by-step plan to solve the U.S. complaint of closed markets. Dataquest believes that both sides have a common goal to increase the use of foreign products in Japan; however, the methodology and the time frame for reaching the goal are where the two sides clash.

Both sides of the rapidly intensifying trade dispute between Japan and the United States were presented to a audience of some 350 semiconductor industry managers at Dataquest's Japanese Semiconductor Industry Conference held in Tokyo on April 20 and 21, 1989. Yukio Honda, director of the Industrial Electronics Division of MITI, presented MITI's 11-point plan for improving trade relations. Andrew Procassini, president of the SIA, presented his organization's view that the Japanese markets still remain essentially closed to foreign suppliers.

The content of this report represents our interpretation and analysis of information ger\erally available to the public or released by responsible individuals in the subject companies, but is not guaranteed as to accuracy or completertess It does not contain material provided to us in confidence by cntr clients. Individual amipanies reported on and analyzed by Dataquest may be clients of this and/or other Dataquest services. This ir^rmaticm is notfitmished in connection with a sale or offer to sell securities or in connection with the solicitation of an offer to buy securities. This firm and its parent and/or their officers, stackholders, or members of their fimulies may, from time to time, have a long or short position in the securities mentioned and may sell or buy such securities,

Dataquest Incorporated, 1290 Ridder Park Drive, San Jose, CA 95131-2398 / (408) 437-8000 / Telex 171973 / Fax (408) 437-0292 MXTI'S PROPOSAL Mill's 11-point proposal to encourage expansion of market access for foreign semiconductors as revealed at the Dataquest meeting is as follows: • Point 1—MITI will encourage major semiconductor users, including Electronic Industry Association of Japan (EIAJ) user's committee members and Japan Auto Parts Industries Association (JAPIAS) members, to adopt market access plans. MITI also will encourage biannual updating of all market access programs and establishment of a special internal committee to increase procurement of products from foreign suppliers as part of their market access programs.

• Point 2—MITI will encourage expansion of efforts to design-in foreign semiconductors. • Point 3—MITI will encourage automotive parts manufacturers to make qualification and test criteria available to foreign semiconductor suppliers from the early stage of new product development to expedite qualification of foreign semiconductors for current automotive electronics parts production and to commercialize existing joint R&D efforts between Japanese automotive electronics parts manufacturers and foreign semiconductor suppliers. • Point 4—MITI will encourage Japanese high-definition television (HDTV) manufacturers to hold symposia and/or seminars to provide information about the development of the system and the market and to establish a contact window to facilitate foreign producers' access to the HDTV system producers. • Point 5—MITI will encourage Japanese manufacturers of consumer electronics to do joint developments with foreign semiconductor suppliers, the objective of which is to increase the foreign semiconductor content in consumer electronics. • Point 6—MITI will encourage ISDN (Integrated Services Digital Network) equipment makers to aim programs at design-ins of foreign semiconductors. • Point 7—MITI will encourage Japanese users to make further efforts to expand their qualifications of foreign products. • Point 8—MITI will encourage Japanese users to engage in long-term relationships with foreign suppliers. • Point 9—MITI will encourage frequent and timely meetings between EIAJ members and foreign suppliers for the purpose of building relationships and solving problems. • Point 10—MITI will encourage EIAJ members to hold seminars for foreign semiconductor suppliers to introduce their new products. • Point 11—MITI will encourage foreign semiconductor suppliers and EIAJ member companies to develop and implement engineering exchange programs.

© 1989 Dataquest Incorporated May JSIS Newsletter MTTI'S ACTIONS In order to enforce the proposed 11 points, Mr. Honda stated that MITI will take the following actions: • MITI will encourage semiconductor user companies to make action plans and to update them biannually. MITI will follow up on their implementations. • MITI will conduct periodic surveys regarding procurement of foreign semiconductors and will publicize the results in statistical form. • MITI will survey, when appropriate, the implementation of design-ins and the establishment of long-term relationships. Mr. Honda's presentation was followed by a spirited question-and-answer session. Surprisingly, all of the questions were from Japanese semiconductor company representatives; the considerable number of American and European representatives remained silent. Most responses were not questions but rather "minispeeches" that expressed the speaker's own view on the trade issue and MITI's approach. Mr. Honda stated that MITI could not make guarantees for the industry and stressed the fact that MITI could only encourage the enactment of the suggested 11 points, not having the power of absolute enforcement.

SIA'S POSITION MITI's proposal was followed immediately by the presentation by Andrew Procassini, president of the Semiconductor Industry Association. Mr. Procassini quickly recognized Japan as having the world's strongest economy. He suggested, however, that Japan is not recognized as the world's financial leader, and he stressed that the financial leader of the world must be prepared to take on additional responsibilities. Sourcing R.T. Murphy in the March-April 1989 edition of Harvard Business Review. Mr. Procassini listed the following five essential characteristics of a world economic and financial leader

Maintains its currency as a store of value Allows its currency to function as a global reserve currency Acts as an international lender of "last resort" Ensures that its domestic and international financial institutions are sound and innovative Keeps the trading systems open even at domestic political cost The United States was the world economic and financial leader for many years. However, with this leadership in question, much of the world is looking to Japan to assume the leadership. Mr. Procassini advised the audience that, in the view of the SIA, Japan at present cannot be counted on for assumption of world economic and financial leadership because of an "adversarial trade mentality." He then presented a series of statistical tables supporting his position.

Table 1 Import Penetration Rates in All Manufacturing (Imports as a Percentage of Consumption)

Importing Country United States Germany Japan Imports From 1975 1986 1975 1986 1975 1986

World 7.0 13.8 24.3 37.2 4.9 4.4 OECD Countries 4.9 9.3 20.5 30.6 2.9 2.6 Developing Countries 2.1 4.2 2.6 4.4 1.8 i.a

Source: ACTN Report

Mr. Procassini argues that, based upon these statistics, Japan's imports have declined since 1975 while the United States and Germany (a nation similar to Japan in the sense of having very few natural resources) have experienced increases of 197 percent and 153 percent, respectively, in their imports. In the total electronics marketplace, Mr. Procassini suggests that Japan's imports are not on par with the United States and Europe (see Table 2).

Table 2 Total 1987 Electronics Production, Export, and Import Ratios

Production as % of Exports as % of Imports as % of Regions World's Production Reaion Product;io n Reaion Consumption

Europe 24 18 29 United States 38 20 21 Japan 26 36 6

Source: EIC SIA

© 1989 Dataquest Incorporated May JSIS Newsletter Finally, as illustrated by Table 3, Mr. Procassini compared selected segments of electronic production such as hard disk drives and personal computers. He stressed to the audience that, even though Japan is a minority market-share producer of these products, it nevertheless exports 57 percent and 55 percent, respectively, of its production and imports but 1 percent of its hard disk drives and 17 percent of its personal computers.

Table 3 Electronics—Selected Segments 1987 Production, Foreign Sales, and Fweign Penetration Ratios for U.S. and Japanese Producers and Consumers

Producers Consumers Production as Foreign Sales Foreign a % of World as a '^ of Penetration as a Production Production % of Consumption Segment U.S. Japan UtS, Japan U.S. Japan Hard Disks (5-1/4") 63 28 25 57 22

Personal Computers 69 18 25 55 13 17

Semiconductors 41 45 39 25 19 10

Source; SIA Dataquest May 1989

Mr. Procassini concluded by noting that the American semiconductor industry (SIA) and the Japanese semiconductor industry (EIAJ) are "working very hard" to improve the openness of the Japanese market, but that it was "not an easy task and extraordinary efforts" would be required on both sides.

DATAQUEST ANALYSIS Taking the SIA's statistics at face value, it is understandable to conclude that Japan has made no progress in opening its semiconductor user markets to foreign suppliers. A fairly thorough sampling of the opinions of Japanese executives regarding the SIA talk produced the following comments: • No one disputed the statistics presented or construed them to be presented for the purpose of "Japan bashing."

JSIS Newsletter © 1989 Dataquest Incorporated May • Virtually all agreed that a problem existed in one degree or another and that Japan must improve its market access to foreigners. • Many commented that Japan still cannot produce enough foodstuffs to feed its people from independent means. A strong export balance is one way to ensure that Japan will always be able to obtain essential agricultural products. Dataquest believes that Japan is sincerely concerned about the trade issues. The major Japanese companies and MITI genuinely believe that they are taking the hard steps that will ultimately lead to markets more open to foreign suppliers of semiconductor components, and evidence indicates that this is true. Mr. Procassini praised the five largest Japanese semiconductor consumers for increasing their purchases of semiconductors to 17 percent of total supply from foreign suppliers. We note, however, that the other Japanese companies procure only about 7 to 8 percent of their semiconductor needs from foreign sources. Nevertheless, key Japanese semiconductor leaders are sensitized to the need for open markets. NEC Executive Vice President and Director, Mr. Tomihiro Matsumura, stated that "The Japanese industry should realize its important role in the worldwide industry, because a small erroneous decision could result in a serious problem in terms of international economic conflicts." Dataquest agrees. The semiconductor industry has become totally global in nature, with the Japanese being the memory suppliers and the Americans the microcomputer and microprocessor suppliers. The worldwide semiconductor industry will not achieve its intrinsic potential if the two largest participants continue their adversarial trade relationship. It is Dataquest's observation that the two sides are not in, substantial disagreement as to the goal. Rather, the contest is over the methods of achieving the goal. The U.S. semiconductor producers have seen their market share eroded more each year and are drawing the line and demanding action now. The Japanese culture dictates change through a step-by-step, albeit slow, methodology. The matter is as much an issue of culture and fundamental approach to life as it is a world-class economic dispute. Japan and the United States must coexist on this planet, which, by virtue of the formidable technology the two nations have created, grows smaller each year. Much of the solution lies in achieving a mutual understanding of the basic differences between the countries and in making concessions to those differences that run deep on both sides. The Japanese have displayed a passion, rarely seen in prior history, for producing goods destined for export. Changing a national agenda so intrinsic to Japan's way of life simply will not occur overnight. On the other hand, the U.S. semiconductor industry executives who are insisting that Japan's markets be opened expeditiously and that Japan take upon the responsibilities commensurate to a world economic leader are of a superior fiber to those who watched with seeming disinterest as America's basic industries moved offshore. These individuals have a deep commitment to and a firm belief in the essentials of strong American participation in the global semiconductor industry. They are resolved in their determination to gain access to Japan's markets.

In Dataquest's opinion, both the MITI 11-point proposal and the EIAJ/SIA commitment to make the electronics marketplace a model for other key industries potentially represent the right solution to this most arduous problem. Bridget O'Brian David Angel

^.S'.ii&i' ^1 Research Newsletter

JSIS Code: Newsletters 1989 1989-13 0003829

STEPPING INTO THE 1990S: JAPANESE SEMICONDUCTOR INDUSTRY CONFERENCE

Globalization, RISC versus CISC, new technologies, and trade conflicts were some of the hot topics discussed in April at the 1989 Dataquest Japanese Semiconductor Industry Conference in Tokyo. Dataquest's president, Manny Fernandez, gave the welcoming address, in which he stressed the importance of globalization in the 1990s. He said that to meet Dataquest's clients' needs, the company now has 750 employees in 13 different countries. Dataquest has also just announced a joint venture with the Chinese government's Institute of Electronics. The two groups will work together to publish a newsletter on the Chinese electronics industry.

DATAQUEST'S FORECAST AND VIEW OF THE 1990s Dataquest's director of the Japanese components group, Osamu Ohtake, discussed the strengths of the Japanese semiconductor industry in 1989 and the areas to watch in the future. His advice to Japanese industry in the 1990s is as follows: • "Americanize, Europeanize, and Asianize" production and management. • Continue to invest heavily in R&D. • Increase intellectual property through licensing and transfers. • Expand the product mix. • Diversify the existing customer base. Hal Feeney, vice president and director of the Components Group, gave an overview of the historical semiconductor industry, pointing out that the industry cycle shows tremendous highs and lows, often paralleling general economic conditions. Slowdowns occur every four to five years, and a plateau occurs every ten. Accordingly, and in line with Dataquest's recent forecast, 1990 is the next predicted plateau. Dataquest is expecting a strong first half of 1989 and then three quarters of decline.

The content of this report represeras our interpretation and analysis ofinprmation generally available to the public or released by responsible individuals in the subject txmipanies, but is not guaranteed as to accuracy or completeness. It does not amtain material provided to us in confidence by our clierus Individual comparues reported on and analyzed by Dataquest may be clierus cfthis and/or other Dataquest services This information is notjumished in connection with a sale or ofier to sell securities or in connection with the solicitation of an offer to buy securities. This firm and its parent and/or their officers, stoddiolders, or members of their families may, from time to time, have a long or short position in the securities menticmed and may sell or buy such securities

Dataquest Incorporated, 1290 Ridder Park Drive, San Jose, CA 95131-2398 / (408) 437-8000 / Telex 171973 / Fax (408) 437-0292 Tomihiro Matsumura, executive vice president and director of NEC, discussed the changing role of the semiconductor industry and managerial considerations for the 1990s. He explained that the semiconductor industry has moved from its position as the "rice of industry" to being a driving force into the "Information Age" of the 1990s. In order to maintain a strong position, he stressed that management must take the following steps: • Maintain strategic perspective. • Globalize and coordinate R&D efforts, production, and marketing. • Develop creative products and respect intellectual property.

TRADE RELATIONS In light of the increasing tensions between Washington and MITI and their effects on the semiconductor industry, Dataquest invited Yukio Honda, director of the Industrial Electronics Division of the Machinery and Information Industries Bureau of MITI, to discuss his view of trade relations. Mr. Honda stated that Japan's market is open, and significant effort has been made to increase foreign market share. On April 17, MITI held a meeting with 90 Japanese equipment manufacturers (85 percent of the available semiconductor market) to establish company-specific action plans to increase purchases of foreign semiconductors. MITI also will promote technical tie-ups with foreigners and more long-term cooperation between foreign suppliers and Japanese manufacturers. However, foreigners also need to make more investments in marketing, sales, and ASIC design centers. Andrew Procassani, president of the Semiconductor Industry Association, followed Mr. Honda's talk with a discussion about Japan's role as a world economic and financial leader. He made the point that Japan is not yet a world economic leader because it does not have an open trading system. He said that a world financial leader "keeps the trading systems open even at domestic political cost," and Japan does not do this. Mr. Procassani went on to support his argument with comparisons between Japan and the United States in areas of production, exports, imports, openness, and competitiveness. He said Japan could become a world financial leader if it decided to open its markets, but the choice is up to Japan. For more detailed information on these two speeches, please see Dataquest's SIS newsletter entitled "Trade Issue Debated at Dataquest Conference as Super 301 Approaches."

EUROPE AND HONG KONG Cees W.M. Koot, managing director of Philips' Components Division, spoke about the influence of Europe 1992 on the IC industry. He stressed that 1992 is not an end but "a means to make Europe more competitive in the global market." Nineteen ninety-two is a process, not just a date. Europe needs to develop the industrial food chain

© 1989 Dataquest Incorporated May JSIS Newsletter to make it a strong industrial player. The following three things, he said, would help make Europe stronger: • Much more cooperation among European companies and countries • Development of new advanced products with new applications such as HDTV or ISDN • Investment in industrialization to create European interdependence, not dependence We also heard from K.Y. Yeung, former director of Industry and designate secretary of Education and Manpower for the Hong Kong government. He emphasized that even though Hong Kong will revert to Chinese control, it will retain its stability in the business arena. It will continue to develop economic and trade relations with all countries, and its currency will remain freely convertible. One of the changes taking place now is that low-value-added, labor-intensive production is shifting from Hong Kong to China. The Chinese factories are still owned partially by Hong Kong interests, making "Hong Kong a supply base for Chinese production and a more sophisticated production center in its own right." To answer the needs of the electronics industry, Hong Kong has: • Set aside scarce land for a high-technology zone • Emphasized the Importance of educating more electrical engineers • Provided government grants for the creation of new labs and industrial consulting services • Planned to establish a Department of Intellectual Prc^erty in 1990 to match the degree of protection provided by the United Kingdom

CAPITAL SPENDING IN THE 1990s Hideharu Egawa, vice president of Toshiba, gave an overview of the semiconductor industry and strategic investment areas for the 1990s. Investments in the short term will be slow for two reasons: • Trade tensions have caused Japanese manufacturers to decrease their investments. • IC profit margins are decreasing as technologies become more sophisticated. Long-term globalization, international strategic alliances, and product integration with less specialization will stimulate investments. In addition, although equipment manufacturing is not forecast to grow significantly, the memory content will increase. Toshiba projects that in four years, the memory content of equipment will reach 1.6 times the 1989 content. Furthermore, each generation of DRAM technology will require capital investments to double.

JSIS Newsletter © 1989 Dataquest Incorporated May IRON Kazuo Kimbara, vice chairman of the TRON association and board director and group executive of the Electronics Devices Group at Hitachi, gave us an update on the real-time operating system nucleus (TRON) and its future. He pointed out the growing demand for 32-bit microprocessors and predicted that by the year 2000, 20 to 25 percent of the total 32-bit production would use TRON architecture. The chip specifications include efficient handling of international languages, powerful graphics handling, expandability to 64 bits, and fast response times. The family of global microprocessor (Gmicro) chips, the H32 series, is receiving special attention from the TRON association, and Fujitsu, Hitachi, Mitsubishi, and Oki have recently announced products.

HDTV Yoshiro Nakamura, executive director of General Engineering at NHK, summarized HDTV developments and outlined some of the applications. Two standards are needed, studio and transmission. The studio standard for Japan is 1,125 scanning lines (compared with 525 previously), 16:9 aspect ratio (compared with 4:3 previously), and a field frequency of 60 pictures per second (same as previously). The transmission standard set in Japan is called MUSE (Multiple Sub-Nyquist Sampling Encoding System) and is based on a satellite transmission that takes a 20-MHz wide signal channel and compresses it to slightly more than 8 MHz. This was used for the transmission of the Seoul Olympics. Both standards are e)q)ected to be finalized by the end of 1989. The proposed standards are not backward compatible with existing sets, so anyone wanting to take advantage of broadcasts in the early 1990s will need a converter. Basic development of HDTV equipment has been completed, but it is now being fine-tuned.

Mr. Nakamura stressed that HDTV is not only a TV but also an "image media" because of its wide range of applications. HDTV broadcasts are expected to be common in Japan in late 1990 after a new satellite is launched. It is expected to be the core media in the twenty-first century. HDTV can be used for motion pictures, printing, libraries, medicine, and other industrial environments because it has the picture quality of 35mm film and the ability to store and retrieve data.

RISC VERSUS CISC Dataquest hosted a lively panel discussion on the future of RISC versus CSIC. Moderated by Dataquest's Hal Feeney, the panel's participants were K.C. Murphy, vice president of Worldside Applications Engineering at AMD; Dr. C. Gordon Bell, vice president of R&D at Ardent Computer; Dr. Tsugio Makimoto, general manager of the Semiconductor Design and Development Center at Hitachi; William Howe, president of Intel Japan; and Hajime Sasaki, vice president and director of NEC. Most panelists felt that there was a strong future for both RISC and CISC. Mr. Murphy stated that CISC would find applications in the MS-DOS world and RISC would be in the embedded arena. Dr. Makimoto pointed out that the boundaries between the reduced instruction set offered by RISC and the increased performance of CISC was becoming fuzzy. He predicted that CISC will move closer and closer to the RISC

© 1989 Dataquest Incorporated May JSIS Newsletter technology and that by 1996, we will see "RISCy CISC" and "CISCy RISC." The selection of the architecture will depend on the application and the price/performance. Compilers would also have a decided impact on future processor trendSs. Mr. Sasaki agreed, saying that both architectures have clear advantages. For example, CISC allows high integration and RISC increases performance. Both architectures have their limitations as well, such as the complexity of CISC and the memory requirements of RISC. NEC believes that the next step after RISC and CISC will be MISC, or multiple-instruction-stream controller^ which has small cache memory, parallel processing, and software to optimize the compiler and uses BiCMOS or ECL to increase clock frequencies. Mr. Howe of Intel asked the rhetorical question, "Does Intel have a RISC chip?" His response was that RISC is a not only an architecture, but also a technology, and that Intel is using the RISC design strategies to build its microprocessors. For example, the newly introduced 486 chip does a majority of instructions in one cycle, which is a RISC feature. Dr. Bell argued that there was no debate. The issue had already been decided and RISC had won. He stated that compatibility was the most important issue because there are not enough programmers to develop all new software for each architecture. He predicted that the new personal supercomputers will all be RISC-based. RISC provides the best use of silicon, is easy to design, streamlines the instruction set, and allows the maintenance of clock speeds and the development of smaller architectures—for example, GaAs-based chips. The only drawback at the current time is the difficulty of programming with RISC. Dr. Bell also made a plea for suppliers to spend more time talking to users in order to design with the users in mind.

MICROPROCESSOR MARKETS After the lunch break, Intel's William Howe spoke about the microprocessor market in the 1990s. His view of the future is that there will be three different application markets—supercomputers, which require high performance; commercial markets such as PCs, which require compatibility, and embedded markets, which require optimized hardware ccmfigurations and system integration. The overall microprocessor market will be driven by the following trends: the development of megaprocessors, the domination of software issues, the need for distributed intelligence, and increased user expectations.

SUPERCOMPUTERS Dr. Bell of Ardent explained his "distributed, personal supercomputing perspective." He pointed out that he already was seeing the erosion of differences between mainframe computers and supercomputers due to the CMOS processes. His five-year forecast called for parallel processing that provides three to four times the speed per year, all RISC-based machines, and unprecedented gains in processing power, primary and secondary memory, and graphics. He also stated his belief that within five years, a large computer will be very affordable. He emphasized that software development is crucial to future applications.

JSIS Newsletter © 1989 Dataquest Incorporated May ISDN NTT's Dr. Moriji Kuwabara, executive vice president and senior executive manager of the Engineering Strategy Planning Headquarters, spoke about the status of ISDN. Deployment of ISDN is tied to the progress of digital technology such as switching, transmission, and applying digital transmissions to subscribers' lines. NTT is working to create a single ISDN network based on digitalization to integrate telephones, faxes, telegrams, and data terminal transmissions. Standards are expected to be finalized by the end of 1989, after which commercial use will begin. He forecast that industry in the 1990s will be driven by the demands and needs for information, causing a fusion of communication, broadcasting, and CATV, and an increasing urgency for standardization.

SEMICONDUCTOR PRODUCTION EQUIPMENT Hideki Yoshinari, general manager of the Semiconductor Production Equipment Development Center at Canon, described the future trends in equipment applications. A driving force is the half-micron production of 16Mb DRAMs. He pointed out that the G-line lens stepper is one of the promising tools for manufacturing 16Mb DRAMs, and that the excimer laser stepper is needed for the sub-half-micron production of 64Mb DRAMS. The excimer laser still requires several improvements: overlay accuracy, deep ultraviolet photoresist, and overall reliability.

CONCLUDING REMARKS Although many different topics were covered at this year's conference, it was clear that the overriding concerns for the 1990s are globalization, improvement of user-vendor relationships, new technologies, software development, and next-generation memory products. This newsletter gives only a cursory overview of the exciting information that was provided by Dataquest's conference speakers. All JSIS clients who did not either attend the conference or send a designee will receive a copy of the conference binder.

Bridget O'Brian

© 1989 Dataquest Incorporated May JSIS Newsletter Dataoyest acompanyof IIK Dun sBradstmt CorpwatKHi Research Bulletin JSIS Code: Newsletters 1989 1989-12 Rev. June 1989 0004079 SONY EXPANDS IN SILICON VALLEY: FIRST STEP TOWARD THE VIDEOCOMPUTER?

Sony Corporation of America recently announced 'plans to expand its high-definition television (HDTV) research by moving its U.S. research activities to a new location in San Jose. This new research center will pursue both advanced video research and software development for Sony's NEWS workstation. Dataquest believes that this move positions Sony in the emerging North American HDTV and "multimedia computing" (or ! videocomputing) markets. For local companies, it is an opportunity to jointly develop J semiconductors and software for use in Sony's next-generation video products. ESTABLISHING AN HDTV BEACHHEAD Sony's Advanced Video Technology Center (AVTC) was established in Palo Alto, California, in 1977. At its new San Jose center, Sony will spend up to $20 million to provide R&D, technical, and service support for its HDTV production equipment. Dr. Harry Taxin of Sony's Technology and Engineering Operation will head the center, which will consolidate two groups: the Sony Technology Center in Palo Alto, which is developing broadcast equipment and circuitry for digital videotape recorders (VTRs), and its video engineering and technical support facility in San Jose. The center will work closely with the NEWS workstation software development team.

KEEPING UP WITH THE TANAKAS Sony's technical center is an effort to keep up with rivals in the U.S. market. In particular, Sony is trying to overtake Matsushita in the video marketplace. As indicated by the list in Table 1, top Japanese companies have opened R&D centers in the United States to develop new video technologies. These companies are positioning themselves for growing U.S. and European protectionism and demands for local production and procurement. Sony will supply $200 million to $250 million worth of high-resolution display panels to IBM, which has a multibillion-dollar contract with the Federal Aviation Agency (FAA).

Nevertheless, Japanese companies have found it difficult to buy appropriate "off-the-shelf components and subsystems as a result of the U.S. withdrawal from consumer electronics. These R&D centers will allow them to design directly with U.S. suppliers. We believe that a closer vendor-user tie is the key to success in the Japanese market. In the 1990s, "company access" will be increasingly important as Japanese companies globalize their research, manufacturing, and procurement operations.

The content oflhis report represents our interpretation and analysis of information generally available to the public or released by responsible individuals in the subjet I companies, but is not guaranteed as to accuracy or completeness It does not contain material provided to us in confidence by our clients Individual companies reported on and analyzed by DATAQUEST, may be clients of this and/or other DATAQUEST services. This information is not furnished in connection with a sale or offer to sell securities or in connection with the solicitation of an offer to buy securiies. This firm and its parent and/or their officers, stockholders, or members of their families may, from lime to lime, have a long or short position in the securities mentioned and may sell or buy such securities

Dataquest Incorporated, 1290 Ridder Park Drive, San Jose, CA 95131-2398 / (408) 437-8000 / Telex 171973 / Fax (408) 437-0292 Table 1 Major Japanese R&D Centers in the United States Company Qpen^^l Location Research Focus Matsushita 1981 Santa Barbara, California Speech acoustic, synthesis Matsushita 1981 Burlington/ New Jersey Video broadcasting systems Matsushita 1987 Woodwide, Illinois PCS, computers, indus. elec. NEC Systems N/A Foxboro, Massachusetts Software, prototype hardware NEC Home El. 1987 California PCs, home electronics NEC 1987 Natick, Massachusetts Specialty memories NEC Research 1988 Princeton, New Jersey Audiovisual, human thinking Sony 1988 Palo Alto, California NEWS workstation software N/A = Not Available Source: Dataguest May 1989 ENTERING THE RISC BATTLE Sony's new center puts it squarely in the heated RISC-based technical workstation market. Currently, Sony's NEWS workstation ranks second in Japan. By developing software and faster RISC chips with its partners—VLSI Technology and MIPS Computer—Sony could increase its market share against Sun Microsystems. Sony's new center appears to be modeled after that of Fujitsu Microsystems Inc., which is developing RISC chips in San Jose for Sun's popular workstations. NEC, which has chip-design facilities in Silicon Valley, also announced an agreement to supply RISC chips to MIPS Computer. Table 2 outlines the emerging battlelines for RISC computers.

Table 2 The Emerging Japanese U.S. RISC Camps Camp United States Japan Europe SPARC Sun Microsystems Fujitsu (MB86900/S-25), Toshiba MIPS MIPS Computer NEC (R3000), Sony Siemens (R3000) ACORN VLSI Technology Sanyo (VL86C010) (VL86C010) 88000 Motorola Toshiba (future RISC partner?) 29000 AMD (AMD29000) Sony (future RISC partner?) i860 Intel Source: Dataguest May 1989 PREPARING FOR THE VIDEOCOMPUTER Finally, Sony is laying the groundwork for its entry into industrial HDTV, or videocomputing, which Dataquest believes will become the next boom in Silicon Valley. Videocomputers, also known as multimedia computers, will be used for sophisticated three-dimensional modeling, simulation, and instruction. They will feature parallel RISC processors, megabit memory chips, hypermedia software, optical disks, expert systems, and sensor interface. Sony has the video hardware technology, audiovideo software through its CBS acquisition, and access to Hollywood; however, it needs advanced semiconductors to move into high-end computing. By opening an R&D center in Silicon Valley, Sony can leapfrog competitors and demonstrate its intention to buy more from U.S. suppliers. It is a "win-win" situation for both Sony and the U.S. suppliers. Sheridan M. Tatsuno

JSIS Code: Newsletters 1989 1989-11 0003761

JAPANESE SENflCONDUCTOR INDUSTRY FIVE-YEAR FORECAST: INDUSTRIAL ELECTRONIC EQUIPMENT DRIVES GROWTH

SUMMARY The impact of 1988, with its memory shortages and tremendous growth rates, has continued into the first half of 1989 according to Dataquest's forecast for the Japanese semiconductor industry. The industry will begin to slow in the third quarter of 1989, reaching a year-end growth rate of 14.9 percent. This is up from our previous forecast of 8.3 percent, for the following reasons: • Memory device shortages have persisted into the first quarter of 1989. • Domestic industrial equipment demand was strong in the first quarter of 1989 and is expected to continue through the end of the year. • Capital spending by private companies has been active. • Export of industrial electronics has been vigorous. Our extended forecast shows a slowdown in 1990, picking back up again by 1991. Because of the impact of recent persistent memory shortages, we are forecasting the next peak year for the Japanese market to be 1993, which would make a five-year cycle from peak to peak. Historically, the industry has peaked every four years. We forecast this same five-year cycle in all regions except Europe, which is expected to peak in 1992 as more production moves into Europe and European manufacturers gear up for intense competition.

The content oft}m report represents our itUerpretation and analysis of information generaily available to the public or released by responsible individuals in the subject companies, but is not guaranteed as to accuracy or amipleteness It does not contain material provided to us in confidence by our clients. Individual companies reported on and analysed by Dataquest may be clients of this and/or other Dataquest services. This irformation is notfitmished in connection with a sale or offer to sell securities or in connection wi^ the solicitation cfan o^r to buy securitws. This firm and its parent and/or their officers, stodcholders, or members of their families may, from time to time, have a long or short position in the securities mentitmed and may sell or buy such securities,

Dataquest Incorporated, 1290 Ridder Park Drive, San Jose, CA 95131-2398 / (408) 437-8000 / Telex 171973 / Fax (408) 437-0292 FORECASTS

Short-Term Forecast—1988 through 1990 In the next two years, the semiconductor market in Japan will be driven by industrial equipment, through both domestic demand and exports. Products that will drive Japanese semiconductor consumption in 1989 and 1990 are as follows: • PCs and laptops (private and public use) The current installed base is very small. 32-bit machines have been introduced that can handle Japanese language software. - Companies purchasing smaller computer systems are eligible for a tax break with the new tax system. A PC-based communication system between private investors and their brokers has been introduced. • Larger office computer equipment Securities companies are being pressured to improve data processing techniques. Companies that are expanding globally need to upgrade and expand computer systems. • Automatic teller machines - A new system is being used where customers access their bank account directly from the store checkout. • Fax machines Growth of exports was strong in 1988 and is expected to continue into 1989 because of a small overseas installed base. • Point of sale (POS) terminals and electronic cash registers (ECRs) Retailers need to buy new hardware to meet the requirements of the newly introduced consumption tax. Growth in industrial equipment will keep semiconductor consumption strong in 1989, despite a predicted slowdown in consumer electronics. Historically, after a year of strong growth, consumer spending drops off. Dataquest's projected growth rates for consumer electronic equipment consumption is 7.4 percent in 1988, 30.0 percent in 1989, and 4.0 percent in 1990. Consumer spending also has been slower than normal in the first quarter of 1989 because of the expectation of lower prices after the introduction of the April 1 consumption tax. Taxes on luxury items such as CD players, VCRs, camcorders, and

2 © 1989 Dataquest Incorporated May JSIS Newsletter color televisions dropped from 10 to 3 percent. Demand for these items is expected to pick up again in the second quarter. Memory devices are another reason for a strong 1989 semiconductor market forecast. The current situation of supply and demand is outlined as follows: • IM DRAM—At the end of the first quarter of 1989, supply is still less than demand. Expectations are that supply will equal demand by mid-1989 because of a boost in production. Prices are slowly dropping. • 256K SRAM—Prices and demand are increasing because of growth of POS terminals, ECRs, and electronic schedulers. There is a shift in both suppliers, as new ones enter the market, and users, as IM DRAM supplies improve. • Mask ROM—The supply-to-demand ratio is worse now than in 1988. One reason is the popularity of Nintendo game machines, which use mask ROMs. In the next two years, we expect capital investments to remain strong, but to stay below 1984 levels. Many manufacturers are increasing investments, but cautiously, unlike what we saw in 1984. Return on investment is now 1, for the first time since 1984. Tables 1 and 2 show quarterly growth rates based on yen and U.S. dollars, respectively, for the Japanese semiconductor market from 1988 to 1990.

Table 1 Japanese Semiconductor Consumption Forecast Quarterly Growth Rates for 1988-1990 (Percent Change in Yen)

1997 01/98 02/88 Q3/88 04/88 1988 Total Semiconductor 9.0"^ (1.1%) 9.4% 7.9% 5.8% 20.5% Total IC 10.9% (0.4%) 10.5% 8.6% 7.1% 23.6% Bipolar Digital 4.1% (5.0%) 7.7% (5.4%) 0.8% 5.0% Memory 16.0% 11.0% 5.9% 14.2% 0.1% 24.5% Logic 2.3% (7.5%) 8.0% (9.0%) 0.9% 1.7% MOS Digital 16.4% 15.9% 14.9% 12.3% 7.7% 40.7% Memory 12.5% 12.1% 22.4% 20.3% 15.3% 64.6% Micro 19.9% 19.2% 12.7% 8.8% 0.6% 20.8% Logic 17.6% 17.3% 8.9% 5.8% 3.2% 33.5% Analog 4.5% 3.7% 1.5% 6.0% 8.7% (0.8%) Discrete 4.0% 3.2% 5.3% 2.9% 1.8% 5.2% Optoelectronic 3.2% 2.1% 6.8% 12.3% 0.4% 26.5% Exchange Rate Yen/$ 144 128 125 134 125 128

(Continued)

Japanese Semiconductor Consumption Forecast Quarterly Growth Rates for 1988-1990 (Percent Change in Yen)

ISM 01/89 Q2/99 Q3/89 Q4/89 1989 Total Semiconductor 20.5% 4.3% 2.3% (1.4%) (4.7%) 15.0% Total IC 23.6% 3.5% 2.7% (1.0%) (4.7%) 16.3%

Bipolar Digital 5.0%. (0.6%) (0.2%) (3.4%) (4.8%) (4.0%) Memory 24.5% 0.9% (6.3%) (11.5%) (9.8%) (4.2%) Logic 1.7% (1.0%) 1.3% (1.7%) (3.8%) (3.9%)

MOS Digital 40.7% 6.8% 2.8% (0.7%) (5.6%) 23.3% Memory 64.6% 9.7% 3.9% (0.3%) (9.3%) 38.6% Micro 20.8% 3.6% 1.3% (0.6%) (3.4%) 11.3% Logic 33.5% 5.0% 2.4% (1.2%) (1.7%) 13.5% Analog (0.8%) (4.0%) 3.4% (1.1%) (1.6%) 7.2%

Discrete 5.2% 5.1% 0.5% (2.4%) (3.8%) 7.4%

Optoelectronic 26.5% 11.7% 2.1% (3.9%) (6.5%) 17.9%

Exchange Rate 7en/$ 128 128 128 128 128 128

1989 01/90 02/90 03/90 04/89 1990

Total Semiconductor 15.0% 2.9% (3.3%) (3.1%) (4.3%) (1.3%) Total IC 16.3% 2.8% (2.9%) (3.0%) (4.0%) (1.4%)

Bipolar Digital (4.0%) 3.1% (2.9%) (3.0%) (3.8%) (3.7%) Memory (4.2%) (3.2%) (9.4%) (3.9%) (2.5%) (2.5%) Logic (3.9%) 4.3% (1.5%) (2.8%) (4.0%) (4.0%)

MOS Digital 23.3% 2.1% (0.7%) (4.0%) (4.4%) (2.4%) Memory 38.6% 2.2% 0.6% (2.3%) (4.8%) (6.5%) Micro 11.3% 2.0% (5.4%) (5.7%) (2.9%) 3.4% Logic 13.5% 2.1% 1.2% (4.9%) (5.1%) (0.4%)

Analog 7.2% 4.8% (9.2%) (0.3%) (3.0%) 2.7%

Discrete 7.4% 3.8% (3.6%) (1.8%) (5.6%) (2.5%)

Optoelectronic 17.9% 2.3% (8.0%) (6.5%) (4.8%) 2.2%

Exchange Rate Yen/$ 128 128 128 128 128 128

Source: Dataquest May 1989

Japanese Semiconductor Consumption Forecast Quarterly Growth Rate for 1988-1990 (Percent Based on U.S. Dollars)

1987 Ql/88 02/88 Q3/88 04/88 1988 Total Semiconductor 26.5% 4.3% 12.0% 0.7% 13.5% 35.6%

Total IC 28.6% 5.1% 13.2% 1.3% 14.9% 39.1%

Bipolar Digital 20.7% 0 10.3% (11.7%) 8.0% 18.3% Memory 34.3% 16.4% 8.5% 6.5% 7.3% 40.1% Logic 18.7% (2.6%) 10.6% (15.1%) 8.2% 14.6%

MOS Digital 35.0% 13.4% 17.6% 4.8% 15.4% 58.4% Memory 30.5% 19.3% 25.3% 12.2% 23.7% 85.4% Micro 39.0% 5.6% 15.5% 1.5% 7.9% 35.9% Logic 36.5% 13.8% 11.5% (1.3%) 10.7% 50.3%

Analog 21.1% (8.8%) 3.9% (1.1%) 16.5% 11.7%

Discrete 20.6% (2.2%) 7.8% (4.1%) 9.1% 18.5%

Optoelectronic 19.7% 14.4% 9.4% 4.7% 7.6% 42.3%

ihange Rate Yen/$ 144 128 125 134 125 128

198? 01/89 02/89 03/89 04/89 1989 ;al Semiconductor 35.6% 1.8% 2.3% (1.4%) (4.7%) 14.9%

Total IC 39.1% 1.1% 2.7% (1.0%) (4.7%) 16.2%

Bipolar Digital 18.3% (3.0%) (0.2%) (3.3%) (4.8%) (4.1%) Memory 40.1% (1.1%) (6.9%) (11.1%) (9.7%) (4.1%) Logic 14.6% (3.4%) 1.4% (1.6%) (3.8%) (4.0%)

MOS Digital 58.4% 4.3% 2.8% (0.7%) (5.6%) 23.2% Memory 85.4% 7.2% 3.9% (0.3%) (9.3%) 38.5% Micro 35.9% 1.1% 1.4% (0.7%) (3.4%) 11.2% Logic 50.3% 2.5% 2.4% (1.2%) (1.7%) 13.5%

Analog 11.7% (6.2%) 3.5% (1.1%) (1.6%) 7.1%

Discrete 18.5% 2.6% 0.6% (2.4%) (3.8%) 7.3%

Optoelectronic 42.3% 9.2% 1.9% (3.8%) (6.6%) 17.9%

Exchange Rate Yen/$ 128 128 128 128 128 128

(Continued)

JSIS Newsletter ) 1989 E)ataques t Incorporaite d May 5 Table 2 (Continued) Japanese Semiconductor Consumption Forecast Quarterly Growth Rate for 1988-1990 (Percent Based on U.S. Dollars)

1999 Q1/9Q 02/90 03/90 04/90 1990

Total Semiconductor 14.9% (2.8%) 3.5% 3.2% 4.5% (1.3%)

Total IC 15.2%. (2.7%) 3.0% 3.1% 4.2% (1.4%)

Bipolar Digital (4.1%) (3.1%) 3.0% 3.1% 3.9% (3.8%) Memory (4.1%) 3.1% 10.4% 4.1% 2.6% (2.6%) Logic (4.0%) (4.2%) 1.5% 2.9% 4.2% (4.0%)

MOS Digital 23.2% (2.1%) 0.7% 4.1% 4.6% (2.4%) Memory 38.5% (2.1%) (0.6%) 2.4% 5.0% (6.5%) Micro 11.2% (2.0%) 5.7% 6.0% 3.0% 3.4% Logic 13.5% (2.1%) (1.2%) 5.1% 5.4% (0.4%)

Analog 7.1% (4.6%) 10.1% 0.3% 3.1% 2.7%

Discrete 7.3% (3.6%) .3.8% 1.8% 6.0% (2.5%)

Optoelectronic 17.9% (2.2%) 8.7% 6.9% 5.0% 2.2%

Exchange Rate Yen/$ 128 128 128 128 128 128

Source: Dataquest May 1989

Long-Term Forecast—1991 through 1993 One area to watch in the 1992 through 1993 time frame is high-definition television (HDTV). Receivers for HDTV will consume approximately 20 to 30Mb of memory, compared with the 8 to 11Mb of memory consumed by the .earlier EDTV and IDTV. Digital equipment such as faxes, copiers, VCRs, and cameras are expected to see strong growth in the 1992 to 1993 time frame. Capital investments will be strong as new technologies are put into production and existing fabs are upgraded. We do not see an overcapacity problem developing in Japan, but we will be monitoring the worldwide situation as companies increase manufacturing facilities in Europe to meet local content requirements and in the United States and Asia to overcome trade restrictions. The compound annual growth rate (CAGR) for semiconductor consumption from 1988 to 1993 is estimated at 15.9 percent. Tables 3 and 4 show the 1987 to 1993 yearly growth rates in yen and U.S. dollars.

© 1989 Dataquest Incorporated May JSIS Newsletter Table 3 Japanese Semiconductor Consumption Forecast Yearly Growth Rates for 1987-1993 (Billions of Yen) 1987 19?9 1989 1990 1991 1992 1993 Total Semiconductor 9.0% 20.5% 15.0% (1.3%) 15.6% 19.8% 33.2% Total IC 10.9% 23.6% 16.3% (1.4%) 16.5% 21.4% 37.5% Bipolar Digital 4.1% 5.0% (4.0%) (3.8%) 4.7% 8.6% 12.2% Memory 15.9% 24.5% (4.2%) (2.7%) (3.3%) (9.1%) (5.1%) Logic 2.3% 1.7% (3.9%) (4.0%) 6.4% 12.0% 14.9% MOS Digital 16.4% 40.7% 23.3% (2.3%) 18.6% 24.5% 46.0% Memory 12.5% 64.6% 38.6% (6.5%) 16.0% 25.0% 65.0% Micro 19.9% 20.8% 11.3% 3.4% 19.1% 23.0% 32.0% Logic 17.7% 33.5% 13.5% (0.4%) 21.9% 25.0% 30.9% Analog 4.5% (0.8%) 7.2% 2.7% 15.0% 16.6% 18.4% Discrete 4.0% 5.2% 7.4% (2.5%) 11.7% 13.2% 15.8% Optoelectronic 3.3% 26.5% 17.9% 2.2% 14.0% 15.0% 17.0% Exchange Rate Yen/$ 144 128 128 128 128 128 128

Table 4 Japanese Semiconductor Consumption Forecast Yearly Growth Rates for 1987-1993 (Millions of U.S. Dollars) 1987 1988 1989 1990 1991 1992 1993

Total Semiconductor 26.5% 35.6% 14.9% (1.3%) 15.6% 19.8% 33.2% Total IC 28.6% 39.1% 16.2% (1.4%) 16.5% 21.4% 37.5% Bipolar Digital 20.7% 18.3% (4.1%) (3.8%) 4.7% 8.6% 12.2% Memory 34.3% 40.1% (4.1%) (2.6%) (3.4%) (9.1%) (5.0%) Logic 18.7% 14.6% (4.0%) (4.0%) 6.4% 12.0% 14.9% MOS Digital 35.0% 58.4% 23.2% (2.4%) 18.6% 24.5% 46.0% Memory 30.5% 85.4% 38.5% (6.5%) 16.0% 25.0% 65.0% Micro 39.0% 35.9% 11.2% 3.4% 19.1% 23.0% 32.0% Logic 36.5% 50.3% 13.5% (0.4%) 21.9% 25.0% 30.9% Analog 21.1% 11.7% 7.1% 2.7% 15.0% 16.6% 18.4% Discrete 20.6% 18.5% 7.3% (2.5%) 11.7% 13.2% 15.8% Optoelectronic 19.7% 42.3% 17.9% 2.2% 14.0% 15.0% 17.0% Exchange Rate Yen/$ 144 128 128 128 128 128 128

Source: Dataquest May 1989

Figure 1 shows the Japanese semiconductor forecast as it relates to the Rest of World (ROW) region. As expected, ROW is the highest growth region, with a CAGR from 1988 through 1993 of 24 percent.

Figure 1 Worldwide Semiconductor Forecast Growth Rates by Region (Percent Growth Based on U.S. Dollars)

Percent Growth

1993 Source: Dataquest May 1989

© 1989 Dataquest Incorporated May JSIS Newsletter DATAQUEST RECOMMENDATIONS The semiconductor market in Japan remains strong, with the fastest growth of any region except ROW in both 1988 and 1989. Dataquest recommends that suppliers keep a close watch on the following areas: • Domestic demand for computer equipment and related peripherals for both the home and the office • Impact of HDTV and digital equipment in the 1992 to 1993 time frame • Globalization of manufacturing, bringing new competition and increasing capacity • Continued high growth in memory devices, which are expected to remain the high growth product for the next three years

Bridget O'Brian Hideaki Nemoto

!fefe •A-.«y^j :Mi Research Newsletter

JSIS Code: Newsletters 1989 1989-10 0003575

SEMICON/JAPAN 1988: A JUGGERNAUT STRUTS ITS STUFF

INTRODUCTION The Semiconductor Equipment and Materials International (SEMI) trade organization sponsored its annual SEMICON/Japan exhibition at the Tokyo International Trade Fairgrounds (Harumi) in Tokyo on November 24 through 26, 1988. It should come as no siirprise that this show was a blow-out. Attendance was nearly 58,000, showing the tremendous strength of the Japanese semiconductor industry's business environment. Even as the final bell rang at 5:00 on the last day, the booths were still vibrant with activity. In this newsletter, we will report on some of the interesting new products and process developments that were introduced at the show. We will also examine some of the pertinent issues affecting the industry.

LITHOGRAPHY Japan is the world leader in DRAM manufacturing; therefore, it is vital to understand the strategies being adopted in Japan for advanced lithography tools for this device category. At SEMICON/Japan this year, Dataquest surveyed a number of lithography experts regarding the progression of g-line, i-line, and excimer laser steppers for high-density DRAM fabrication in Japan. While opinions vary from manufacturer to manufacturer, there was a strong consensus that high numerical aperture (NA) g-line lenses will be used in 4Mb DRAM production and for first-generation 16Mb DRAMs. Final shrink of the 16Mb DRAM is expected to be accomplished with i-line steppers, while significant use of i-line lithography is anticipated for 64Mb DRAM production. (Mix-and-match lithography of e-beam and optical steppers is also being considered for the 0.5-micron processing regime.) Although some experts surveyed felt that excimer laser steppers might be used in production as early as the final shrink of the 16Mb DRAM, most believed that it will be the 64Mb DRAM manufacturing processes that will utilize excimer stepper lithography.

The corueni of this rqx)rt represents our interpretation and analysis of ir^rrtuition generally available to tiie public or released by responsible individuals in the subject companies, but is not guartuueed as to accuracy or completeness It does not corttwn material provided to us in conjidmce by our clieras. Individual companies reported on and analyml by Datatptest may be clients cfthis andtor other Dataquest services. This infifrmatuyn is ntX Jumtshed in ctwmectu/n with a sale or offsr to sell securities or in connection with the soUcilatitm of an a^r to buy securities This firm and its parertt and/or their officers, stockholders, or members of their fiimilies may,fkmi time to time, have a long or short petition in the securities mentioned and may sell or buy sudi securities.

Dataquest Incorporated, 1290 Ridder Park Drive, San Jose, CA 95131-2398 / (408) 437-8000 / Tfelex 171973 / Fax (408) 437-0292 At this year's SEMICON show, Japanese stepper manufacturers announced new g-line and i-line lenses, primarily for 1Mb and 4Mb DRAM manufacturing. In this part of the newsletter, we will report on these new announcements; present a status update of the Aurora X-ray lithography project; and conclude with a brief look at several manufacturers of excimer laser sources, an essential component in the development of next-generation optical lithography.

Canon Canon exhibited its new FPA-1550 Mark in stepper. This g-line stepper, introduced at SEMICON/West in May 1988, incorporates a new high-speed reticle changer and a new pick-and-place wafer-handling system (also available as options on the 1550 Mark II system). The lens of the 1550 Mark III is designated as UL-ll; it is a 5X, g-line lens with a 21.2mm-diameter field. In addition, the lens has switch-selectable numerical apertures of 0.48 and 0.43. At the 0.48 NA setting, it has a production resolution of 0.7 micron, with a 1.5-micron depth of focus at 0.7-micron lines and spaces.

At SEMICON/Japan this year. Canon introduced a wide-angle lens version of the Mark III, known as the Mark IIIW. The Mark IIIW utilizes a 0.45 NA lens with 0.75-micron resolution and provides a 28.3mm-diameter field (20mm by 20mm). This corresponds to an increase in area of 78 percent over the standard field size of 21.2mra diameter, translating to a significant increase in throughput. For example, in 4Mb DRAM production, four to five chips can be imaged in a single field with the wide-angle lens option as compared with two to three chips in the standard lens configuration. The list price of the 1550 Mark III is ¥215 million, and the 1550 Mark IIIW is ¥230 million. Shipments to customers in Japan began in the autumn of 1988.

Hitachi Hitachi displayed its LD-5010 i-line stepper; this system was first introduced at SEMICON/Japan in December 1987. The LD-5010i utilizes a 5X, i-line lens with an NA of 0.40; a field size of 21.2mm in diameter; and a resolution of 0.6 micron. In last year's SEMICON/Japan newsletter, Dataquest reported that Hitachi was making its own lens for this system. This year, however, an i-line lens manufactured by Minolta for the LD-5010i was on exhibit in the Hitachi booth. Hitachi expects this i-line stepper to be used in 4Mb DRAM pilot lines as well as for final shrink on 1Mb DRAM production lines. The price of the LD-1510i stepper is ¥200 million. Dataquest believes that approximately 15 systems have been installed through the end of 1988.

Nikon At this year's show, Nikon introduced a new member in its family of NSR 1505 steppers. The new 5X stepper has three lens options: two new g-line lenses (the 1505G6E and the 1505G6D) and a new i-line lens (the 1505i6A). The new stepper has been designed with a larger system chassis in order to accommodate larger lenses with higher numerical apertures, including Nikon's excimer stepper lens. For the two new g-line lenses, the 1505G6E has 0.54 NA and 0.65-micron resolution, and the 1505G6D lens has 0.45 NA and 0.75-micron resolution. The i-line lens, the 1505i6A, also has 0.45 NA but with a finer resolution at 0.65 micron. Field size for all three lenses

© 1989 Dataquest Incorporated April JSIS Newsletter is 21.2ram in diameter. Nikon quotes a specification of 0.13 micron (3 sigma) in global alignment and site-by-site alignment modes for all three lens options. This alignment accuracy specification is achieved through the implementation of a new alignment system design. Other new system enhancements include an individual field-leveling option (for improving process latitude when working with high NA lenses with small depths of focus), an extended reticle library, 200mm wafer capability, on-line host computer control, and improved SECS n implementation. The new stepper system with g-line lens options was available for sale in December 1988 with a delivery schedule of six months; the new i-line lens option will be available for sale after June 1, 1989.

Sumitomo Heavy Industries A year ago at SEMICON/Japan, Sumitomo Heavy Industries announced its Aurora compact synchrotron orbital radiation (SOR) ring for use in X-ray lithography. Since then, construction has been completed on the injector system; the storage ring itself is expected to be completed during first quarter 1989. At that time, preliminary operation of the Aurora will commence with the injection of electrons into the storage ring. Sumitomo Heavy Industries expects to begin full characterization and operation of the system by summer 1989. The system initially will have three beam lines, but eventually the system will be expandable to 16 ports. The price of the Aurora will be approximately $15 million.

Excimer Laser Sources In last year's SEMICON/Japan newsletter, we reported that three companies— Canon, GCA, and Nikon—were developing excimer laser steppers for advanced optical lithography. A number of factors still need to be addressed in the development of this technology. These include laser source stability, the extension of laser operation cycle time, the availability of appropriate photoresist with reliable batch-to-batch consistency, and the process engineering know-how within the semiconductor companies themselves to work at line geometries produced by excimer laser steppers. This part of our newsletter highlights two manufacturers of excimer laser sources exhibiting at SEMICON/Japan this year: Admon Science and Lumonics. Admon Science Admon Science exhibited its MBK-400TL krypton fluoride excimer laser in the Mitsui booth at SEMICON/Japan. Admon Science, 40 percent owned by Mitsui, has been involved in research on excimer lasers for six to seven years. The MBK-400TL laser has specifically been designed for stepper lithography. It relies on a combination of etalons and other proprietary technology to maintain a line-narrowed output. The company also has designed an automatic partial gas replacement system in order to extend tube lifetime such that the time-limiting factor for extended operation of the laser is cleaning the windows of the discharge unit rather than refilling the gas tube. With the MBK-400TL, the window-cleaning procedure is necessary after approximately 7 x 10^ shots. Admon Science already has delivered several lasers with reduction optics to semiconductor manufacturers, including Matsushita Electric. The price of the MBK-400TL laser with reduction optics is ¥44 million. The company has shipped several experimental laser systems to stepper manufacturers as well.

JSIS Newsletter © 1989 Dataquest Incorporated April Lumonics At the show this year, Lumonics exhibited its Index 300 excimer laser, a line-narrowed krypton fluoride excimer laser designed specifically for applications in stepper lithography. The Index 300 utilizes a line-locked resonant absorption cell rather than the traditional etalons in order to keep the laser wavelength locked on a specific absorption line. Lumonics has received a U.S. patent for this design feature and has recently applied for a patent in Japan. The Index 300 has a fully automatic, cryogenically controlled gas handling system. Lumonics has a specification of eight hours of continuous operation per single gas filling, though in-house tests have shown the system to operate well in excess of this limit. Lumonics is a Canadian corporation with manufacturing facilities in Canada, the United States, and England.

PHYSICAL VAPOR DEPOSITION (PVD) At this year's SEMICON/Japan show, three companies—Anelva, Ulvac, and Varian—exhibited equipment or displayed information on their new multichamber vacuum processing systems. The Anelva and Varian systems have been discussed or exhibited at previous SEMICON shows, but the introduction of a new system from Ulvac illustrates the growing trend in the development of integrated vacuum processing equipment. The strategy being pursued by a number of companies is to provide a variety of vacuum process capabilities on a single system, such as sputter, CVD, etch, and RTF.

Anelva Anelva exhibited the ILC-1051 and ILC-1551 single-wafer, in-line multichamber systems at SEMICON/Japan this year. These systems were first introduced at SEMICON/Japan one year ago; however, at that show and at SEMICON/West in May, only poster descriptions of the equipment were presented. The ILC-1551 has three processing chambers arranged horizontally around a central wafer-handling chamber. Process chambers that can be used include aluminum sputtering, metal CVD, and ECR deposition of a silicon dioxide interlayer dielectric. Deliveries of the ILC-1551 to Japanese customers began in March 1988; Dataquest believes, however, that shipments to date have been only single-chamber sputter systems (typically with rf bias) rather than the full three-chamber system. The price of the ILC-1551 with a single processing chamber can vary from ¥90 million for a sputter chamber, to ¥100 million for selective tungsten deposition, to ¥140 million for ECR processing capability. The price of the ILC-1551 with all three chambers is ¥150 million. The ILC-1S51 is intended for R&D and small-volume production.

The ILC-1051 is a four-chamber system that can be used either in series for multistep processing or in parallel for higher throughput. The ILC-1051 and ILC-1551 have both been designed with the same concept so that new processes developed on the ILC-1551 can be used in volume production on the four-chamber ILC-1051. The ILC-1051 is priced at approximately ¥200 million.

© 1989 Dataquest Incorporated April JSIS Newsletter Ulvac Ulvac threw its hat into the raultichamber processing arena at SEMICON/Japan this year with the introduction of its new C-2111 Stellar Multi-Process System. The C-2111 can accommodate from four to eight individually pumped, vacuum-isolated processing chambers. Four chambers are oriented as satellites around each of two central wafer-handling chambers equipjaed with its own loadlock. In addition, the two central wafer-handling chambers are connected via a wafer transport system. The strategy in this product design is to provide complete metallization processes on one machine. The four chambers include sputter etch for cleaning the wafer, selective tungsten CVD, sputter (including optional rf bias and heating for planarization), and infrared lamp anneal. The price of a four-chamber version of the C-2111 is approximately ¥300 million. The C-2111 system will be available in autumn 1989. Ulvac also introduced the MCH 4500, a two-chamber sputter system similar in design to its MCH 9000 four-chamber system. The MCH 4500 was developed in response to customer feedback for a smaller version of the MCH 9000 for dedicated processing. Each of the two chambers of the MCH 4500 is individually loadlocked so the system can be run in series or parallel mode. Price of the MCH 4500 is ¥140 million. Several systems have been shipped to Japanese semiconductor manufacturers.

Varian At this year's show, Varian presented a videotape describing its M2000 single-wafer sputtering system. The system was introduced at last year's show and introduced to the U.S. market at SEMICON/West in May 1988. One system already has been shipped to the demonstration lab of TEL/Varian. Dataquest believes that a second system was shipped to a customer in Japan in December 1988. The price of the M2000 in Japan is between ¥250 million and ¥350 million, depending on options that include number of chambers and rf bias. The M2000 is currently targeted at multistep metal processes, but it is also Varian's entry into the multiprocessing vacuum systems that are just beginning to emerge in the marketplace. When configured for multiprocessing, one or more of the sputter modules can be replaced with rapid thermal processing or CVD modules.

DRY ETCH Dataquest saw a number of new product introductions this year. Most of the new activity is for the development of integrated vacuum processing. The hex-etcher was the last, and most productive, of the batch. Dataquest believes that the industry is moving inexorably to a single-wafer etching environment, particularly in Japan.

Alcan Tech This joint venture between CIT/Alcatel and Canon featured its GIR 260, which has three single-wafer chambers. Alcan Tech has targeted aluminum etching and has installed 60 systems in Japan. The system sells for ¥70 million.

JSIS Newsletter © 1989 Dataquest Incorporated April The company also featured its microwave stripper, which sells for ¥25 million. Dataquest estimates an installed base of 130 of these systems in Japan.

Anelva Anelva introduced its Model 4051, a single wafer, multichamber etcher. This etcher uses three chambers—two with magnetic coils and one for downstream stripping. The magnetic coils employ a rotating magnetic field to create a very high ionization ratio in the plasma, thus enabling single-crystal silicon etching to proceed at high etch rates and very low pressures. This system is targeted at the aluminum etching market. It is priced at ¥180 million. The Model 4051 comes on the heels of last year's MERIE (magnetically enhanced RIE) system. This single wafer system was investigated for use in trench, aluminum, and GaAs etching; about 10 MERIE systems have been sold. The advantage of increasing the magnetic field strength for aluminum etching is that the selectivity over photoresist increases by a factor of 4. The rate at which Japanese semiconductor manufacturers will move into single-crystal, trench processes for DRAMs is still uncertain; therefore, Anelva will use the MERIE technology to penetrate the aluminum market and try to make a dent in Applied Materials' dominant position.

Anelva is still developing and selling batch RIE systems such as its new Model 4015. Anelva introduced and shipped 20 systems in 1988. The 4015 sells for ¥130 million.

Applied Materials Japan (AMJ) Applied Materials introduced the Precision Etch 5000 in 1988. AMJ reported that eight of these systems were sold in Japan in 1988 for single-crystal applications. The price of the system ranges from ¥150 million for a two-chamber system to ¥200 million for a foiiT-chamber system. This multichamber system uses a rotating magnetic field to create a very high ionization ratio in the plasma. In this way, the etching of single-crystal silicon can proceed at high etch rates and at very low pressures. The same technology had been introduced at Anelva previously.

General Signal/Drytek Drytek introduced the Model 380 single-wafer etcher for poly and oxide, a single-chamber version of the Quad system previously introduced by Drytek. It sells for ¥60 million. Dataquest believes that no systems have been sold in Japan. Since the acquisition of GCA by General Signal and the incorporation of the triode etcher into the Drytek division, Drytek now has an installed base in Japan. However, there are less than 10 triode etchers in Japan. It is still unclear as to whether or not Sumisho, a subsidiary of Sumitomo Electric (which has been GCA's representative in Japan), would represent Drytek. Sumisho continues to handle the triode.

© 1989 Dataquest Incorporated April JSIS Newsletter Hitachi Hitachi showed a new product. Model M-308AT, targeted primarily for etching Al-Cu. The system employs the same microwave antenna, magnetic coils, and quartz bell jar as introduced previously in its microwave etcher. The system is priced at ¥180 million. The company shipped approximately 30 systems in 1988, all in Japan. Approximately SO percent of shipments are outside of Hitachi. The company also featured its UA-3150 Ozone Stripper. The system is priced at ¥25 million. It employs lamps and ozone to eliminate the drive-in associated with plasma-related stripping processes.

Sumitomo Metals, Inc. (SMI) Much interest has been generated by the NTT-developed electron-cyclotron- resonance (ECR) process for deposition and etching. Sumitomo licensed the technology and introduced a system three years ago. It has since formed a partnership with Lam Research to market the system in the United States and Europe. The system sells for ¥125 million. Dataquest believes that Sumitomo has built 60 of these systems and sold approximately 45. (Fifteen systems are being used internally by SMI.) The majority of these 45 systems have been sold to semiconductor manufacturers; however, approximately 5 systems have been purchased for broader industrial applications. In 1988, 16 systems were sold in Japan—10 for etching and 6 for deposition. Before 1988, most of the interest was for deposition. The current interest in ECR is for development of polycide and single-crystal silicon processes.

Tokuda Tokuda announced its HIR-200 single-wafer etcher. This is a refinement of Tokuda's HIR-100 etchers and employs a permanent magnet below the wafer in order to increase the ionization ratio in the plasma. The system sells for ¥72 million. Shipments of the system will begin in mid-1989. In 1988, 7 units of the older model, the HIR-100, were shipped. The HIR-100 sells for ¥60 million. The company also featured its CDE (chemical dry etch) system. Dataquest estimates that Tokuda has shipped nearly 400 of these systems since introduction in the early 1980s. They are used primarily for finish etch after RIE, for polysilicon etching of static RAMs, for nitride etching, and for cleaning contact holes in BPSG applications. About 13 of these systems were sold in 1988. The average selling price of the system is ¥41 million.

Tokyo Electron Laboratories (TEL) TEL/Lam introduced two new single-wafer systems: the Model 4000 for silicon and the Model 5000 for oxide. The Model 4000 is priced at ¥65 million, and the Model 5000 sells for ¥75 million.

JSIS Newsletter © 1989 Dataquest Incorporated April The 4000 uses a 13.5-MHz power supply, and the 5000 uses 380 KHz. Both use a clamp ring and helium cooling behind the wafer. These systems represent a departure from the Lam Research models 480 and 580, which TEL/Lam still sells in Japan. Dataquest estimates that 300 of these older systems are installed in Japan, divided equally between the two systems. Although 70 percent of the demand was for polysilicon applications before 1988, most of the interest was for oxide in 1988.

The new systems are part of a strategy to compete against Lam Research's Rainbow etcher in Japan, while continuing to sell the older etchers into Lam's installed base when capacity expansions are necessary. Dataquest estimates that five of the new systems had been sold at the time of the show.

Tokyo Ohka Kogyo (TOK) TOK has horizontally integrated the major photoresist processes, from spinner/coaters to downstream etching. It is also one of the largest photoresist suppliers in the world. This year, TOK featured two of its new products: the TUE-111 single-wafer, oxide etcher and the TCA-2400 single-wafer, downstream stripper. The TUE-111 sells for ¥60 million, and the TCA-2400 is priced at ¥24 million. Although there had been no shipments of the TUE-111 as of November 1988, Dataquest believes that 50 of the TCA-2400 systems were shipped in 1988.

Ulvac Japan Ltd. (UJL) UJL is part of the Ulvac Group, which includes 26 affiliates. It was founded in 1952 as Ulvac Corporation. In the fiscal year ending June 30, 1987, the Ulvac Group had sales of ¥75 billion ($510 million at ¥147/$), of which ¥34 billion ($233 million) were attributable to UJL. Approximately ¥25 billion ($170 million) or 74 percent were for sales of vacuum systems. Ulvac is one of the licensees of the NTT ECR technology. The company featured its Model MEX-9200 microwave plasma etching system employing that license. The system is configurable to 200mm wafers. Price and shipment information for the system was not available. Of considerable interest was the strategy represented by the Model C-2111, a multichamber processing system discussed in the PVD section. Ulvac has formed a joint venture with Emergent Technologies to develop a downstream, single-wafer stripper for inclusion into the multichamber system. This will bring sputter etch, selective tungsten CVD, sputtering (including optional rf bias and heating for planarization), infrared lamp anneal, and downstream stripping into the system.

3 © 1989 Dataquest Incorporated April JSIS Newsletter IMPLANT Ion implantation systems have undergone a tremendous recovery from the low sales levels of the last three years. The following paragraphs describe some interesting new products in medium-current and high-voltage implanters.

Ai^lied Materials Applied Materials featured its Precision 9003 high-current implanter. The success of this relatively new product has been slow, possibly due to the economic conditions and overcapacity in implantation systems that existed at the time of introduction. The product is picking up speed, particularly in Europe and North America. The company had four systems installed in Japan at the time of the show.

Genus/Ionex Genus' IX-1500 was featiored at Innotech's booth this year. The interest in this system suggests that Japan will begin moving into high-voltage processing for the 4Mb and 16Mb era devices. The system is a tandem accelerator capable of 1.5-MeV beam energies for singly charged ions. The company installed three systems in Japan in 1988 and has orders for several more.

Nissin Electric Nissin featxjred two new products at the show this year: the 200-SR medium-current implanter and a 1.5-MeV tandem high-voltage implanter. The 200-SR follows the pattern of the ASM Implant (recently acquired by Varian) medium-current implanter in bringing innovation to an older product line. The system rotates the single-wafer platen, which has a programmable implant angle. This offers better uniformity and allows better process versatility with respect to implant channeling. The system sells for ¥130 million. The company shipped approximately 10 systems in 1988. Nissin also introduced its new high-voltage implanter, the Model NT-1000. The energy of the beam for singly charged ions is 2.0 MeV. The system features programmable control of implant angle and orientation angle. The energy of the accelerator is 1,000 KeV. This differs from the tandem accelerator being produced by Genus/Ionex, which has voltage of 750 KeV. The price of the system is ¥250 million. None had been shipped at the time of the show.

Sumitomo-Eaton Sumitomo-Eaton also experienced profound growth in sales of high-current systems. The company exhibited its products but introduced no new products. There were no medium-current or high-voltage system sales in Japan in 1988.

JSIS Newsletter © 1989 Dataquest Incorporated April TEL/Varian Ltd. (TVL) TVL experienced profound growth in implanter sales in 1988, in both medium-current and high-current implanters. No high-voltage systems were sold in 1988. Although TVL did not exhibit any new products at the show this year, it did feature Varian's new Model 1000. The company does not have any installations of the new high-current system, but it will install a system at its applications center at Nirasake in the spring.

Ulvac Ulvac also introduced its Model IPX-7000 medium-current implanter. The Ulvac system and the Nissin system both employ innovations that will target the 4Mb and 16Mb DRAM device processes. This new system also can rotate the platen at 10 to 60 rpm. The platen angle is programmable from 0 to 45 degrees. The system sells for ¥190 million, and the company shipped five systems in 1988.

PROCESS CONTROL Two significant introductions in the area of process control occurred at SEMICON/Japan this year, both in the area of critical dimension (CD) SEM measurement systems. Akashi Beam Technology (ABT) and Hitachi, two of the leaders in CD SEM measurement systems, exhibited their newest systems. What makes these newest introductions significant is the clean and simplified design of the systems' control panels. The operating console of a typical SEM system has a multitude of dials and knobs in order to provide maximum system flexibility for measurement and analysis in the analytical lab environment. This level of complexity, however, often requires an operator with advanced training in order to run the system. The simplified control panel of the newer systems provides easy operation and is one of the essential features distinguishing the newest generation of CD SEM measurement systems being developed for the semiconductor production environment.

Akashi Beam Technology (ABT) ABT exhibited a new critical dimension (CD) measurement system based on SEM technology at SEMICON/Japan. First announced at SEMICON/East in September 1988, the MEA-4000 is a low-voltage SEM system with measurement capability from 0.1 micron to 28.0 microns with 0.01 (3 sigma) reliability. The system has through-the-wall mounting and can handle 125mm, 150mm, and 200mm wafers. Throughput is greater than 15 wafers per hour at three measurement sites per wafer. In addition, the system has a simplified control panel as compared with its predecessor, MEA-3500F, and other typical SEM systems. The price of MEA-4000 is ¥120 million. Several systems were shipped to Japanese semiconductor manufacturers during 1988.

10 © 1989 Dataquest Incorporated April JSIS Newsletter Hitachi Hitachi introduced a new CD SEM measvirement system, the S-7000, which is a new and enhanced version of its popular S-6000 CD SEM. One new major design feature of the S-7000 is that it provides five-axis control (x, y, z, tilt, and rotation), whereas the S-6000 provides only x-y control. Measurement capability of the system is down to 0.1 micron with 0.02-micron measurement reliability. Wafer throughput is five wafers per hour at five measurement sites per wafer. The S-7000 can handle wafers of 100mm, 125mm, and 150mm diameter. Shipment of the S-7000, priced at ¥120 million, began in September 1988. Dataquest believes that five systems were shipped to customers in Japan by the end of 1988. In addition to the S-7000, Hitachi is still selling its popular S-6000 CD SEM measurement system. Dataquest estimates that Hitachi has sold in excess of 150 systems since it was first introduced at SEMICONAVest in 1985. The Hitachi S-6000 is considered by many to be the first CD SEM measurement system specifically designed for the front-end production environment. The S-7000, like its predecessor, has a simplified control panel for easy operation in the fab environment.

EQUIPMENT REPRESENTATIVE: INNOTECH CORPORATION Innotech, founded in 1985, is a relatively new equipment representative in Japan. In the short time it has been in existence, the company has attracted many new and promising companies as clients. Table 1 presents a list of the companies and products represented by Innotech. Table 1 Equipment Companies Represented by Innotech ggmp^ny yjpg Pro«3^CtS Cadence A full spectriun of IC design solutions Schlumberger IDS-5000 CAD/CAE system Sentry S-50 VLSI tester ACT Corporation Model OT-2000/4000 TMA Corporation Process/device simulator Optical Specialties MV-500 CD wafer inspection UTI Qualitorr 221 Genus Incorporated Model-8710 CVD system for tungsten and tungsten silicide films Model I2C-1500 high-voltage implanter FSI Corporation Excalibur gaseous nitrous oxide film removal Megasonic Cleaning System Saturn and Mercury acid processing systems Matrix System I Stripper single-wafer, downstream stripper

Source: Dataquest April 1989

JSIS Newsletter © 1989 Dataquest Incorporated April 11 DRAM CAPACITY One pressing issue not only for the semiconductor industry but also for the electronics industry is that of DRAM availability. The shortages caused by the trade sanctions, which were imposed by the U.S. government on DRAMs, caused an increase in memory prices that put the non-Japanese systems manufacturers at a disadvantage with respect to their Japanese competitors. For the last two years, however, semiconductor manufacturers, especially Japanese companies, have been adding DRAM capacity. We estimate that memory capacity as measured in total bits will increase approximately 60 percent in 1989 over 1988. This includes both the new 1Mb DRAM capacity and the conversion of 256Kb DRAM capacity to 1Mb DRAM capacity. However, because 1Mb devices are very difficult to make and because they employ new manufacturing techniques, their yields may not come up the learning curve as quickly. The actual increase in bit capacity may, therefore, be much lower than 60 percent. This situation would provide an advantage for the Japanese systems manufacturers, allowing them to wrest more market share from their offshore competitors. One consequence of a reduced capacity for DRAMs would be to soften the impact of an industry recession on the semiconductor equipment industry. The demand would continue for advanced equipment in order to meet the demand for memory devices. It would also increase the incentive for non-Japanese semiconductor manufacturers to reenter the DRAM and SRAM arenas. From this analysis, we can understand that Sematech, and its focus on memories, is important from a semiconductor manufacturing standpoint. When viewed in the context of a worldwide electronics industry strategy, however, it looms in significance. (This document is reprinted with the permission of Dataquest's Semiconductor Equipment and Materials Service.)

Osamu Ohtake Kaz Hayashi Peggy Marie Wood

JSIS Code: Newsletters 1989 1989-9 0003576

JAPANESE WAFER FAB UPDATE: NEW FABS, ADVANCED DRAMS, AND 8-INCH WAFERS

INTRODUCTION In 1988, a three-month joint research project between Dataquest's San Jose and Tokyo offices was launched in order to provide in-depth information on Japan's semiconductor manufacturing activities. The results are discussed in this newsletter, and include information on manufacturing trends and fabs that went into production during 1988, as well as information on the announced, initiated, and forecast fab lines that will go into production through the early 1990s.

MANUFACTURING TRENDS Thirteen production and pilot-based silicon fabs went into production during 1988. In 1989, 14 will go into production, and 12 more are expected to come on-line in 1990. Eight other gallium arsenide and R&D lines also should come on-line during 1988 through 1990. Dataquest also knows of 13 more fab lines that are planned to go into production after 1990. Details of all known fabs started up since 1988 are listed in Table 1. Table 2 lists the status definitions used in Table 1. Nine of the 13 production and pilot-based silicon fabs that began operations during 1988 produce advanced DRAMs and SRAMs. Ten of the 14 fabs begun during 1989 and 9 of the 12 during 1990 also will produce advanced DRAMs and SRAMs. Approximately 75 percent of these new fabs will produce advanced 1Mb or 4Mb DRAMs and, with few exceptions, all will process linewidths at 1 micron or less, on 6-inch or 8-inch wafers. The average wafer-start capacity for future production-based DRAM lines is 21,133 wafers per four-week period, while the average wafer-start capacity for future DRAM pilot lines is 8,500 wafers per four-week period. Capacity figures stated here reflect capacity of the fab when it is completely filled with equipment.

77K amlent cf^is report represerOs our interpretation and analysis ofinprmation generally available to the public or released by responsible individuals in the subject amtpanies. but is not guaranteed as to accuracy or conqjleteness. It does not cwttain material provided to us in confidence by our clients. Individual companies reported on and analysed by Dalatpiest may be clients of this and/or other Dataguest services. This ir^yrmation is ntnfiimished in ccmnection with a sale or offir to sell securities or in connection with the solicitation of an c^r k> buy securities. This firm and its parent and/or their officers, stockholders, or mendxrs of Oteir families may, from time to time, have a long or short position in the seamties mentioned and may sell or buy such securities,

Dataquest Incorporated, 1290 Ridder Park Drive, San Jose, CA 95131-2398 / (408) 437-8000 / Telex 171973 / Fax (408) 437-0292 IS> Table 1 Japanese Fab Activity Planned or Initiated to Begin Producing Durinig 1988 and Beyond

Tacgat Clean Et Data WaCar Rooa Drawn Producta Cap Plant Pcod. Slca Squara Llna Proceaa to ba P Caipaiiy City WaM 8t«tua Beqlna (In.I feat Width Technology prcuhiceJ Mo

® FMDUCTtOM lEGAH t*»*

FUKUSHINA AllU vo WAKAMATSU-SUI AIZU r VLSI i BQUIPHEHT UPGHAOE 0 1.00 CMOd MOS IMl DRAM SRAM ROM 40 oo nUITSU (ANAGAHA KAWASAKI-SHI N/A N/A MEU SUELVCLEAN ROOM « 0 0.70 CMOS 16Mu PBAH 8 VO FUJITSU KANAGAWA KAWASAKI-SHI H/A N/A NEW SHEUVCE.EAH WJOH J 0 0.00 GaAa KEHT PHET nUITBU KAHAGAHA KAWASAKI-SHI H/A N/A HEM £HELL/C[.EA1I RCOH 9 0 0.00 N/A ID ICa J03EPUS0N o JUHCTIUH 19 UlTACHl UOKKAIDO CUITOSB-SHI HOMAI S/C CHITDSB P sUuipHiurr E>PAHSIOH i2/oi/»a « 20,000 1.00 CMOS t(K 2«6K SBAH 19 fu HITACUl IBAIUUil KATSUTA-SHI NAKA WORKS N/A EQUIPHEWT UPGKADH 6 20,000 0.80 CMOS IMh DRAM SAHPLB *Hta 39 r* HITACHI IBARAGI KATSUTA-SHI NAKA WORKS N/A HEM CUJIH ROOn 01/oi/ei t 0 1.00 CMOS IHb BHAH iHb SRAH * J3 HITACHI VANANASal NAKAKQHA-Giai KOrU WORKS NO. K4-2 HEN CUBAN ROUH 0 1.00 CMOS IHb ORAM IBH SHIGA VASU-GUH S/C BSRCH CTR H/A HEM SUBLL/CLEAH ROOM ( 0 0.00 CMOS 1Mb IHb DRAM c OS/Ol/SS • 20 n3> MATBUSHITA NIIGATA ARAI-SHI ARAI r PAB D EQUIPHEKT EKPAHSIOH 0 1.90 BIP LUC LIN CCD C/Ol HATBUGHITA TOIAHA UOZU-SHI uoau r PAB C-1 Vm BUSLL/Cr.£AH BOOH s 0 1.00 CMOS 1Mb DRAM SAMPLE 40 O 07/01/11 t 4Hb EH 1MB SAIJO C H/A •QUICHBHr UPGIUUIE 43,0t0 0.80 CMOS 29aK IHb DBAH HITSUBISHt SAIJO-SHI 20 •3 SAMPLE 4Hb o HIT£)UH1£H( KOOII KAMI-GUM KOCUI rACtORY H/A SOUinUUIT EirAHSION OC/01/6* ( a 1.00 CMOS >~blc 16~blL ncu -t 10 Di INb DBAH f-f SAGAMIHARA-SHI SAGAMIHARA ULSI RaD MB* CLEAN BOOM ot/ei/st • 0 0.80 CMOS 4Hb DBAH ABIC NBC KAMAGANA 10 KYUSHU PAB 7 MEM CLEAN ROOM 30,800 1.00 CMOS MOS ASIC 32-blt MPU n NEC KUtAHOTO KUMAMOTO-SUI l3 a 0«/01/«l t • Mb DHAH 39 > NEC ITAHAGUCHI ASA-GUN YAMAGUCHI LID PHASB 2 MBH SHELU/CE.EAH BOCM 24,760 0.80 CMOS 4Mb DRAM IHb Oi/Ol/M ( SRAM HPU 20 "O lAHAGUCUI ASA-GUN YAMAGUCHI LTD PHASE 1 EOUICHENT UPGRAOB 6 0 1.00 CMOS MOS 296> IHb DRAM •-I SRAM MPU 20 CHIBA TATBYAHA-SHI N/A PAB 2 EQUIPMENT EXPANSION io/oi/a« t 47,000 1.00 CMOS Ml IHb ORAM SHAH SEHlOONOUCIOk SAMPLE 4Hb 10 OH I HIYAIAKI HI>AaAKI-OUN MIYAKAKI OKI Ml UPGRAOB 04/01/(1 S 0 1.90 CMOS 296X DRAM SRAM ARRAYS MPU 90 BBIKO IPtiON NAGANO SUWA-Gim rUJIMI PLANT BLDG 0 EgUIPMEHT EXPANSION 12/01/S* 6 0 1.20 cnos ARRAYS CHIC 296II SBAH 20 BHIHDEUGEN VAMAGATA HIGASHINB-SHI HIGASHIME OIV. BLOC 2 MOS NEW CLEAN ROOM 9 27,111 2.00 CMOS MOS CUSTOM 29 aiMt KAGOSHIHA KOKUBU-SHI SONY KOKUBU N/A EgUIPMEHT EXPANSION 5 0 1.30 BIP CMOS SBAH Hi>U ecu MOS LIM A/D D/A 30 SONY KANAGAWA ATSUGI-SH( ATSUGI PLANT »/f. EQUIPMENT EXPANSION 0 0.00 GaAa PET I.ASEH CCD TI IBARAGI IHASHIKl-GUN MI HO PLANT HIBO i.2 EQUIPMENT EXPANSION l2/01/8a 6 30,000 0.80 CMOS BICHOS SHAH IHb DRAM SAHI-UK tHb 24 TOHOKU HIKAGI IIUMI-SHI SENDAI PACTORY N/A NEW SHELL/CLEAN ROOM 01/01/08 t 42,000 1.00 CMOS IHll UHAH ]9b( SliHICOMHICTOft SRAH MPU 20 TOSH IDA niKUOKA KITAXYUSHU-SHI KITAKYUSHU P KUBIC 2 HEW CLEAN ROOM lo/oi/aa 9 21,930 2.00 BICMOS ASIC UPIU UXi 20 m TOSH ISA KANAGAWA KAWASAKI-SHI ULSI LAB N/A NEW CLEAN ROOM 6 0 0.70 BIP CMOS 3D ICa )6Mb ORAM 4 •-H TubHtbA OITA OITA-SUI TOSHIBA OITA STEP ) 17 NEW CLEAN ROOM 06/01/08 i 0 1.00 CMOS IHb ORAM 30 CO (AHAH* KAGOSHIHA AlBA-GUH KAGOSHIMA PLANT H/A EQUIPMENT UPGRADE ovoi/aa 9 0 1.20 CMOS ROM CaiC ASSP 19 •z VA>1AI{A SHIZUOKA HAHAMATSU-SHI TOYOOKA WORKS EE DEV CTR NEW SHELL/CLEAN ROUH 12/01/88 6 0 0.80 CMOS CBIC LOG 6 lA (C

•1 C/1 Table 1 (Continued) HH C/1 Japanese Fab Activity Planned or Initiated (D to Begin Producing During 198S and Beyond en K-* n> Tacoat Clean Start (V Data Hatar Rooa Oraini Piextticta Capaci Prod. Slia Si]uara Una Procaaa to b* Par sessx. Ptefectuo City BtttlW Baqlna I In.) Peat Width Tachnolwv ProJucad Mootl PRODUCTIOtl BEGIHS 19«»

SHIGA MM2MIMU-SHI NAGMIMU HORIIS H/A NB< 3IIX1.L/CUAH ROOM 03/01/09 0 0.00 GaAs AWHUHUUS IHWn BENBOftS rtUITSU FUIUSHIHA AIXU NAKAMATSU-SUI HAKAMATSU P MO. 9 MEM SHBUi/CLEAH ROOM « 0 0.00 ana 1M> DDAM AaiC rUJITSU MIE IUHAMA- PHonmics SHIIUOKA HAMAMATSU-SHI HAHAKITA RtO H/A HEM SHILVCLSAH ROOM e3/al/*0 0 0 0.00 M/A OPTO n HITACBI TOKYO KOOAIRA-SHI HUSASHI WORKS H/A mat SHELL/CLEAM ROOM 01/01/90 * 0 0.00 CMOS 4Mb DRAM •-» HITACHI YAMAMASHI NAKAKONA-GUH KOPU WORKS IHASUHA P HEH GUILL/CLEAH ROOM 02/01/90 i « O.aO CMOS 4Hb DRAM IBM SHIGA YASU-GUN B/A H/A HEH BBELL/CLEAM ROOM 04/01/90 0 0 0.80 M/A 1Mb 4Mb DRAM LOG 0 0.00 CMOS 4Hb DRAM MATSUSHITA TOYAMA OOZU-SHI UQZU P PAB C-2 NEW CLEAN ROOH 6 NATIONAL SEMICONDUCTOR N/A H/A H/A H/A NEH SHELL/CLEAN ROOM 0 0 0.00 N/A H/A NEC HIROSHIMA BICASHI- CHUGOKU PHASE 1 mat SHELL/CLEAN ROOM 00/01/90 i 3B,7S4 0.00 CMOS 4Hb DRAM SRAM HIBOSHIHA 32-bU HPU 30,00 NEC KANAGAHA SAGAMIHAHA-SHI SAGAMIBARA ItNb PHOTPHOKO HEM SHELL/CLEAH ROOM 02/01/90 0 20,000 O.SS CMOS 16Mb DRAM S.OO NIPPON DklNSO AICHI KAHIVA-SHI KOOA WORKS BLDG. 2 NEW SHELL/CLEAN ROOH 12/01/90 0 0 0.00 HOS MCU NHU SUllCUNOUCTOR CHIBA TATtYAMA-SHI N/A PAS 3 NEW SHELL/CLEAN ROOM 06/01/90 6 0 0.80 CMOS 4Hb ORAM 10,00

(Con OJ Table 1 (Continued) Japanese Fab Activity Planned (H* Initiated to Begin Producing During 1988 and Beyond

TaE9*t Claan Bt Oftt* Wa(«c Sooa Drawn Products Plant Prod. 6Ua fiquara Llna Procaaa to ba P Coi^^nv H«iw Begins (In.l Paat Hidth Tachnoloqy Producad Mo ® PRQOUCTION BEGIHS 1990 (Contlnuad) RICQB OBAU lUDA-SHI H/A HBt SBBtb/CLBAH HOON 0 1.00 CH08 ABBAVS VXJ SHIHDENGEH XMUGUTA illGASHUIB-SHI •leAamiia oiv. HU SHBUyCLBAH BOOH 0 0.00 CMOS HOS CUSTOM OO TOSHIBA OITA OITA-SHI K)6HIBA OITA snp 3 t9 HEM CLBAH BOOH 0 0.00 CHDS 4Hb DRAM VO

O PBODUCflON BEGIM 1>»1 r* 0) ASAUi Nicna MIYASACI H/A N/A B/A HUI StlELWCLUUI BOOH 0 0.00 N/A ASIC LIN A/D SISTEHS D/A ASSP c IHTSRHATIONAL 0) M RECTIPIER AKITA KANABE-GUM AKITA PACIDBY N/A HBU GHIuyCLBAH ROOM 0 0 0.00 H/A DIS HITSUBISai EHIM8 8AIJ0-SUI 8AI.I0 D H/A •IH SI1ELL/CI.EA1I KUH 01/01/91 « 0 0.(0 CMOS 4Mb DRAM MOIUROLA MIYAGI IIIMI-SHI SEHOAI PLANT HOB 10 HW eHtLL/CLEAH ROW t 0 0.80 CMOS 4Mb ORAM NPU 3 HEC HIBDSHIMA aiGASHt- r> o BIROSaiMA CHUOOKU PHASE 2 MM BHELVCLSMt HUM 0«/al/91 0 0 0.80 CMOS 4Mb DRAM EPHQM OKI MIYAIAKI HIYAIAKI-CUN MIYAIAKI OKI H3 UM CLEM) ROGH 02/01/91 ( 0 1.00 cms 4»U> DRAM SEIKO EPSON NAGANO SIWA-GUN rUJINI PLANT BUIG E Nn SHEI.L/C1.EA1I BOCH 6 0 0.80 CMOS ARRAYS CBIC o IMb SRAM -» SON! KANAGAHA EAHAUABA, pi OKADA ATSUGI PLANT H/A H/A 0 0 0.00 GaAa CMOS MB< LIN OPTD DIS r+ n> Tl IBARAGI TSUKUBA-GUN H/A H/A HEM MILL/CLKAH ROOM 01/01/91 0 0 0.00 N/A t4Mb DRAM a CONSUMER ICa > •o PWKXICIIOM BEGINS 1191

KAHASAKl STEEL N/A N/A N/A N/A Htu SHELL/CLEAN ROOM 0 0 0.00 CMOS ASIC SONY KAGOSHIMA KOKUBU-SHI SONY KOKUBU H/A H/A t 0 0.80 BIP CMOS LOG MEM MPU LIH MOS DIS OPTO

PRODUCTION BEGINS 1993

HIROSHIMA HIQASHI- NEH SHBLVCLEAN ROOM 0 0.60 CMOS l«Mb DRAM MPU BIROSHIHA EPROH

PRODUCTION BEGINS 1994

HIROSHIMA HIGASUI- NEH SHELL/CLEAH ROOM 0 O.tO CHOS 16Mb DRAM MPU HIROSHIMA EPRQM m r - Product Ion-baaed fab line HH p - Pilot line R » RIO line in A • Assembly 21 T • Test fD N/A - Hot Available Source 1 D CO A a> •-(t» Table 2 Nomenclatiire and Definitions Status Field

Nomenclature Qgfi-nAtipn

New Shell/Clean Room Brand new from the ground up (green field)

New Clean Room The building is complete and ready for clean room installation

Ready for Equipment The clean room is complete and ready for equipment installation

Clean Room Expansion Increase of total square footage for an existing clean room

Equipment Expansion The installation of additional equipment to an existing clean room

Expansion An increase in total clean room square footage and installed equipment

Clean Room Upgrade Improved cleanliness, design, DI water, amd/or vibration isolation

Equipment Upgrade Conversion to larger wafer size and/or finer linewidths; equipment replacement, retrofit, and/or refurbishment

Upgrade Clean room upgrade and equipment upgrade

Reramp from Shutdown Brought back into production from a shutdown

Source: Dataquest April 1989

Along with the 13 new fabs turned on during 1988, 13 additional fabs received major upgrades and/or capacity expansions. From 1984 through 1990, Japan has, and will, consistently add approximately 12 new fabs per year. When looking at upgrades and capacity expansions, Japan jumped to 13 upgrades and capacity expansions during 1988, up from approximately 3 per year for the years 1984 through 1987.

JSIS Newsletter © 1989 Dataquest Incorporated April To summarize, Japan has brought up new fab lines at a fairly consistent rate of 12 per year since 1984. However, upgrade and capacity expansion activity during 1988 increased four times over previous years. Japan has been very consistent about the addition of new fabs when compared with the United States. While Japan will continue to add approximately 12 new production and pilot-based silicon fabs per year from 1984 through 1990, the United States fluctuates between 8 and 21 per year during the same time period. Dataquest believes that most new fabs that have or will come on-line in Japan during industry downturns begin production with a small fraction of the equipment that they will ultimately contain. The companies that own these fabs are therefore well positioned for the next upturn by quickly adding equipment to their partially utilized floor space. There also are new fabs coming on-line during the upturn years that fill their own fab floor with equipment very quickly.

NEXT-GENERATION FABS During 1988 and 1989, we will see the first dedicated 4Mb DRAM fabs begin operation in Japan. These fabs will most likely supply a good part of the more than 10 million 4Mb DRAMs expected to be shipped per month during 1990 (see Table 3).

Table 3 Fab Generations by DRAM Density

> 10 Peak Linewidth, Lithography Fab Line ORAM Sample Million Prod. Sample to Tools Used in Generation Rsnsity Year Units/Mo Year Full Shrink Japan

First 16K 1976 1978 1982 5-3um Contact/proximity aligner

First 64K 1979 1981 1984 3-2um Proximity/projection aligner

Second 256K 1983 1984 1988 2-1.2um G-line stepper

Second 1Mb 1985 1987 1991 1.2-0.8um High N.A. G-line stepper

Third 4Mb 1988 1990 1994 0.8-0.6um High N.A. G-line/I-line stepper

Fourth? 16Mb 1991 1993 1997 0.6-0.4Tun I-line/excimer laser stepper

Fifth? 64Mb 1994 1996 2000 0.4-0.3um Excimer laser/SOR X-ray

Sixth? 256Mb 1997 1999 2003 0.3-0.2um SOR X-ray

Source: Dataquest April 1989

© 1989 Dataquest Incorporated April JSIS Newsletter Historically, an advanced fab in Japan has produced two generations of DRAMs. It has been logical to try to produce as many generations of a DRAM as possible from the same fab because DRAMs have represented the clear majority of Japanese production. Traditionally, these fabs have upgraded or replaced some of the installed equipment in order to produce the second DRAM generation through its die shrink. Now, however, Japanese DRAM production is decreasing relative to total Japanese IC production. This is due to Japanese gains in ASICs, MCUs, MPUs, and other ICs for consumer, computer, and automotive applications. As Japanese companies gain more market share in the non-DRAM categories, shifting production down the "product food chain," as opposed to retooling the fab for next-generation DRAMs, will be easier to do. Examples of the product food chain that a fab could produce during its useful life, from beginning to end, include: DRAMs/SRAMs, gate arrays, CBICs, MCUs/MPUs, opto devices, standard logic, analog, power ICs, and discretes. Dataquest believes that more of these new and future DRAM fabs will produce one, or perhaps one-and-a-half, DRAM generations instead of two generations due to these gains in non-DRAM IC products and the ability to take production down the product food chain. Other factors that could influence semiconductor manufacturers to move toward this single-DRAM generation fab concept include the following: • The implementation of common "core" manufacturing processes for all product divisions (Under ideal conditions, this concept only requires that the mask set be changed for manufacturing a different product while using the same "core" process recipe) • The rapidly increasing cost of semiconductor processing equipment • Conversion to 8-inch wafers for volume production of next generation DRAMs • Required purity improvements in deionized (DI) water and gas-handling systems for next generation DRAM manufacturing • The reduction of process capability overlap for semiconductor processing equipment when moving from one DRAM geheration to the next Dataquest has observed the beginning of this movement toward single-generation DRAM fabs, with some companies bringing up dedicated 1Mb fab lines that are not expected to be upgraded to 4Mb DRAM production. Rather than upgrading, these fabs most likely will shift production down the product food chain toward gate array and MCU/MPU products after 1Mb production peaks in 1991. Although 4Mb DRAMs have been sampled out of these 1Mb fabs, Dataquest has noted that, so far, all Japanese manufacturers have plans to do volume production in new, dedicated 4Mb lines (see Table 4). Two of the factors that could contribute to the decline of two-generation DRAM fabs are the high costs and physical restrictions associated with the conversion to 8-inch wafers and major improvements in DI water and gas-handling systems. Most conversions from starting up new 6-inch lines to new 8-inch lines will occur during the ramp-up of the 4Mb generation and the following 16Mb generation of DRAMs.

tLtl|rtfalal Production Pilob/Prototype Line Production Line Ha Car Ha fee H Conpanv liocation DRAM Year Size Location OKAM Hear Site Location DRAM Year S

NEC Tanagawa Norks 4Mb 16Hb 1986 5-inch Vana^uchl Ltd. 4Hb 1988 6-Inch Chugoku Ltd. 4Hb 1990 6- N£C Sagaitihara 4Mh 1988 B-inch Chugoku Ltd. 4Hb 1991 e- © NEC AagaiKihaira 16Hb 1990 «-lnch Chugoku Ltd. 16Hb 1993 8- NGC Chugoku Ltd. 16Mb 1994 8- vO NBC Taukuba RtO Ctr. 64Mb 1989 S-inch 00 VO Hitachi Moliara Works tHb 1987 6-inch Kofu Horks 4Hb 1990 6- D Hitachi Naka Works* tub 1988 6-inch {U Hitachi MuAaalii Walks tHb 1990 e-inch r+ Hitachi Central Lab 16Hb 1986 5-inch |U c Toshiba Tanagawa Plant 4Hb 1987 6-inoh oita Plant 4Hb 1989 6- n Toshiba Olta Plant 4Mb 1990 6- w Toshiba ULSI Lab 16ltt> 1988 6-inch oa Fujitsu Hie Plant* 4Hb 1987 6-inch Iwate Horks 4Hb 1990 8- o Fujitsu Hie Plant 4Ht> 1989 e~inch Fujitsu Atsugi Lab 16Hb 1987 6-inch •3 16»tt> 1988 6-lnch o Fujitsu Kawasaki 1 (U Mitsubishi Saljo* 4Hb 1988 6-inoh Sal jo 4Mb 1991 6- r+ n> Mitsubishi Central Research 16Mb 1986 5-inch ex Matsushita Kyoto Lab 4Hb 1985 6~lnch Uozu Factory 4Hb 1988 6-lnch Uoxu Factory 4Mb 1990 > 6- •o Matsushita S/C Research Ctr. 16Hb 64Mb 1986 6-inch -« Tl Hiho* 4Mb t»B8 6-lnch TI Hiji Plant 4Mb 1989 8-inch TI Tsukuba 64Mb 1991 N/A

IBM iraau Plant 4Hb 1988 B~iiwb Yasu Plant 4Hb 1990 8-

NHB Chlba 4Mb 1989 S-lnob Chiba 4Mb 1990 6-

Oki Hiyagl 4ttb 1989 6-lnch Miyazaki 4Hb 1991 6-

Motorola Sendai 4Hb 1991 6-

Motel This table does not include existing fab lines that nay be upgraded to nore advanced ORAM production in the future. to H-« Ul *Oenotea fab line that went into production before the year listed on this table and was upgraded for sample production, not 2: newly built. fO Source I Dataque "a April 1 n Dataquest also believes that major improvements in the purity of DI water and gases have become necessary for the production of 4Mb DRAMs. We note that many new dedicated 4Mb lines are being built. Dr. Ohme, a professor at the School of Engineering, Tohoku University, Sendai, Japan, is the founder of the ultra clean room and is widely recognized as the originator of the total concept approach to clean room and advanced semiconductor process technologies. His concepts for ultra-clean DI water and gas-handling systems now are gaining acceptance for installation into the future production environment. Recently, an Ultra Clean Technology (UCT) group with nearly 40 Japanese companies as founding members was organized by Dr. Ohme. This group will develop a UCT-based system for supplying materials, parts, and production equipment necessary for manufacturing submicron devices. Dataquest also notes NEC's announcement that it will build a small, 5,000 wafer per month, dedicated 15Mb DRAM pilot line in Sagamihara at a cost of $160 million, including process equipment. Part of the high cost for NEC's 16Mb line will come from the 8-inch equipment that we expect that it will use. However, Dataquest also believes that major improvements in DI water and gas-handling systems can also help explain the high cost of this pilot line.

Lithography Limits ami Options Companies that construct new 4Mb lines using high numerical aperture (N.A.) g-line steppers are expected to achieve a minimum linewidth of 0.65 micron at 0.55 N.A. Unless unexpected advancements in high N.A. g-line lens technology occur, the final die shrink for 4Mb production at 0.6 micron and initial 16Mb production starting at 0.6 micron will not be likely (see Table 3). This 0.65-micron limit would force the users of g-line to install new lithography tools for the final die shrink of the 4Mb DRAM and to begin production of the 16Mb DRAM. Companies that construct new 4Mb lines using i-line lithography are expected to achieve the full die shrink of the 4Mb DRAM and get into initial 16Mb production at 0.6 micron. However, they are not anticipated to be capable of achieving any die shrinks, and excimer laser lithography would be required to finish the 16Mb die shrink at 0.4 micron. New 4Mb fabs brought up on high N.A. g-line steppers could, at best, make the final die shrink of the 4Mb DRAM. This shift will mark the end of a long series of incremental improvements in g-line lithography that will have lasted more than 15 years. For new 4Mb fabs brought up on i-line steppers, this shift will mark the beginning of a rather short transitory phase in Japan, most likely beginning and ending with the 4Mb DRAM. In Japan, little effort appears to be going into i-line lithography when compared with excimer laser lithography. While the future of excimer laser lithography is not clear, most people expect excimer technology to achieve 0.35 micron linewidths. This scenario would take the excimer laser stepper halfway through the 64Mb die shrink, and would provide the most longevity if it becomes production worthy while the 4Mb fabs are still being installed.

JSIS Newsletter © 1989 Dataquest Incorporated April The lithography requirements for 4Mb, 16Mb, and 64Mb DRAM production, although not perfectly clear, appear to be more defined and to show less process capability overlap than in the past for the 16K through 1Mb generations. This reduction of equipment overlap from one DRAM generation to the next, and the escalating cost of these systems, are two factors that could influence semiconductor manufacturers toward the single DRAM generation fab concept. Synchrotron orbital radiation (SOR) X-ray lithography appears to be the next choice in Japan for 64Mb DRAM production, instead of the point-source X-ray stepper. The Japanese have spent large amounts of money on SOR research at 10 major SOR facilities currently installed in Japan. At least 10 more facilities are in the planning stages. The known SOR facilities that are developing 64Mb+ devices include the following: • The Ministry of Education's High-Energy Physics laboratory in the Tsukuba Science City, a joint development with Fujitsu, Hitachi, NEC, and NTT • The NTT LSI Laboratory in Atsugi, a joint development with Hitachi and Toshiba • SORTEC in Tsukuba, formed by the Japan Key Technology Center and 13 Japanese companies; Canon, Fujitsu, Hitachi, Matsushita, Mitsubishi, NEC, Nikon, Oki Electric, Sanyo, Sharp, Sony, Sumitomo, and Toshiba. NEC also will open a 64Mb DRAM R&D laboratory in Tsukuba that will conduct SOR research this year. The Japanese seem to believe that there are too many difficulties in both mask and photoresist technology for point-source X-ray stepper lithography when compared with SOR X-ray lithography.

8-Inch Production The first pilot and production-based manufacturing activity on 8-inch wafers began with NEC in Japan during 1988 (see Table 4). IBM also started 8-inch operations in Japan in 1988 with its third 8-inch location; IBM's other two locations are in the United States and Germany. Fujitsu and TI will begin 8-inch pilot production this year. TI's first 8-inch operation in Japan will be at Hiji; however, TI's locations at Miho and Dallas also will process 8-inch wafers shortly after Hiji comes on-line. IBM's second 8-inch line in Japan and Hitachi's first are expected to begin production during 1990.

All of these 8-inch fabs will be producing 4Mb DRAMs with the exception of IBM, which is currently producing 1Mb DRAMs on 8-ihch wafers and 4Mb DRAMs on 5-inch wafers. The peak production year for the 4Mb DRAM is forecast to be 1994. At that time, at least one-third of the 4Mb fabs are expected to be processing 8-inch wafers, with the remainder processing 6-inch wafers. By 1997, the peak production year for the 16Mb DRAM, Dataquest anticipates that more than two-thirds of the 16Mb fabs will be processing 8-inch wafers, with the remainder processing 6-inch wafers. Manufacturing on 8-inch wafers is not without its risks. Future DRAM prices are a consideration for companies that have not yet committed to 8-inch manufacturing. Prices are being looked at because of the high initial cost of setting up an 8-inch fab and

10 © 1989 Dataquest Incorporated April JSIS Newsletter because 8-inch manufacturing during the early stages of the learning curve will not be as cost-effective as a more mature, 6-inch production line. Eight-inch manufactviring in its early stages is not as cost-effective as 6-inch due to the following factors: • Manufacturing equipment using 6-inch wafers is much more refined than 8-inch equipment. • Processes using 6-inch wafers are less complex and more mature than processes using 8-inch wafers. • The cost per square inch for a raw, 6-inch wafer is currently less than for an 8-inch wafer. • The cost for 6-inch equipment is in many cases less than that for comparable 8-inch equipment. These risks can be very costly to companies that are just entering 8-inch production if DRAM price competition reappears at the same time. Most companies will prefer to enter price competition on the newest generation of DRAMs with 6-inch lines unless they feel they will be far enough along the 8-inch learning curve to compete when the price competition begins. All of the companies that have committed to going 8-inch so far will pay a high initial price to drive the 8-inch technology. These companies have the deep pockets that are required for the commitment, and see the long-term rewards that will be realized during future manufacturing battles.

DATAQUEST CONCLUSIONS Japan is consistently adding fabs, and approximately 75 percent of its new fabs are for the production of advanced DRAMs. New fabs going into production during upturns are quickly filled with equipment, whereas, during downturns, they have a small fraction of the floor space equipped. Fabs turned on during the downturn are poised to respond to the next upturn. Almost all of Japan's new fabs will run submicron processes. Dataquest believes that more of these new and future DRAM fabs will move toward single-generation DRAM production, because DRAM production is decreasing relative to total IC production. This decrease is due to gains in production and market share being made in ASICs, MCUs, MPUs, and other ICs for consumer, computer, and automotive applications. As Japanese companies gain more market share in the non-DRAM categories, shifting production down the product food chain—as opposed to retooling the fab for next-generation DRAMs—will become more practical. Other factors that could influence semiconductor manufacturers to move toward this single DRAM generation fab concept include: • The implementation of common "core" manufacturing processes for all product divisions. This concept, under ideal conditions, only requires that the mask set be changed for manufacturing a different product while using the same "core" process recipe. Those companies that implement this concept will be able to switch production over to another product with the least complications while at full capacity.

JSIS Newsletter © 1989 Dataquest Incorporated April 11 • The rapidly increasing cost of semiconductor processing equipment. The most cost-effective use of semiconductor equipment is to keep it in the same fab and keep it highly utilized for at least six years. • Conversion to 8-inch wafers for volume production of next generation DRAMs. Most of the companies that do not adopt 8-inch production during the 4Mb generation will do so at the 16Mb level. The food chain concept will provide alternative products for the 6-inch 4Mb lines. • Required purity improvements in DI water and gas-handling systems for next generation DRAM manufacturing. The move to 4Mb production appears to require new fabs and support facilities as opposed to upgrading existing fabs. There is a chance that 16Mb production will be better addressed with new fabs and support facilities instead of upgraded 4Mb lines. • The reduction of process capability overlap for semiconductor processing equipment when moving from one DRAM generation to the next. This issue goes back to the high cost of equipment, as mentioned above. If the Japanese rapidly adopt the single-generation DRAM fab strategy, a large bubble of advanced and low-cost capacity would begin to move into ASIC, MCU, and MPU production. The first capacity bubble would begin to come in after the 1Mb production peak during 1992, and the second capacity bubble would begin to come in after the 4Mb production peak during 1995. By 1992, Japanese companies should be enjoying the fruits of their current ASIC and MPU efforts that include many technology exchange agreements and joint development projects being conducted on and offshore. At the same time, the Japanese will have some very low-cost and advanced DRAM capacity become available that will contain equipment close to being written off the books, and that should already have provided a minimum of three good years of DRAM profits. The end result could be large gains of market share for Japan in the ASIC and MPU arenas, due to severe price competition as the result of low-cost manufacturing. (This document is reprinted with the permission of Dataquest's Semiconductor Equipment and Materials Service.)

Osamu Oh take Mark T. Reagan Kaz Havashi

JSIS Code: Newsletters 1989 1989-8 0003562

NflTI'S "FUZZY" ENGINEERING PROJECT: CREATING THE SIXTH-GENERATION COMPUTER

SUMMARY The age of "fuzzy" logic is here. Recently, 42 Japanese companies formed the International Fuzzy Engineering Research Institute (LIFE) to explore the emerging fields of "fuzzy" logic and neural computing. Funded by the Key Technology Center, LIFE will conduct a six-year project to develop "fuzzy" logic computers, neural networks, pattern processing, and inference systems for a variety of applications. Dataquest believes that this project is important because it is aimed at making breakthroughs in sophisticated voice, image, and pattern recognition. It marks a departure from digital computing and opens the door to analog computers or "sixth-generation" computing.

WHAT IS FUZZY LOGIC? "Fuzzy" logic was conceived in the early 1960s by Lofi Zadeh, a professor of electrical engineering at the University of California at Berkeley. It was developed to handle nondiscrete and incomplete sets of data that are commonly found in the real world, such as voices, images, and subjective judgments (large, soft, weak, etc.). Whereas digital logic allows only two truth values (1 or 0), "fuzzy" logic can handle ambiguous and relative scales of data. A "fuzzy" computer, for example, would be capable of recognizing and distinguishing human voices and faces. What is the difference between "fuzzy" logic and neural networks? There is a strong conceptual overlap, since both approaches can handle images and voice data. They can also be used in tandem. Whereas neural networks assign relative weights to data using logic trees, "fuzzy" logic fills in the gaps between data points. A neural network is like a networked data tree, while "fuzzy" logic is like a continuous data map.

JAPAN'S "FUZZY" LOGIC RESEARCH PROJECT "Fuzzy" logic was pioneered in Japan by Professor Takeshi Yamakawa, who has developed semicustom "fuzzy" inference logic devices using standard CMOS manufacturing processes. Professor Yamakawa is the R&D manager for MITI's LIFE project, which has a total budget of ¥4.2 billion ($33.6 million). The project is divided

The content of this report represents our interpretation and analysis of information generally available to the public or released by responsible individuals in the subjPi i companies, but is not guaranteed as to accuracy or completeness. It does not contain material provided to us in confidence by our clients Individual companies reported on and analyzed by DATAQUEST. may be clients of this and/or other DATAQUEST services This information is not furnished in connection wiih a sale or offer to sell securities or in connection with the solicitation of an offer to buy securites This firm and its parent and/or their officers, stockholders, or members of their families may, from time to lime, have a long or short position in the securities mentioned and may sell or buy such securities

Dataquest Incorporated, 1290 Ridder Park Drive, San Jose, CA 95131-2398 / (408) 437-8000 / Tfelex 171973 / Fax (408) 437-0292 into two research themes: basic research and "fuzzy" computer design. The goal is to ^HjT develop prototype systems by 1991. The System Fuzzy Lab will work with the Fuzzy ^^^ Analog Chip group. Initially staffed with 30 full-time researchers, LIFE will move to the Techno-Building in Yokohama City next spring. It will cooperate with MITI's Electrotechnical Laboratory, the Japan Fuzzy Research Association, Japanese industrial universities, NASA's Johnson Space Center, and France's Neuro-Fuzzy System Institute.

FUZZY LOGIC APPLICATIONS "Fuzzy" systems are already being used in Japan for more than 100 applications, including agribusiness management, economic forecasting, elevator controls, financial analysis, medical diagnosis, marketing, psychological research, shower thermostats, and subway operations. The following are examples of practical systems: • Hitachi has developed a speech recognition system combining "fuzzy" logic and 12 neural networks, which is capable of recognizing 70 percent of 12 vocalized sounds at a learning speed of 87 megaconnections per second using Hitachi's S820 supercomputer. • Mitsubishi Kasei is using a "fuzzy" logic operations controller in its ethylene manufacturing plant in Kurashiki City. • Omron Tateishi has a manufacturing robot capable of picking up tofu (soft bean curd cake) using a "fuzzy" inference controller (FZIOOO) developed jointly with Professor Yamakawa. • Yamaichi Securities, together with Professor Michio Sugeno of Tokyo Institute of Technology, has developed an "Integrative Expert System" that is capable of providing investment advice. • Sendai City opened an automated subway that uses a fuzzy logic control system for smooth braking. • Kumamoto University has established its own International Fuzzy Logic Science Institute with Professor Yamakawa.

DATAQUEST ANALYSIS Dataquest notes that "fuzzy" logic is being rapidly adopted in Japan because it can handle real world data more efficiently and suits the Japanese preference for nondualistic (analog) thinking. Moreover, the LIFE project gives Japan the opportunity to contribute original research and leapfrog the West in sixth-generation computing. As noted in our newsletter entitled "MITI's Neural Computer Project," we believe that this project will enable Japanese companies to develop conceptual links between "fuzzy" logic, neural networks, artificial intelligence, and analog computing. For researchers focused on digital systems, it will breathe life back into analog research.

Sheridan Tatsuno

JAPANESE MARKET ACCESS DEBATE: WHERE DOES IT STAND AND WHAT ORGANIZATIONS AND OPPORTUNITIES HAVE RESULTED?

INTRODUCTION The controversy continues over foreign access to the Japanese semiconductor market. Regardless of one's position on the issue, the fact is that there are important opportunities in Japan for foreign semiconductor manufacturers. This newsletter provides a brief explanation of the current status of the market access debate and lists some of the industry organizations that have developed to help foreigners gain market share in Japan. These organizations can provide detailed information about selling into the Japanese market.

THE CONFLICT AND THE STATUS The current conflict over the success of the 1986 agreement is based on a difference in the original goal. As shown in Table 1, the U.S.' Semiconductor Industry Association (SIA) is measuring the success of the agreement against a specific number, whereas the Electronic Industry Association of Japan (EIAJ) is using a more general measure of success. This difference remains a point of debate and affects how each side views the activities of the other.

Table 1 summarizes the positions of the SIA and the EIAJ on the goal and status of the 1986 semiconductor trade agreement. This is followed by a summary of action taken by each side in an effort to improve market access. To provide a historical context. Figure 1 shows the percentage of market share held by U.S. suppliers in the Japanese market since 1975. These numbers are compared with the level of market share held by Japanese suppliers in the U.S. market for the same years. It is important to note that the United States has remained at approximately 10 percent of the Japanese market since 1975, while Japan's share in the United States has climbed steadily, reaching a preliminary 20 percent in 1988. Figure 2 shows the differences in semiconductor demand by end use in Japan and North America.

The content of this report represents our interpretation aiui analysis cf ir^rmation generally avaiUible to the public or released by responsible individuals in the subject companies, but is ncn guaranteed as to accuracy or amipleteness. It does not contain material provided to us in amfidence by our clients. Individual companies reported on ar\d analyze by Dataquest may be clients of this and/or other Dataquest services. This ir^rmalion is notfitmished in connection with a sale or q^r to sell securities or in connection with the solicitation of an c0er to buy securities. This firm and its parent and/or their officers, stoddwlders, or members of their families may.fnmi time to time, have a Umg or short position in the securities menti^med and may sell or buy sudi securities

Dataquest Incorporated, 1290 Ridder Park Drive, San Jose, CA 95131-2398 / (408) 437-8000 / Telex 171973 / Fax (408) 437-0292 Table 1 Position of the United States and Japan

SIA Position EIAJ Position

Goal of To increase foreign market To increase access to Japanese 1986 share in the Japanese markets for foreign producers Agreement market to at least 20% by working closely with by 1991. foreign industry and governments.

Status of Share has increased Japan never agreed to 20% Agreement but not enough to meet as a measure of success, and in 1989 terms of agreement. focusing on this number Market share has only obscures progress in other reached pre-1985 level. areas (alliances, technical agreements, joint ventures, increased cooperation).

Share should have been at No number or linear progress 14% in 1988 in order to was ever guaranteed. reach at least 20% by 1991.

Agree that share must be In many cases, the types of earned, but efforts products needed in Japan made by foreigners have are not supplied by foreign not reflected a comparable manufacturers, (see Figure 2) increase in sales. Japanese manufacturers will buy the best product, regardless of nationality.

Action Resolution adopted by SIA EIAJ formed Foreign Users board on March 2 calling for Committee to sponsor Japan to be included on the seminars and increase Super 301 list, which names dialog between Japanese the countries that will manufacturers and foreign be considered for trade suppliers. sanctions. Distributors Association Since 1986, foreigners have of Foreign Semiconductors invested in Japan in the (DAFS) formed. the following ways: 18 design centers International Semiconductor 27 test and quality centers Cooperation Center formed. 46 sales offices 32% increase in technical personnel

Source: SIA, EIAJ

Percent Share 25- U.S. in Japan 20- Japan In U.S.

1975 1377 1979 19S1 19,83 1985 1987

0003409-1 Source: Dataquest March 1989

Figure 2 Semiconductor Demand by End Use Japan vs. North America

Public Sector (Incl. IVIIIitary)

Telecommunications

Other Industries ><•

3% Computer and Office

Auto

Consumer Japan Nortii America 0003409-2 Source: EIAJ and WSTS

JSIS Newsletter © 1989 Dataquest Incorporated March OPPORTUNITIES AS A RESULT OF THE TRADE AGREEMENT As a result of the trade agreement and the increased threat of sanctions by the United States, three important Japanese organizations have been created to help foreigners gain market share. These three groups are the EIAJ's Users Committee of Foreign Semiconductors, the Distributors Association of Foreign Semiconductors, and the International Semiconductor Cooperation Center. Each group sponsors activities and publishes information aimed at both foreign suppliers and Japanese users. A summary of these activities and information is provided below. In addition, the U.S. Semiconductor Industry Association is intimately involved with the trade agreement and supports U.S. companies' interests both in Japan and in the rest of the world.

EIAJ Users Committee of Foreign Semiconductors EIAJ Users Committee c/o EIAJ Tokyo Chamber of Commerce and Industry Building 2-2 Marunouchi 3-chome Chiyoda-ku, Tokyo 100, Japan Chairman: Mr. Toori Sato (Hitachi) Phone: 03-211-2765 Fax: 03-287-1712 The committee was established in May 1988 by the EIAJ to promote the purchase of foreign semiconductors in Japan. It works closely with the EIAJ and the SIA. The 56 member companies are major semiconductor users that represent more than 70 percent of the total Japanese semiconductor consumption. Its activities include the following: • Conducting and publishing user surveys • Promoting executive exchange programs between foreign and Japanese companies • Appointing contact persons at member companies who are responsible for procurement of foreign products • Encouraging users to clarify incoming inspection standards • Assisting foreigners with new product introductions in Japan • Promoting expansion of the supplier base for automotive and consumer markets • Holding seminars and conferences to foster mutual understanding of user needs • Promoting design-in activity through meetings between Japanese companies and foreign suppliers

© 1989 Dataquest Incorporated March JSIS Newsletter Readers who wish to learn more about this committee or who wish to participate in its activities can take the following steps: • Contact the committee and ask to be put on its mailing list for conferences and seminars. Many are held in Japan; however, on March 6, the first U.S. seminar was held in Santa Clara, California, and it was well received. The seminar provided hands-on technical information to assist suppliers in understanding Japanese manufacturers' needs. • Send for the following English language reports: Semiconductor Users Directory—Auto Parts Industries A list of manufacturers with products, semiconductor consumption information, and engineering and purchasing contacts Your Trade Partner—Directory of Semiconductor Users in Japan A list of user companies' product lines, purchasing systems, consumption by application, current suppliers, and activity by facility. (A summary list of the contacts at each company is available through either the EIAJ or Dataquest.) In addition, many of the larger user companies have published their own brochures describing their purchasing procedures and products.

Distributors Association of Foreign Semiconductors (DAFS) Distributors Association of Foreign Semiconductors c/o Hakuto Co.,. Ltd. Toranomon Annex 2-29 Toranomon 1-chome Minato-ku, Tokyo 105, Japan Chairman: Shigeo Takayama (Hakuto Companies Group) Phone: 03-597-8910 Fax: 03-225-9007 This group was established at the end of November 1988 with 60 member companies. Members are Japanese distributors or trading companies that sell foreign semiconductors. DAFS' goal is to promote understanding between members and outside groups on many issues, one of which is the import and sale of foreign semiconductors. Some of its market access activities include:

• Holding technical sessions with members and customers to study foreign products • Studying new foreign products and visiting foreign facilities • Holding seminars to explain Japanese market conditions to foreigners

JSIS Newsletter © 1989 Dataquest Incorporated March Readers desiring more information about DAFS or who wish to join its activities can do the following: • Send for DAFS' membership list and, if your company does not have a distributor channel in Japan, contact a member company. If you are a Japanese manufacturer, use the list to see which distributors carry the foreign products you could use. • Understand the concerns and business conditions of the Japanese distributors and foreign suppliers. DAFS chairman Shigeo Takayama explained some of the problems between foreign suppliers and Japanese distributors at the recent EIAJ seminar in California. Among these problems are: - In the United States, company personnel and goals change "frequently, and this can damage the long-term relationship between supplier and distributor. In Japan, customers expect many visits and sales calls by marketing managers. - More foreign products are needed for the large Japanese consumer and automotive markets. - When products fail, Japanese end users expect the suppliers to replace parts immediately and analyze defects thoroughly. - Many relationships between Japanese distributors and foreign suppliers are damaged when the foreign suppliers sidestep the distributors and begin selling direct or make seemingly arbitrary changes in distribution channels.

International Semiconductor Cooperation Center (INSEC) INSEC 6F, Urban Toranomon Building 16-4, Toranomon 1-chome, Minato-ku Tokyo 105, Japan President: Masato Nebashi Phone: 03-597-8273 Fax: 03-597-8276 INSEC was established in March 1987 to promote activities that would stimulate foreign semiconductor sales and international cooperation in the semiconductor industry. Membership consists of 56 semiconductor companies, including 13 U.S. firms and 3 European companies. Currently, most of INSEC's seminars and exhibits are held in Japan, but efforts are being made to expand to the United States and possibly Europe. Some of INSEC's activities include the following:

• Disseminating and collecting information on trends, new product developments, translating data sheets, and related material • Issuing a monthly newsletter covering INSEC activities

6 © 1989 Dataquest Incorporated March JSIS Newsletter • Sponsoring exhibits at which foreign suppliers introduce products to the Japanese market and Japanese users keep up to date on the latest foreign product trends and technologies • Sponsoring seminars between foreign suppliers and Japanese users • Organizing tours of Japanese IC fabs, equipment manufacturers, and purchasing departments for senior engineers of foreign semiconductor suppliers. INSEC has sponsored two such tours in recent months, but it is uncertain if it will do another one. Readers who wish to join INSEC or to receive more information can do the following: - • Contact INSEC about becoming a member company. Currently, the membership fee for one year is ¥200,000 (approximately $1,563 at an exchange rate of ¥129/US$1.) • Ask to be put on the mailing for newsletters and future events.

Semiconductor Industry Association (SIA) U.S. Office Japan Office 10201 Torre Avenue, Suite 275 Nambu Building, 3rd Floor Cupertino, CA 95014 Kioicho 3-3, Chiyoda-ku President: Andrew Procassini Tokyo 102, Japan Phone: 408-973-9973 Phone: 03-237-7683 Fax: 408-973-028 Fax: 03-237-1237 The SIA is a United States-based association of semiconductor companies. It has facilities in both California and Japan. In representing the U.S. semiconductor industry, it works closely with the Japanese organizations mentioned above to increase foreign sales in Japan.

DATAQUEST RECOMMENDATIONS As the battle for foreign market access in Japan continues and becomes more intense, the greater the opportunities are for semiconductor manufacturers worldwide. All participants in the battle have the same objective: to increase foreign sales to the Japanese market. For Japanese manufacturers, foreign semiconductor makers will provide new types of products and help make Japanese end-use products more competitive. For the foreign suppliers, increased market share will make them stronger players in the largest semiconductor market in the world.

We believe that the semiconductor industry around the world should be paying attention to this battle, not only for the political developments, but for the information and activities that have resulted from it. Dataquest recommends that companies involved with the Japanese market should participate in and stay abreast of the activities sponsored by the organizations mentioned in this newsletter. By doing so, readers will learn about opportunities to expand their markets and increase their understanding of the global semiconductor industry. Bridget O'Brian JSIS Newsletter © 1989 Dataquest Incorporated March 7 Dataoye^ a companvof The Pun&^Bcwbtreet Cvporition Research Bulletin

JSIS Code: Newsletters 1989 1989-5 0003041

COMPUTER-INTEGRATED SEMICONDUCTOR MANUFACTURING IN JAPAN: A LOOK AT TOSHIBA'S 1Mb DRAM PLANT

SUMMARY At a recent U.S.-Japan Forum seminar at Stanford University, Dr. Bevan Wu, IBM's manager of Manufacturing Research, summarized the findings of a U.S. tour of Japanese manufacturing plants. The six-person study team was sponsored by the National Science Foundation (NSF) and the Defense Area Research Project Agency (DARPA). The goal was to understand state-of-the-art computer-integrated manufacturing (CIM) in Japanese companies. This bulletin focuses on CIM efforts in semiconductor plants.

SYSTEM INTEGRATION, NOT TOTAL AUTOMATION Dr. Wu observed that the Japanese manufacturing managers surveyed introduce automation systematically into their plants, beginning with their customers and bookings, through design and process, and finally, back to the customer. They analyze the need for plant automation, asking such questions as: Are robots needed? If so, how will they be used? What is the ideal mix with human workers? By contrast, according to Dr. Wu, some U.S. companies invest heavily in automation without asking these questions or improving the efficiency of their existing operations. The DARPA team found that Japanese managers emphasized several key manufacturing principles: design for easy manufacturing, maintain control over the process, keep the process as simple as possible, and automate only where necessary. To avoid building rigidity into the manufacturing process, they employ human workers for small-lot, quick-turnaround products.

TOSHIBA'S 1Mb DRAM PLANT Toshiba's 1Mb DRAM plant is an example of highly efficient manufacturing. Dr. Wu observed that Toshiba, like other Japanese chipraakers, has installed a global value-added network (VAN)—or "yellow brick road"—that links design, manufacturing, marketing, and distribution. The system enables anyone in the system to monitor the status of orders, production, and shipments. It was developed by 100 software programmers over a period of five years. At the manufacturing level, a linked data base integrates the various wafer processing steps: diffusion, chemical vapor deposition, dry etch, lithography, and ion implantation.

© 1989 Dataquest Incorporated February—Reproduction Prohibited The content of this report represents our inlerpretalion and analysis of information generally available to the public or released by responsible individuals in the subject companies, but is not guaranteed as to accuracy or completeness It does not contain material provided to us in confidence by our clients Individual companies reported on and analyzed by DATAQUEST, may be clients of this and/or other DATAQUEST services This information is not furnished in connection with a sale or offer to sell securities or in connection with the solicitation of an offer to buy securites This firm and its parent and/or their officers, stockholders, or members of their families may, from time to lime, have a long or short position in the securities mentioned and may sell or buy such securities

Dataquest Incorporated, 1290 Ridder Park Drive, San Jose, CA 95131-2398 / (408) 437-8000 / Tfelex 171973 / Fax (408) 437-0292 Toshiba and other Japanese chipmakers have also introduced three-dimensional • wafer maps showing yield variations to an accuracy of 3 to 4 percent. Graphs showing the turnaround time (TAT) to solve yield problems are constantly printed out to increase quality awareness and speed response time. Toshiba has reduced its TAT to 7 to 10 days from 7 to 25 days. By spotting yield problems quickly, Toshiba is able to produce higher-quality wafers. Dr. Wu estimated that Toshiba's 1Mb DRAM plant has a monthly throughput of 50,000 wafers. Its process involves 550 manufacturing steps, 120 types of equipment, and about 400 pieces of equipment. Toshiba's CIM system has achieved stunning results, including the following: • An estimated wafer yield of 80 percent (50 percent higher than before installing the CIM system) • An average turnaround time (TAT) of 5 times the raw process time (RPT) at 100 percent loading—42 percent less than previously—compared with 10 times for the average U.S. semiconductor plants (Toshiba managers are aiming to reduce TAT to twice the RPT.) • Only 15 minutes to calculate wafer probe yields and correlate its process data • A 32 percent increase in the effective manufacturing time • A 25 percent reduction in labor costs Assuming a new 1Mb DRAM plant cost of $300 million, Toshiba could recover its total plant investment in three or four months by shipping 600 million units per year at current market prices. Dr. Wu estimated. As a result, he concluded that memory chip production is a huge cash generator for Japanese companies using CIM systems. At their peak, Japanese memory plants could efficiently process 1,000 wafer starts per day involving a total staff of 2,500 people, including all support. His most discouraging observation: "Even if the Japanese let us see everything in their plants, we could probably not duplicate it because of cultural and management differences." On the other hand, he believes that Japanese managers are not invincible.

DATAQUEST OBSERVATIONS Dataquest believes that Dr. Wu's observations merit serious consideration because of his in-depth knowledge of IBM's memory production capabilities. Although his revenue calculations were conducted independent of actual market demand and industry capacity analyses, his insights into Toshiba's productivity gains and yield improvements are worth noting. However, Toshiba is using a proven planar process, while other Japanese are encountering difficulties with the more complex trench capacitor and stacked cell processes. Dr. Wu's discussion did not address how Japanese companies are addressing the dual problem of introducing new submicron processes and CIM systems.

For more information, the DARPA report entitled "CAD/CIM in Japan" can be obtained from Science Application International Corporation, 1710 Goodridge, McLean, Virginia 22102. Sheridan Tatsuno George Burns Mark Reagan

JSIS Code: Newsletters 1989-1990 1989-4 0003010

SUPERCONDUCTIVITY UPDATE: COMMERCIAL APPLICATIONS EMERGING WORLDWIDE

SUMMARY The Superconductor Applications Association recently held its second annual international applications convention in San Francisco, California, to discuss the latest superconductor developments and emerging applications. Now the media hype and inflated expectations are over, but the tough job of developing new applications has begun. Dataquest observes that, despite numerous technical barriers, short-term commercial applications are beginning to emerge because of the intense R&D applications being pursued worldwide. This newsletter reviews the current thinking in superconductor technologies and emerging applications markets.

THE STATE OF THE INDUSTRY Simon Foner, chief scientist at the Francis Bitter National Magnet Laboratory and former MIT professor, believes that we are at the threshold of a new materials revolution. Numerous high-temperature superconducting materials have been discovered since IBM Zurich's breakthrough in late 1986, including: Lanthanum-barium-copper oxides (LaBaCuO)—superconducting at 30 Kelvin Lanthanum-strontium-copper oxides (LaSrCuO)—40 Kelvin Yttrium-barium-copper oxides (YBaCuO)—100 Kelvin Thallium-barium-copper oxides (TlBaCuO)—30 Kelvin to 80 Kelvin Barium-potassium-bismuth oxides (BaKBiO)—30 Kelvin

The content of this report represents our mterpretation and analysis of inpmuition generally available to the public or releasai by responsible individuals in the subject companies, but is not guaranteed as to accuracy or completeness. It does not contain material provided to us in cor^jdence by our clients. Individual companies report^ on and analyzed by Dataquest may be clients t^ihis and/or other Dataquest services. This inprmation is notjumished in connection with a sale or offer to sell securities or in connection with the solicitation cfan q^r to buy securities. This firm and its parent and/or their officers, stodcholders, or members of their families may, firm time to time, have a lor^ or short position in the securities mentitmed and may sell or buy such securities,

Dataquest Incorporated, 1290 Ridder Park Drive, San Jose, CA 95131-2398 / (408) 437-8000 / Telex 171973 / Fax (408) 437-0292 There are still many market barriers to commercializing these materials, including the high costs, cryogenic cooling requirements, absence of short-term consumer markets, competition from alternative technologies, and reluctance by utilities companies. At this early stage, the ability to use liquid nitrogen (above 77 Kelvin) will provide only incremental cost gains. Early, small-scale market applications will probably feature superconducting thin films (high-frequency devices), Josephson junction devices (low-energy loss), and circuit board interconnection (tunneling advantages). Dataquest believes that the initial applications will be military and industrial. Unlike integrated circuits, superconductivity has been around for 75 years, but is more revolutionary in nature because of its numerous physical properties.

A VIEW FROM CHINA Dr. Zhongxian Zhao, senior scientist at the Chinese Academy of Science's Institute of Physics in Beijing, summarized the current state of the art worldwide: The highest critical temperature is approximately 125 Kelvin. The highest critical current is 10 million amperes per square centimeter at 77 Kelvin in a zero magnetic field. New superconducting fiber and thin-film preparation techniques are being developed, but they do not match semiconductor requirements. Superconductors feature key advantages: optical switching, electrical transmission, specific heat gradients, and antimagnetization. The highest critical temperatures are being recorded with 3-layer copper oxides, especially thallium-barium-calcium-copper oxides (TlBaCaCuO at 2:2:n-l:n:2n+4 ratio). The most recent material discovery is bismuth-strontium-calcium-copper oxide (BiSrCaCuO at 2:2:1:2:8 ratio). Dr. Zhao emphasized that more work needs to be done on the new thallium (Tl) and bismuth (Bi) materials, copper-oxide structures, and growing high-quality single crystals.

JAPAN'S BIG PUSH INTO SUPERCONDUCTIVITY Koichi Kitazawa, professor of engineering at Tokyo University, agreed that the new superconducting materials are difficult to handle. For example, bismuth-strontium- calcium-copper oxides (BiSrCaCuO) cannot be produced without additives. Moreover, they have very low critical current densities (they cannot carry high electrical currents). Four areas of Japanese research were highlighted: • Sumitomo Electric—bismuth thin-film tapes (1,000 amperes per square centimeter) for circuit board interconnection

© 1989 Dataquest Incorporated February JSIS Newsletter • Low-pressure systems to produce yttrium-barium-copper oxides (YBaCuO) • Atomic layer-by-layer deposition—argon-fluorine laser sputtering (Professor Kawai at Osaka University) and multitarget sputtering • New work on neodymiuin-cesium-copper oxides (NdCsCuO) (Professor Tokura at Tokyo University) In October 1988, Japan established the International Superconductivity Technology Center (ISTEC) with 88 companies to promote superconductor research and commercialization (see JSIS newsletter number 1988-22, entitled "Japan's Coordinated Push into Superconductivity"). The full membership fee is $1 million, plus two researchers assigned full time. Currently, there are 50 researchers (40 assigned by Japanese companies), with plans for 100 by this April. Only five foreign companies have joined to date. Seven ISTEC research laboratories have been formed: Theory and mechanisms—Dr. Koshizuka (MITI's Electrotechnical Laboratory) New materials—Dr. Yamanouchi (Tokyo University) Organic superconductors—research head not assigned yet Chemistry and processing—Dr. Shiobara (MIT graduate) Thin-film surface physics—Dr. Morishita (NEC Corp.) Data bases—Dr. Ishiguro (MITI) Ceramic processing (Nagoya)—Dr. Hirabayashi (Tokyo University) Professor Kitazawa said ISTEC was established to contribute basic research, improve Japan's scientific reputation, stimulate corporate R&D, build ties with foreign researchers, provide training opportunities, and pool resources. Dataquest observes that Japanese companies also view ISTEC as a way to recruit ambitious young researchers and insure against being unprepared to respond quickly to sudden breakthroughs made elsewhere. Sumitomo Electric, for example, is actively filing patents in anticipation of future litigation over intellectual property. ISTEC members will follow suit. For this reason alone, ISTEC must be taken seriously as intellectual property and patent rights are enforced more rigorously worldwide.

SUPERCONDUCTING WIRE APPLICATIONS Carl Russo, manager of Technical Applications at American Superconductor Corporation, discussed the emerging applications for superconducting wires, as shown in Table 1.

Signal AC Power DC Power Cryogenic Sensors Actuators Magnets SQUID Coils Antennas Vapor-cooled leads Antennas Sonic transducers Particle separators Interconnects Motors Generators RF tank circuits Energy storage

Source: American Superconductor Corporation

From a manufacturer's perspective, there are two requirements for making commercial superconducting wires: mechanical strength and electrical properties (high current density, insulation, noise sensitivity, etc.). American Superconductor is exploring metal-ceramic composites with good grain boundaries between the materials to achieve high critical current densities. Metal precursors (materials) are being used because various shapes can easily be manufactured.

FLEXIBLE SUPERCONDUCTIVE FIBERS John W. Halloran, vice president of GPS Superconductor Corporation (a spinoff from Ceramic Process Systems in Massachusetts) described work on flexible superconducting fibers based on contract work with DARPA's Composite Ceramic Superconductor Wires Project. CPS produces flexible fibers by mixing yttrium-barium-copper oxide (YBaCuO) powder with polymers, then spinning the mixture into long, thin fibers. The fiber-spinning approach, developed with Emerson Electric and Albany National Research Institute, produces flexible materials that can be twisted, braided, or woven into materials with a texture-like quality. Moreover, any superconductor powder can be used. CPS is embedding high-temperature superconducting fibers into flexible metal rods that can bear heavy loads. One potential application is fiber equipment for computers and telecommunications systems.

INDUSTRIAL USES FOR SUPERCONDUCTIVITY Dr. Carl H. Rosner, president of Intermagnetics General, observed that low-temperature, niobium-based superconductors have already been commercialized. Major applications include magnetic resonance imaging (MRI) medical scanners (80 percent of the total market), magnets for basic research, particle accelerators, and resonant cavity equipment. Large-scale superconductor systems include AC generators, magnetic storage stabilizer systems, and AC transformers.

© 1989 Dataquest Incorporated February JSIS Newsletter The superconductor industry will receive a big boost when the Supercollider Project is built in Texas. The $1 billion project is expected to require 10,000 magnets and $250 million worth of cables. Fermi superconducting prototype magnets, which combine 1,000 magnets, are being considered for the system. The Supercollider Project has been budgeted at approximately $100 million in fiscal 1989. Dr. Rosner believes that superconductor R&D spending will double from $1.5 billion to $3.0 billion over the next five years. The first products will be commercialized in three to five years. Based on these assumptions, he presented the forecast in Table 2.

Table 2 Superconductor Market Forecast (Millions of Dollars)

1990 2010 2020

Physics R&D $250 $300 $ 200 Materials R&D $200 $300 $ 100 Processing R&D $100 $200 $ 200 Electronics $100 $500 $2 ,500 Space $100 $200 $ 500 Consumer $ 10 $100 $ 500

Source: Intermagnetics General

As president of a MRI medical scanner manufacturer, Dr. Rosner observes that nuclear magnetic resonance (NMR) tests using the current $1.5 million MRI machines cost approximately $5,000 to $10,000, so the payback is relatively quick for hospitals and medical clinics. He believes that the market will grow rapidly as portable systems are developed.

COMPACT SUPERCONDUCTING MEDICAL SCANNERS Michael Murphy, technical marketing manager for Oxford Superconducting Technology, described his company's work on the Oxford Compact MRI scanners originally developed at British Leyland. These scanners are being used for two new applications: body imaging (high-resolution, high-contrast images) and spectroscopy (noninvasive, in vivo biochemistry R&D). They have major advantages over existing MRI scanners: lower prices, more medical applications in the field, and portability. Shielding the portable MRI scanners, however, is a major issue because of their sensitivity to electromagnetic fields in medical clinics and hospitals. To overcome this problem, Oxford Superconducting has developed the Oxford Active Shield, or shielding coils built into the compact MRI scanners. The shields are lightweight and provide large reductions in the surrounding magnetic field. Moreover, no major building renovations are required for their use. Oxford has shipped 50 mobile MRI units to date and is actively marketing the systems.

Oxford is also developing a compact 12-megavolt (MeV) cyclotron called "Oscar" and a compact synchrotron orbital radiation (SOR) system for semiconductor makers. Dataquest notes that SOR research is active in Japan because of its use in future 64-megabit memories. The Japanese government-sponsored group, Sortech, involves 13 companies.

BIOMAGNETIC INSTRUMENTS Scott Buchanan, development physicist at Biomagnetic Technologies, described his work on superconducting ferrotometers (for sensing iron in the liver) and Biomagnetic's Cryosquid imaging system. In 1984, Biomagnetic developed a proprietary 5-channel neuromagnetometer sensor that is placed into a liquid helium reservoir of its Cryosquid imaging system. A 7-channel sensor was introduced in 1988. Pick-up coils feed the neural images of the brain into the system. To overcome the problem of environmental noise and sensor positioning, Biomagnetics developed three techniques: • A spatially selective detection coil that reduces environmental noise by 100 to 1,000 times • A magnetically shielded room that gives a 10,000-fold reduction at lOHz (power lines and rotating machinery frequencies) • A sensor position transducer Biomagnetics attaches a headband containing receiver-transmitter units onto the patient's head to determine the position of the neural images. The transmitter sends signals that are used to measure the relative position of the brain. Biomagnetics uses a high-resolution 25-inch black-and-white monitor and a 300-dpi printer to capture the neural images. With the Cryosquid system, medical researchers will be able to analyze neural patterns and identify the sources of nervous disorders.

SUPERCONDUCTING FILMS FOR INFRARED DETECTORS Tom Stratton, principal research scientist at Honeywell Sensors and Signal Processing, described Honeywell's work on high-temperature superconducting films. Honeywell uses ion beams to sputter argon ions onto a yttrium-barium-copper oxide (YBaCuO) target on various substrates. Using this method, Honeywell has developed a bolometer (a thermally isolated device with a sharp change in resistivity with temperature changes) and a super-Schottky photodiode (a tunable optical device).

SUPERCONDUCTING BEARING AND FLEXIBLE WIRES Richard Cass, president of HiTc Superconco, discussed his firm's development of flexible wires with U.S. fiber-optic makers, high-temperature superconducting bearings, and plug-in bus bars for improved data transmission. HiTc Superconco is targeting the following near-term applications, especially the first three fields: MRI machines Magnetic sensors for submarine detection Frictionless mechanical devices Magnetic extraction systems Superconducting motors and generators Portable medical scanners Currently, the United States Army is the biggest market for magnetic sensors with ultrastable low-noise frequency control. However, there are numerous commercial applications, as shown in Table 3.

Table 3 High-Temperature Superconductor Commercial Applications

Device Type Applications

Computers Superconducting hybrids Bearings to replace parts affected by electromagnetic interference (EMI) EMI shielding

Magnets MRI medical scanners Ore refining Spectroscopy research Magnetic levitation gyroscopes High-efficiency space launchers

Electronics Infrared sensors Earthquake detectors Telephone-switching sensors Inertial sensors (for better laser systems) High-power, narrow-bandwidth radar systems

Source: HiTc Superconco, Inc.

JSIS Newsletter © 1989 Dataquest Incorporated February SUPERCONDUCTOR MANUFACTURING IN SPACE Dr. C.W. (Paul) Chu, the Houston University professor who discovered superconductive materials at liquid nitrogen temperatures (77 Kelvin and above), described his work on superconductor manufacturing in space for NASA. Four conditions in space could be used: • Microgravity—Perfect single crystal growth would be possible by eliminating buoyancy-driven convection, sedimentation, and hydrostatic pressure. • Ultravacuum—Perfect control over layer-by-layer superlattice crystal growth would be possible. NASA is investigating a molecular beam epitaxy (MBE) fabrication line in space. • Space cooling—This is the constant cooling of superconductor manufacturing processes using passive thermal radiation. • Remote sensing—Static magnetic sensors for reentry vehicles could be developed using yttrium-barium-copper oxide (YBaCuO) superconducting infrared photodetectors. Given the high launch costs, space manufacturing would be feasible only through a joint-research consortium focusing on materials with a high value-added/low-weight ratio. Dr. Chu believes that the functionality of new superconducting materials, not initial costs, is the key factor in this field.

MAGNETIC LEVITATION BULLET TRAINS Dr. Yoshihiro Kyotani, father of Japan's magnetic levitation bullet train research and president of Technova, provided a chronology of Japan Railway's (JR's) research on linear motor car (maglev train) technology: • December 1979—One-car ML-500 linear motor car achieved 517 km/hour (320 mph) using superconducting magnets at JR's test track in Miyazaki Prefecture. • February 1987—Two-car MLU-001 achieved 408 km/hour (252 mph) using superconducting coils and helium indirect cooling. • March 1987—MLU-002 introduced, featuring 22-meter-long cars, 44 seats per car, LCD televisions, monitoring cameras, and sliding doors. 500 km/hour (310 mph) achieved. • January 1987 to November 1988—More than 4,500 passengers rode MLU-002 over 11,000 kilometers of test runs. Japan Railway initially used a center-strip superconducting guideway for its ML-500 linear motor car, but switched to a U-shaped trough design for its MLU-001 and MLU-002 guideways. The Japanese system uses an inductive repulsion method in which the linear motor cars float over the guideway magnets, in contrast to the attraction method used in West Germany.

8; © 1989 Dataquest Incorporated February JSIS Newsletter Dr. Kyotani described four linear motor car routes being considered in Japan by the Ministry of Transportation (MOT): Tokyo-Osaka, Sapporo-Chitose, Tokyo-Sendai, and Saitama-Tsukuba-Narita-Yokohama. Currently, the most serious proposal is the 500-kilometer Tokyo-Osaka route, which would cost ¥3 trillion to ¥4 trillion ($25 billion to $33 billion) and take four to five years for construction. A decision from MOT is expected by early 1990, with construction beginning in 1992.

A LINEAR MOTOR CAR IN THE UNITED STATES? Geoffrey Coates, president of American Mag-Lev, Inc., discussed the plan by the Pickering Group to build a $1.1 billion magnetic levitation (linear motor car) line to Atlantic City, New Jersey. The situation is ideal for a linear motor car: 33 million casino visitors annually, 100,000 daily commuters, the tenth worst smog alert area and the worst bus traffic in the United States, the planned closure of two dilapidated bridges into the city, and environmental restrictions on wetlands construction. American Mag-Lev has secured private financing and is seeking government approvals. If approved, the project will begin in the early 1990s.

DATAQUEST CONCLUSIONS Superconductor research is still in its infancy, comparable to the transistor industry in the early 1950s. However, unlike transistors, superconductors lack a coherent theory and offer more than 40 different physical properties that can be tapped commercially. Niobium-based superconducting magnets for MRI scanners are being sold already. Dataquest believes that within two to three years we will see limited sampling of flexible fibers, wires, and tapes, and infrared detectors and sensors based on new superconducting ceramic-oxide thin films. These superconducting components initially will be used in high-end industrial and military applications where data security is crucial. Over time, broader industrial applications will emerge as superconductor manufacturers develop greater process control and system reliability. Dataquest believes that only those companies with the vision, patience, and strong applications engineering know-how are likely to succeed in this infant industry.

Sheridan M. Tatsuno

JSIS Newsletter © 1989 Dataquest Incorporated February Dataqyest -f-^i^^'i-^- acompanyof ^S'-'-m^--^'''' The Dun&Bradstieet Corporation -^^13 Sr-'~n; •'jT'i''' •Urt*^ '*.-^.;V."^.'^.' m'Mtmm^sf.i r4,^ i^iii Research Newsletter

JSIS Code: Newsletters 1989-1990 1989-3 0002225

SYNCHROTRON ORBITAL RADIATION UPDATE: JAPANESE PROJECTS UNDER WAY

SUMMARY Japanese research on synchrotron orbital radiation (SOR) rings for 64Mb and higher memories is building momentum rapidly. Currently, there are 5 new SOR facilities and 19 more being planned. SOR is viewed by Japanese semiconductor makers as the strategic tool to develop 64Mb and higher RAMs and will be one of the future applications for superconducting magnets. Excimer lasers and electron beam equipment are also under consideration, but technical obstacles make them inadequate for mass production of DRAMs. This newsletter provides an update to our previous newsletter (see JSIS Research Newsletter number 1987-30, entitled "Synchrotron Orbital Radiation: Japan's Push into Ultradense Megabit Memories") and focuses on the SOR projects listed in Table 1.

Table 1 Ja(>anese SOR Research Activity

Company/Ministry Location Project Status

Ishikawajima-Harima Tokyo SOR research center from late 1988

Ministry of Education (MOE)/ Tsukuba Working on 64Mb memories Fuj itsu/Hitachi/NEC/NTT

NTT/Hitachi/Toshiba Atsugi 64Mb DRAM being developed on 5m-dicimeter ring

Sanyo/MCE High-Energy Tsukuba 3-micron mask pattern reduced to Physics Lab 0.75 microns at MOE's SOR ring

(Continued)

The content of this report represeras our interpretation and analysis c^ information generally available to the public or released by responsible individiuds in the subject companies, but is not guaranteed as to accuracy or completeness. It does not contain material provided to us in confidence by our clients. Individual companies reported on and analyzed by Dataquest may be clients of this and/or other Dataquest services. This mformation is not jumished in connection with a sale or offer to sell securities or in connection with the solicitation of an q^r to buy securities. This firm and its parent and/or their officers, stoddiolders, or members of their families may, from time to time, have a Umg or short position in the securities mention^ and may sell or buy such securities.

Dataquest Incorporated, 1290 Ridder Park Drive, San Jose, CA 95131-2398 / (408) 437-8000 / Telex 171973 / Fax (408) 437-0292 Table 1 (Continued) Japanese SOR Research Activity

Company/Ministry Location Project Status

Science and Technology West Detailed planning in 1989; begin Agency (STA) Harima construction in mid-1990; operations from 1995

Sortech/Mitsubishi Tsukuba Purchase of Mitsubishi's SOR equipment

Sumitomo Electric/ Tsukuba Developing ultrasmall 50cm-diameter MITI Electrotechnical ring with more than 3m diameter

Source: Dataguest January 1989

WHY SYNCHROTRON RESEARCH? In the United States, considerable debate exists over the relative merits of SOR because of the installed base of optical steppers and competition from excimer lasers and electron beam equipment. However, Japanese manufacturers note that the mass production capabilities of these competing technologies are limited for the following reasons: • SOR masks are still difficult to make, limiting their short-term feasibility (for 16Mb DRAMs). • Optical stepper resolution is limited to 0.25 microns, but uncertainties exist for mass production below 0.5 microns. • Direct-write electron beam is good for fast-turnaround ASICs, but its low wafer throughput makes it unsuitable for DRAMs. • Excimer lasers offer high resolution and wafer throughput, but laser source stability and photoresist are limiting factors. (Even if resolution is resolved at 16Mb, the same issue arises at 64Mb.) Although optical steppers could be used to manufacture large-die 64Mb DRAMs on 8-inch wafers, high defect levels and low yield ratios will ultimately force Japanese makers to move to the 0.30- to 0.35-micron range as shown in Figure 1. While 0.35-micron patterns have been drawn using optical steppers, their reliability for high-volume manufacturing is still uncertain. Since NTT, Toshiba, and other Japanese manufacturers have already developed prototype 16Mb DRAMs on optical steppers, their most likely strategy will be two-pronged: to push optical steppers as far as possible and to begin developing SOR technology. Excimer lasers could be used as a backup technology in the event that lenses can be developed.

Microns

10.0 —

4K {contact/proximity)

5.0 — 16K (contact/proximity/projection)

64K (1:1 projection aligner)

2.0 — 256K (5:1 stepper-g line/projection

1Mb (5:1 stepper-g line) 1.0 4Mb (5:1 stepper-l line or g line)

!^ Conventional Steppers 0.5 — 1 Exclmer Laser Steppers Dlrect-Wrlte Electron 64Mb ^ ^ Beam 0.2

Temperature Limit of Silicon 0.1 Transistors

Latest forecast use 0002225-1 Source: Dataquest January 1989

Table 2

Major SOR Facilities in Japan

Completion Organization Date Name GeV Magnet Type

Hiroshima University 1992 Hi-SOR 1.50 N/A Ishikawajima-Harima 1989 N/A Conventional Kyushu University N/A SOR Center 1.30 N/A MITI Electrotechnical 1981 TERAS 0.80 Conventional MITI Electrotechnical 1988 NIJI II 0.50 Conventional MITI Electrotechnical 1990 NIJI III 0.62 N/A MCE High-Energy Physics 1982 Photon Factory 2.50 Conventional MCE High-Energy Physics 1985 TRISTAN-AR 6.00 Conventional MOE High-Energy Physics TBD Super Photon 10.00 N/A Factory Molecular Science Lab 1984 UV-SOR 0.60 N/A NTT Corp. (Atsugi Lab) N/A N/A N/A Conventional NTT Corp. (Atsugi) 1988 SOR Light 0.80 Superconducting Giken 1995 Compact SOR 6.00 N/A Sortech (Mitsubishi Electric) 1988 Compact SOR 1.00 Conventional Sumitomo Electric 1988 N/A Conventional Sumitomo Electric 1989 N/A Superconducting Sumitomo Heavy 1988 Aurora 0.65 Superconducting Tohoku University N/A Stretcher 1.50 N/A Tokyo University 1975 INS-SOR II 0,40 Conventional Tokyo University N/A VUV-SOR 1.00 N/A West Harima Technopolis Late 1990s SOR Research 8.00 N/A Center

N/A = Not Available

Source: Japan Industrial Journal Japan Industrial Daily

STATUS OF SOR PROJECTS The following paragraphs are short descriptions of the current status of Japanese SOR research activities.

© 1989 Dataquest Incorporated January JSIS Newsletter Ishikawajima-Harima Ishikawajima-Harima, a Japanese shipbuilder, announced plans to enter the SOR field by opening an R&D center in the Tokyo region at the end of 1989.

MOE High-Energy Physics Lab/Fujitsu/Hitachi/NEC/NTT Fujitsu,. Hitachi, NEC, and NTT Corp. are developing 64Mb+ memories on a 28-meter-diameter, 2.5-GeV SOR ring 183 meters in circumference and, more recently, on a 10-meter-diameter, 645-MeV SOR ring. The four companies are using the SOR ring at the Ministry of Education's (MOE's) High-Energy Physics Laboratory in the Tsukuba Science City.

NTT Corp./Hitachi/Toshiba In early 1988, NTT Corp. began testing a 15-meter-diameter doughnut-shaped synchrotron at its LSI Laboratory in Atsugi, Kanagawa Prefecture. The ¥20 billion ($166 million) machine, which was funded jointly with Hitachi and Toshiba, radiates 5- to 10-angstrom soft X-ray beams capable of drawing 0.35- to 0.20-micron lines. The electron energy is accelerated to 15 MeV by a 16.8-meter-long linear accelerator, further accelerated to 800 MeV by a 15 x 15-meter accelerator ring, then stored in a 2 x 8-meter storage ring. The ring uses powerful superconductor electromagnets to produce the magnetic fields. In July 1988, NTT Corp. successfully tested a 0.35-micron MOS prototype device with a 20ps gate speed. The goal is to develop a 64Mb DRAM in the 1990s and a 100Mb DRAM by the year 2000. NTT Corp. is also developing 64Mb DRAMs with Fujitsu, Hitachi, and NEC on a 10-meter-diameter SOR ring operated by the MOE's High-Energy Physics Laboratory in Tsukuba. In March, NTT produced the world's first chemical vapor deposition (CVD) thin film using SOR equipment, which can be used for 64Mb and 256Mb DRAMs. Two methods are used. In the first, gas is pumped over the substrate, triggering an electrical discharge; then the gas molecules are analyzed as the layers are formed. In the second, gas is pumped onto the substrate in the center of the furnace, which is heated to 1,000 degrees Celsius.

Sanyo Electric/MOE High-Energy Physics Lab In August 1988, Sanyo Electric announced that it had drawn a 0.75-micron line using a 3-micron mask using a pattern-reduction transfer method. The experiments were conducted at the SOR ring at MOE's High-Energy Physics Laboratory in Tsukuba. Sanyo used a 3.5-angstrom wavelength light to direct X-ray beams onto a perfect-crystal silicon wafer. However, Sanyo encountered problems with a weak contrast below a 2.5-micron mask pattern. Exposure time was from 30 to 60 minutes.

Science and Technology Agency (STA) The STA selected the West Harima Technopolis site in Hyogo Prefecture for its 6-GeV SOR storage ring. The ¥100 billion ($833 million) storage ring will have a diameter of 300 to 450 meters, a circumference of 1 kilometer, and 100 beam-emitter locations. Detailed plans will be developed in 1989, with construction beginning in mid-1990. Operations are scheduled from 1995. The SOR ring will be used for submicron analysis, VLSI research, and biological topics.

Sortech In June 1986, the Japan Key Technology Center and 13 Japanese semiconductor device and equipment makers formed Sortech to develop compact SOR equipment for manufacturing 64Mb DRAMs and higher. Current lO-meter-diameter SOR systems are too large for existing wafer plants. Capitalized at ¥214.3 million ($1.8 million), the joint venture company plans to spend ¥14.3 billion ($119.2 million) during its lO-year R&D program (ending March 1996). The Key Technology Center is providing 70 percent of the funding and the companies, the remaining 30 percent. Members include Canon, Fujitsu, Hitachi, Matsushita, Mitsubishi, NEC, Nikon, Oki Electric, Sanyo, Sharp, Sony, Sumitomo, and Toshiba.

As of mid-1988, the 13 participating Japanese companies had assigned 34 researchers to Sortech. Their initial goal is to quickly develop large-SOR-ring technology, then focus on developing compact SOR rings. Currently, Sortech is conducting basic research on lithography, instrumentation for research uses, and device maker requirements. The following is a chronology of Sortech's activities: • July 1987—Sortech R&D began with discussions with Hitachi, Mitsubishi Electric, Sumitomo Heavy, and Toshiba to allocate SOR equipment design and manufacturing. • January 1988—Sortech placed a ¥2.7 billion ($22.5 million) order with Mitsubishi Electric for design of 1-GeV SOR equipment by late 1988. The equipment will feature a 200mA electron beam, 15.5-angstrom wavelength, 46-meter circumference, and 40-MeV injector. Hitachi and Toshiba are also involved, but Mitsubishi received the largest order. • September 1988—Sortech opened Tsukuba research center. The center has two buildings: a 1,200-square-meter research building and a 3,300-square- meter laboratory. Construction cost approximately ¥2.5 billion ($20 million).

Sumitomo Electric/MITI Electrotechnical Laboratory With MITI's Electrotechnical Laboratory in Tsukuba, Sumitomo Electric is developing an ultrasmall 50-centimeter-diameter SOR ring with an overall 3-meter diameter. A prototype ring was completed and recently began test operations at Sumitomo's plant in Tokyo.

DATAQUEST OBSERVATIONS Although the Japanese are starting behind the West Germans, who have already commercialized compact SOR rings, Dataquest believes that the Japanese are rapidly catching up. Sumitomo Heavy has already developed a compact SOR ring, and Mitsubishi Electric will provide one to Sortech in 1989. By the early 1990s, at least half a dozen Japanese companies will have compact SOR prototypes for in-house research.

Kaz Hayashi Sheridan Tatsuno

JSIS Code: Newsletters 1989-1990 1989-2 0002650 HIGH-DEFINITION TV:

The Emerging Video Mar/ce(5 OO

v!=

Sheridan M. Tatsuno Japanese Semiconductor Industry Service

At Dataquest's Financial Services Program conference, JSIS Senior Industry Analyst Sheridan Tatsuno made a presentation on the emerging high-definition television (HDTV) technologies and markets. His speech covered the following topics:

What is HDTV? Why use HDTV? Major developers and users Competing HDTV systems Barriers to Entry HDTV spinoff markets and diffusion paths HDTV market opportunities and impacts

The conient of this report represents our interpretation and analysis qfir^rmation generally available to the public or released by responsible individuals in the subject companies, but is not guaranteed as to accuracy or completeness. It does not contain material provided to us in atnfulence by our clients. Individual companies reported on and analyzed by Dataquest may be clients of ^lis and/or other Dataquest services. This mformation is not fiimished in amnecticm with a sale or qf^r to sell securities or in connection wi^ the solicitation cf an o^rU) Imy securities. This firm and its parera arui/or their officers, stoddiolders, or members of ^ir families may.frwn time to time, have a long or short position in the securities mentioned and may seU or buy sudi securities.

Dataquest Incorporated, 1290 Ridder Park Drive, San Jose, CA 95131-2398 / (408) 437-8000 / Telex 171973 / Fax (408) 437-0292 WHAT IS HIGH-DEFINITION TV?

High-Definition TV • 1,050-1,125 or 1,250-line resolution (35mm quality) • 5:3 or 16:9 width-to-height ratio • 6-/8.4-/20-MHZ video bandwidth Existing TVs Extended Definition Oo • 525 lines • Compatible with • 4:3 ratio existing TVs •4.2-MHz bandwidth • 50% resolution improvement

Key points to note: High-definition TV (HDTV) is an emerging television standard that will eventually replace existing televisions by offering digitized images with much higher resolution; wider, theater-like screens; and digital stereo sound. HDTV will require a broader video bandwidth to accommodate the increased picture transmission. Two major HDTV standards currently are being developed, and 18 proposals are being considered in the United States.

Europe United States Japan

Existing 625 lines 525 lines 625 lines

HDTV 1,250 lines 525 lines 1,125 lines (HD-MAC) (18 proposals) (NHK's MUSE) Due to the large installed TV base, the lack of worldwide HDTV standards, and the long development period (7 to 10 years until HDTV take-off), Japanese makers are finding interim strategies. NHK has proposed extended-definition TV (EDTV), which is compatible with Japan's 625-line standard, for terrestrial broadcasting to the Japanese Broadcasting Technology Association. Japanese TV makers have also developed less costly improved-definition TV (IDTV) sets.

WHY USE HDTV?

Features Market Applications High resolution Medical/scientific imaging Video theaters

• Less expensive and Film/TV production time consuming

• Digiti2ed images News photo reproduction Industrial simulations

• Wider screen Sports/scenery broadcasting Performing arts broadcasting

• Satellite transmission Retail purchasing Rural populations

Souice: Dalaquest Key points to note: HDTV offers twice the resolution of existing TV screens, making it attractive for "video theaters" at bars, coffee houses, and homes, as well as for medical/scientific imaging systems. Independent film producers are already using HDTV video cameras developed by Sony because of the speed and cost savings. Dataquest believes that HD-VTRs and HD videocassettes will be the initial market drivers because vendors can set their own standards with them. HDTV will allow video teams and photojournalists to instantaneously transmit digitized images and video clips by satellite to their main bureaus for editing, printing, and broadcasting. Wide HDTV screens up to 100 inches will offer very clear sports, travel, and performing arts broadcasting. Portions of the screen can be enlarged and edited using windows without losing resolution. Freeze-frame memories and instant replay will allow home TV editing. Satellite transmission of very clear HDTV images of merchandise will allow retailers and wholesalers to market in rural or distant areas.

WHO'S USING HDTV NOW?

User Application • Rebo High-Definition IVIusic video of John Lennon's Studios "Imagine"; commercials

• Canadian Broadcasting "Chasing Rainbows" (14-hour Corp. romance miniseries)

• Japan Broadcasting 1988 Olympics demonstration Corp. (NHK) HDTV exhibitions

• NHK Australia - Nara exhibition

Souice: Dataqu«st Key points to note: Independent film makers and public broadcasting corporations such as Japan's NHK and Canadian Broadcasting Corporation already are experimenting with HDTV for high-quality programs. Dataquest believes that the EDTV/HDTV market could split into three markets: high-end, high-quality video (HD-VTRs and video cassettes); midlevel broadcasting (cable and independent producers); and mass broadcasting (standard TV stations) This fall, Francis Ford Coppola (producer of The Godfather and Apocalypse Now) visited Japan to investigate HDTV technology. George Lucas now appears in Japanese video and HDTV ads. Dataquest believes that U.S. film makers such as Mr. Coppola, Mr. Lucas, and Steven Spielberg will be key "video software" producers driving HDTV hardware from Japan. In September, NHK transmitted HDTV programming of the 1988 Seoul Olympics to an estimated 3.72 million viewers who watched 200 Hi-Vision receivers at 81 sites in Japan. The HDTV signal was transmitted along a 34km fiber-optic cable, then beamed to earth stations in Tokyo and Yamaguchi Prefecture via Intelsat-V and BS-2b satellites. Hi-Vision demonstration sets cost about $80,000, but the price will decline over time.

For satellite broadcasting system S£ttellite BS Reception Antenna Broadcasting

MUSE Transmission Equipment Portable HDTV Color Camera J Transmitter MUSE Encoder BS Tuner HDCRT PCM Sound Encoder MUSE Decoder Color Display HDVTR Modulator PCM Sound Decoder

Key points to note: Japan Broadcasting Corporation (NHK) has developed multiple sub-Nyquist encoding (MUSE), a bandwidth compression technique derived from NHK's studio system. MUSE reduces the frequency bandwidth from 24 MHz to 8 MHz, but new technology will be required for 6-MHz U.S. TV sets. NHK's MUSE system, called "Hi-Vision," will feature large screens (up to 36 inches for CRTs; 100 inches for projection TV), frame memory storage (31Mb), digital stereo sound, and moving picture frame compensation circuits. Further research is required on high-speed DSP, video RAMs, and ASICs to lower HDTV set costs. In 1990, Japan will launch the BS-3A satellite with one TV channel. In 1991, BS-3B will be launched with up to six HDTV channels—two for NHK; one for Japan Satellite Broadcasting, Inc., a consortium of independent broadcasters; and three available channels. By 1990, Japanese companies plan to mass produce MUSE-encoded laser videodisk players and VCRs and MUSE home receivers with both 16:9 (HDTV) and 4:3 (NTSC) picture aspect ratios, compared to 12:9 for current TVs. The Japanese government estimates the Japanese HDTV market at $26 billion in the year 2000, or $110 billion cumulatively from now.

tNTELSCr-V

AU5SAT

International Leisure ion

Bt sbane

Key points to note: • In July 1988, NHK transmitted HDTV programs between Nara's Silk Road Expo and Australia's International Leisure Expo. Viewers from both countries were able to see each other's exhibitions in real time. • The Japan Pavilion in Brisbane displayed 3 135-inch projection receivers and 18 40-inch HDTV sets. • Signals were relayed by three geosynchronous satellites: Japan's CS-2b, Intelsat-V, and Australia's AUSSAT.

System Sponsors Line Resolution Development Stage

MUSE NHK 525 (ADTV) 1988 Olympics demo 1.125 (Narrow Muse) EDTV sets by 1990

ACTV David Sarnoff 525 (I) Computer simulation Research Center 1,050 (II)

HD-MAC Philips 1,250 Demonstrated hardware

Soufce: High-Technology Business

Key points to note: NHK began development of its Narrow MUSE system in the early 1960s and tested it at the 1988 Olympics, but it has also developed 525-line advanced-definition TV technology for existing TVs. Besides HDTV, Japan is experimenting with two shorter-term standards. NHK has developed extended-definition TV (EDTV Version I), and TV manufacturers are selling improved-definition TVs (IDTV).

Use with Memory Cost of Satellite Signal Standard Ex:istina ? Storage TV set needed? Improvement

IDTV Yes 5Mb-7Mb $400-$800 No Receiver EDTV (Ver.I) Yes 11Mb $2,300 No Transmitter HDTV No 31Mb $8,800 Yes Both NHK, the Japan Broadcasting Technology Association, the Ministry of Posts and Telecommunications (MPT), and TV vendors are developing "Clear Vision" (EDTV Version I) standards as a less expensive alternative. EDTV experiments began in September 1988, with regular broadcasting from March 1989. The 230 million NTSC sets in Japan and North America could receive EDTV signals without an HDTV decoder and HDTV-to-NTSC base-band signals.

JSIS Newsletter © 1989 Dataquest Incorporated January The David Sarnoff Research Center is developing two ACTV formats: one for existing TVs (525 lines) and one for future sets (1,050 lines). In June 1986, Robert Bosch, Philips, Thomson, and Thorn/EMI formed Eureka 95 to develop a European HDTV standard (HD-MAC) by 1990 featuring 1,250 lines. The intermediate standard features 1,152 lines with 50-Hz field frequency, 2:1 interlace, and a 16:9 aspect ratio. The British Broadcasting Corporation (BBC) system has 1,501 lines per frame and 30 MHz of bandwidth per HDTV channel.

System Originator Line Resolution Development Stage

HDS-NA Ndrtli American 1,050 Field test in late Pliiiips 1988 or early 1989 IDTV NEC 525 $2,500 IDTV sets

Glenn N.Y, Institute 1,125 Closed-circuit demo of Technology

HD-NTSC Del Rey Group 525/1,050 Proposal

Super NTSC Faroudja Labs 525/1050 Proposal

Souice: High-Tectmology Business

Key points to note: In September 1988, the U.S. Federal Communications Commission (FCC) issued HDTV guidelines, known as Advanced Television (ATV) Doc. #MM88-268, promoting compatibility with the existing U.S. National Television System Committee (NTSC) system, which uses 525 lines, a 3.58-MHz subcarrier, and a 6-MHz bandwidth. Eighteen proposals have been submitted to the FCC.

North American Philips has proposed a dual-channel (6MHz + 6MHz) system that features 1,050 lines per frame. Hardware field tests are planned for early 1989. NEC sells a 27-inch improved-definition TV (IDTV) for $2,500; it will be sold in the United States in 1989 or 1990. William Glenn, director of the New York Institute of Technology's Science and Technology Research Center in Florida, is testing a 30-frame-per-second closed-circuit system. The Del Ray Group has proposed a 6-MHz HDTV signal that would allow consumers to keep existing TV sets. Yves Faroudja of the Faroudja Labs has proposed a 525-line and 1,050-line system using a 30Hz progressive scan.

Technical Legal/Political Barriers Barriers Market Barriers

Incompatible systems U.S./Japan vs. Europe High cost

Competing standards TV broadcasters Competition with vs. mobile radio EDTV

Limited TV spectrum 10-15 year market

Satellite costs acceptance

Souice: Dataquest Key points to note: Dataquest believes that political and industrial interests will promote three competing standards (European, U.S., and Japanese) to protect their own markets. This trend will require HDTV vendors to develop special equipment for each region.

Top HDTV makers, such as Matsushita and Sony, will be major players worldwide. Philips will compete in Europe and the United States, while most U.S. makers will likely remain in North America because of their late entry. Control over memory chip production will be crucial because of the large memory storage capacity envisioned (11Mb for EDTV and 31Mb for HDTV, initially). HDTV vendors probably will pursue a path-of-least-resistance strategy because of differing standards and legal/political barriers. EDTV, HD-VTRs and cassettes, graphic terminals, HDTV cable TV, and direct-broadcast satellite (DBS) are likely to be the market entry points since vendors may choose their own HDTV formats. The Japanese are targeting industrial applications.

Dataquest believes that EDTV will enter the market in 1989 or 1990, while HDTV will not reach momentum until the mid-1990s, based on the 10- to 15-year market acceptance period required for mass consumer products.

System Cost $3500- Independent producers $3000- Major studios and leading (»ble TV producers

$2500- Videophiles and professionals

$2000- Upper middle class $1500- Mass market $1000-

1988 1990 1995 2000 Soufce: Oaiaquest Key points to note: EDTV and HDTV will follow the familiar "learning curve" pricing curve, with EDTV preceding HDTV by five to seven years. EDTV will have two impacts on HDTV; it will create demand for higher-resolution TVs and videocassettes, and it will postpone HDTV market acceptance due to lower costs. Product timing will be critical because of the competing HDTV standards and parallel IDTV/ATV/EDTV/HDTV systems. Early EDTV users will be avid videophiles and professionals demanding very high resolution, followed by upper-middle-income households interested in quality viewing. Generally, Dataquest observes that it takes 7 to 10 years for emerging technologies to be fully accepted in the marketplace, putting HDTV market acceptance in the mid-1990s. HDTV is already being used by independent producers and investigated by major studios (Francis Ford Coppola) and cable TV producers. In 1989, the Japanese will introduce HD-VTRs and videocassettes in Japan, then in the United States and Europe. HD-VTRs will be the entry vehicles because they require no terrestrial broadcasting standard.

Screen Resolution Vbu are there"

Subtlety

Realism

Viewing

1940 1950 1960 1970 1980 1990 2000 2010

Soufce: Dataquest

Key points to note: Dataquest believes that HDTV is a crucial "technology driver" that will spin off totally new video products and markets over its industry life cycle, just as color TVs spun off VTRs in the past. HDTV is still a "technology in search of new applications." The market leaders will be strong in applications research and engineering. Market creation, not market share, will be the winning strategy. Potential new HDTV spinoff markets include: HD-VTRs and videocassettes Home and commercial "video theaters" (such as bars, airports) New computer software (such as Hypermedia) Professional electronic imaging cameras Video-image publishing and printing HD video compact disk players Educational instruction (medicine, art, music, history, sports)

12 © 1989 Dataquest Incorporated January JSIS Newsletter In Japan, the following applications are being developed: TV dramas (NHK's "Long Way from Home" and Tokyo Broadcasting System's "The Sacred Place") - HDTV conversion to 35mm film ("The Story of the Imperial Capital Tokyo" and "Monkey") HDTV posters, postcards, and magazine pictures, of the 1988 Seoul Olympics Medical education (videotaped microneurosurgical procedures at Shinshu University) Art data bases (famous paintings at Gifu Art Museum) and worldwide HDTV art network (under study)

Telecom Consumer Electronics

10 Years

Medical/ Retail Scientific

Source: Oataquest

Key points to note: HDTV will have significant impact because of its technical advantages (35mm-like resolution, digitization, lower processing costs and time, and undistorted wide-screen capability). HDTV will follow a diffusion path into other industry sectors, including telecommunications, medical/scientific, education, factory automation, retailing, sports/leisure/travel, and office and home computing. Volume consumer HDTV and HD-VTR production will drive down prices for high-definition products in other sectors during the late 1990s. The convergence of computers (hypermedia), communications (ISDN), and consumer video (HDTV) technologies will create numerous "crossover" market opportunities.

1987 1990 1995 2000

Source: Dataquest

Key points to note: Dataquest believes that existing TVs and VTRs will evolve initially into EDTV and IDTV during the early 1990s, then into HDTV around the mid-1990s. Home TV editing, featuring laser guns, interactive hypermedia, freeze frames, windows, and digital sound, will become commonplace in high-end TV sets by the year 2000. The "total home media system" will trigger the merging of video and computer software programming. Already, Silicon Valley software companies are using Hollywood producers as consultants. "Humanware" engineering—the interaction of technology and social values— will become increasingly important as HDTV technologies influence family interaction and the use of commercial spaces. In Japan's aging society, for example, the use of HDTV medical systems could dramatically alter the health care delivery system and reduce medical costs. Home medical checkups and monitoring via HDTV are being developed in Japan.

Estimated Attractiveness Price to Consumer (Thousands of Yen) Date Saturation (0-5)

High-Resolution VTRs 184 1990 37.8% 3.1 Digital VTRs 178 1990 31.8% 3.1 EDTVs 162 1990 41.7% 3.0 Voice-Recognition Home Word Processor 70 1994 31.0% 3.0 Car DAT Deck 69 1988 26.1% 2.8 Small-Size DAT Deck 56 1989 28.0% 3.0 DAT Headphone Stereo 44 1989 30.3% 3.0 Cordless Telephones 30 1990 46.3% 3.0 Soiree: EIAJ Dataquest Key points to note: In 1987, the Electronics Industry Association of Japan (EIAJ) forecast that high-resolution VTRs (ED-VTR or ID-VTR) and digital VTRs would achieve 32 percent to 38 percent market penetration by 1990. Currently, 15 Japanese electronics companies are selling Hi-Vision equip ment: Canon, Fujitsu, Fujitsu General, Hitachi, Ikegami, Japan Victor (JVC), Matsushita, Mitsubishi, NEC, NEC Home Electronics, Pioneer, Sanyo, Sharp, Sony, and Toshiba.

Major Hi-Vision products include cameras (imaging tubes and CCDs), displays (CRT and LCDs), VTRs (analog and digital), video disks (optical, VHD, and other methods), studio equipment, and other equipment (encoders and decoders).

(Millions of Dollars) Market Fbrecad 1991 EDTV Share 1991 EDTV Market 1987 1991 Worst Case Best Case Worst Case Best Case

Video Conferencing $ 103 $ 213 10% 40% $ 21 $ 85 Video Equipment 562 884 10% 30% 88 265 Studio Transmitters 36 68 5% 10% 3 7 Cable TV Equipment 379 671 5% 20% 34 134 Closed-Circuit TV 82 104 3% 10% 3 10 Medical Diagnostics 3.092 4,037 0 . 5% 0 202 Commercial Aviation 1,792 2.284 0 1% 0 22

Total $6,046 $8,261 $149 $725

Souice: Dataquest Key points to note: Dataquest believes that EDTV will have only a minor impact on North American electronics industries by 1991, but it will have a major impact by 2010. The Advanced Television Task Force of the American Electronics Association (AEA) believes that 207 million HDTV receivers worth $170 billion will be sold between the years 1990 and 2010. The following is a periodic estimate:

1990 1999 2010 Worldwide market ($M) $92 $3,360 $18,000 HDTV shipments (K units) 23 2,100 30,000 AEA believes that HDTV will have a serious impact on U.S. semiconductor market share worldwide:

Worldwide U.S. Worldwide Market Share Semiconductor Assumina HDTV Particioation Sales ($M) Best Case ($M) Worst Case (£M) 1990 49,005 20,092 10,046 1995 81,152 33,272 16,636 2000 129,562 53,120 26,560 2005 196,917 80,736 40,368 2010 303,160 124,296 62,148

(Millions of Dollars) Market Size Cumulative Sales Year 2000 to 2000 Broadcasting $25,638 $109,115 Film Production 388 2,116 Video Packages 109 328 Theaters 18 161 Printing & Publishing 12 120 Total $26,165 $111,840

Souice: Ministry of Posts and TetocommunicatJons

Key points to note: In September 1987, Japan's Ministry of Posts and Telecommunications (MPT) issued the above HDTV forecast, based on the launching of BS-3A in 1989 and BS-3B in 1990. MPT is considering 22 candidate sites for its "High-Vision City Concept," which will feature 10 different types of cities: welfare, international, symbolic, business support, high-tech, academic, entertainment, resort, culture, and livable cities. - Strong emphasis will be given to the aging society. - A High-Vision City Promotion Corporation will be established in 1989, with construction beginning in the spring of 1990.

EDTV IMPACT ON JAPANESE VENDORS

(Millions of Dollars)

Market Forecast Percent EDTV Share 1991 EDFV Market 1987 1991 Worst Case Best Case Worst Case Best Case

Broadcasting $ 424 $ 519 10% 40% $ 52 $ 208 VCRs 1,447 1,852 15% 30% 278 556 Video Cameras 478 898 10% 30% 90 270 Video Disk Players 39 41 15% 30% 6 12 Color TVs 741 962 5% 15% 48 144

Total $3,129 $4,272 $474 $1,190

Source: Dataquest

Key points to note: Dataquest believes that EDTV technology will achieve from 5 percent to 40 percent market penetration for various consumer applications by 1991. A key factor will be the successful launching of the BS-3A satellite in 1989 and the BS-3B satellite in 1990. HD-VCRs and cameras will be the market drivers because they can "piggyback" existing TV technology. Japanese video makers are already displaying EDTV and IDTV equipment. NEC, for example, will sell an HDTV camera compatible with NHK's Hi-Vision System. The system will feature a 2-million-pixel, 1-inch CCD (integrating 1,920 X 1,035 pixels at a 74.25-MHz data rate), 1,125 scanning lines, 60Hz field frequency, 16:9 aspect ratio, and a 1,000-line image resolution vertically and horizontally. The 138mm x 380mm x 195mm camera weighs 5.6kg.

JSIS Newsletter © 1989 Dataquest Incorporated January 19 r^ Summary Dataquest believes that HDTV will become a major technology driver in the 1990s and will have significant impact on all electronics sectors by the year 2000. In Japan, EDTV and IDTV will act as stepping-stones into HDTV, which will not take off until the mid-1990s. The HDTV market will be split into three major markets (Japan, United States, and Europe), requiring separate technologies for each market. HDTV vendors probably will enter strategic alliances to overcome these regional barriers. Developing fully integrated HDTV systems will be very expensive and time-consuming, and the "window of opjjortunity" for developing HDTV systems will close in the early 1990s. Dataquest recommends that all electronics companies closely monitor HDTV trends because of HDTV's potential business impacts.

JSIS Code: Newsletters 1989-1990 1989-1 0002920

PRELIMINARY 1988 JAPANESE SEMICONDUCTOR MARKET SHARES: FOREIGN COMPANIES GAIN

INTRODUCTION In 1988, there were three important shifts in the Japanese market share: • American manufacturers climbed from 7.9 percent in 1986 to 8.3 percent in 1987 and a preliminary 9.8 percent in 1988. • Korean companies help boost the Rest of World (ROW) market share up 0.2 percentage point to 0.3 percent in 1988. • Japan still dominates its own market, but market share declined to 89.4 percent, down from 91.2 percent in 1987 and 91.5 percent in 1986. Table 1 shows the composition of the Japanese semiconductor market by regional supplier base, based on preliminary market share data. Dataquest has surveyed 112 companies, and of these, 80 had sales in Japan. A discussion of the data and detailed tables for these 80 companies follows. It should be noted that two Japanese companies, NMB and Yamaha, have been added to our data base.

The contetu of this report represents our interpretation and analysis of information generally available to the public or released by responsible individuals in the subject companies, but is not guaranteed as to accuracy or completeness. It does not corUain material provided to us in amfidence by our clients. Individual companies reported on and analyzed by Dataquest * may be clients of this and/or other Dataquest services This irformation is not furnished in ctmnection with a sale or offer to sell securities or in connection with the soticilation of an c^r to buy securities. This firm and its parent and/or their officers, stoddwlders, or members of their jandlies may, from time to time, have a long or short position in the securities mentioned and may sell or buy sudi securities.

Dataquest Incorporated, 1290 Ridder I^rk Drive, San Jose, CA 95131-2398 / (408) 437-8000 / Telex 171973 / Fax (408) 437-0292 •^ Table 1 Japanese Semiconductor Market Revenue of Tc^ 80 Companies by Region (Millions of Dollars)

Percent Reaion 1987 1988 Chanae

Japan 13,355 17,913 34.1% North America 1,255 1,956 55.9% Europe 70 106 51.4% Rest of World 20 62 210.0%

Total 14,700 20,037 3 6.6%

Exchange Rates Japan: Yen/US$ 144.0 130.0 (9.7%) Europe: ECU/US$ 125.3 117.0 (6.4%)

Source: Dataquest January 1989

MARKET SUMMARY

Market Share Some of the shift in market share can be attributed to the following factors: The continued emphasis for Japanese manufacturers to buy American-made semiconductors Strong demand for 80386 microprocessors The historical trend for U.S. manufacturers to gain market share during boom periods The fact that Japanese companies have begun producing more material overseas due to the appreciation of the yen Samsung's amazing 880 percent growth rate, primarily in MOS memory sales Goldstar's entrance into the market for the first time, with a $9 million share The supplier-based market share for the Japanese market is shown in Figure 1.

Europe 0.5% Rest of World 0.3%

0002920-1 Source: Dataquest January 1989

Growth Rate The average 1988 growth of the Japanese market in dollars was 36.6 percent. Of the 112 companies surveyed, 29 outperformed the market, primarily in the areas of MOS memory, micro, and logic devices. Optoelectronics grew at a rate of 40.8 percent. Table 2 shows the top 20 worldwide semiconductor manufacturers' sales revenue in Japan for 1987 and 1988. While the first 9 companies are still all Japanese, Texas Instruments has moved into the number 10 position, replacing Rohm, which slipped to number 12. It is interesting to note that the top 10 companies account for a tremendous 81.7 percent of the market. Figure 2 shows market percentages by revenue concentration based on the 80 companies in our survey that had sales in Japan. Table 3 lists the top 15 foreign manufacturers in the Japanese market.

1988 1987 1987 1988 Percent Rank Rank Company Revenue Revenue Chanae

1 1 NEC 2,,48 8 3,,27 2 31.5% 2 2 Hitachi 1,,89 9 2,,47 0 30.1% 3 3 Toshiba 1,,79 2 2,,43 8 3 6.0% 4 4 Fujitsu 1,,35 6 1,,81 1 33.5% 5 5 Matsushita ' 1,,29 0 1,,62 5 26.0% 6 6 Mitsubishi 1,,13 2 1,,57 1 38.8% 7 8 Sony 541 871 61.0% 8 7 Sanyo 694 868 25.1% 9 9 Sharp 495 857 73.1% 10 11 Texas Instruments 403 591 46.7% 11 12 Oki 379 527 3 9.1% 12 10 Rohm 409 501 22.5% 13 16 Motorola 170 290 70.6% 14 17 Intel 156 285 82.7% 15 14 Sanken 202 268 32.7% 16 15 Seiko Epson 173 226 30.6% 17 13 Fuji Electric 205 222 8.3% 18 18 New JRC 13 5 154 14.1% 19 19 National Semiconductor 110 135 22.7% 20 20 Yamaha 102 135 32.4%

Total Market Estimate 14,700 20,037 36.3%

Source: Dataquest January 1989

Companies #26-50 2.1% Companies #51-80 0.4%

CXX)292Q-2 Source: Dataquest January 1989

Table 3 1988 Japanese Semiconductor Market Share Rankings Top 15 Foreign Companies in Japan (Millions of Dollars)

1988 1987 1987 1988 Percent Rank Rank Company Revenue Revenue Chanae

1 1 Texas Instruments 403 591 46.7% 2 2 Motorola 170 290 70.6% 3 3 Intel 156 285 82.7% 4 4 Hational Semiconductor 110- 135 22.7% 5 5 Advanced Micro Devices 87 134 54.0% 6 17 Rockwell 9 88 877.8% 7 7 Philips 40 64 60.0% 8 6 Analog Devices 52 63 21.2% 9 25 Samsung 5 49 880.0% 10 8 Burr-Brown 38 44 15.8% 11 10 ITT 25 33 3 2.0% 12 12 Western Digital 19 32 68.4% 13 9 Hewlett-Packard 25 29 16.0% 14 11 General Instrument 22 27 22.7% 15 15 LSI Logic 12 20 66.7%

Total Foreign Sales 1,345 2,124 57.9%

Source: Dataquest January 1989

JSIS Newsletter © 1989 Dataquest Incorporated January Markets by Product MOS Memory Not surprisingly, the product area with the largest growth rate was MOS memory, which grew 85.4 percent in 1988. This growth rate was fueled by the DRAM shortages and price increases, but is less than the worldwide growth rate of 91.1 percent. The average growth rate of the top 10 companies was 94.6 percent, and of the companies surveyed, all but one grew more than 50 percent. NEC remained the leader, but Fujitsu replaced Hitachi as number 2 by a close margin. Toshiba replaced Mitsubishi in the number 4 spot due to its 112.7 percent growth rate in memories. The companies with the largest growth rates were Motorola, NMB, and Samsung, which experienced high growth in all regional markets due to the DRAM demand.

MOS Logic The second-largest area of growth was MOS logic at 50.4 percent. This is higher than the worldwide growth rate of 28.4 percent, mainly due to the growth in electronic equipment for the consumer industry. Products with high growth rates included Japanese word processors, video games, and cordless telephones. Sharp's tremendous growth rate of 112 percent can be attributed to the significant growth of end-product markets such as telephones, calculators, remote controllers, color televisions, and camcorders. The other surprise is Rockwell, which climbed from a 1987 ranking of 20 to 12 in 1988. This is due to a corporate redistribution of product revenue. In 1988, Rockwell devices used in boards that are assembled in the United States and shipped to Japan are included in Japanese revenue. Previously, these were counted as U.S. revenue.

MOS Micro In the MOS micro category, Intel had the largest growth rate among the top 10 companies, due to high 80386 demand. Toshiba showed a negative 5.2 percent growth rate, due to a shift to memory production. Tables 4 through 12 rank the top 15 companies in each product category: total integrated circuit, total bipolar digital, total MOS devices, total MOS memory, total MOS micro, total MOS logic, total discrete, total linear, and total optoelectronic.

1988 1987 1987 1988 Percent Rank ?Mk Cpmpany Revenue P9Y*?^V9 Chanoe

1 1 HEC 2,058 2. ,747 33.5% 2 2 Hitachi . 1,349 1.,84 2 36.5% 3 4 Toshiba 1,230 1,,66 6 35.4% 4 3 Fujitsu 1,246 1,,65 2 32.6% 5 5 Mitsubishi 907 1,,27 0 40.0% 6 6 Matsushita 885 1,,13 3 28.0% 7 7 Sanyo 452 671 48.5% 8 11 Sharp 298 605 103.0% 9 8 Texas Instruments 402 589 46.5% 10 10 Sony 336 548 63.1% 11 9 Oki 348 484 39.1% 12 15 Intel 156 285 82.7% 13 14 Motorola 162 280 72.8% 14 13 Seiko Epson 173 226 30.6% 15 12 Rohm 194 212 9.3%

Total Market Estimate 11,118 15,568 40.0%

Source: Dataquest January 1989

Table 5 1988 Japanese Semiconductor Market Share Rankings Total Bipolar Digital (Millions of Dollars)

1988 1987 1987 1988 Percent Fsnk R*nk Company Revenue R9v?nu* Change

1 1 Fujitsu 357 435 21.8% 2 2 Hitachi 332 369 11.1% 3 3 NEC 223 264 18.4% 4 4 Texas Instruments 190 258 35.8% 5 6 Mitsubishi 109 117 7.3% 6 5 Toshiba 117 66 (43.6%) 7 9 Motorola 39 65 66.7% 8 8 Advanced Micro Devices 43 64 48.8% 9 7 National Semiconductor 50 63 26.0% 10 11 Sanyo 27 38 40.7% 11 10 Oki 29 37 27.6% 12 13 Philips 15 36 140.0% 13 12 Matsushita 24 27 12.5% 14 14 Intel 3 3 0 15 15 Plessey 3 3 0

Total Market Estimate 1,563 1,849 18.3%

Source: Dataquest January 1989

1988 1987 1987 1988 Percent Rank Kank CompanY Revenue Revenue Ch^pqe

1 1 HEC 1,370 2,.07 5 51.5-^ 2 2 Toshiba 766 1,,23 0 60.6% 3 3 Hitachi 744 1,,17 2 57.5% 4 4 Fujitsu 743 1,,05 7 42.3% 5 5 Mitsubishi 569 920 61.7% 6 6 Matsushita 545 752 38.0% 7 8 Sharp 247 540 118.6% 8 7 Oki 298 424 42.3% 9 10 Intel 153 282 84.3% 10 13 Sanyo 114 246 115.8% 11 11 Sony 139 239 71.9% 12 9 Seiko Epson 164 216 31.7% 13 12 Texas Instruments 126 206 63.5% 14 15 Motorola 87 160 83.9% IS 14 Yamaha 102 135 3 2.4%

Total Market Estimate 6,440 10,208 58.5%

Source: Dataquest January 1989

Table 7 1988 Japanese Semiconductor Market Share Rankings Total MOS Memory (Millions of Dollars)

1988 1987 1987 1988 Percent Rank Rank Company KeV9ftVl« Revenue Change

1 1 HEC 517 843 63.1% 2 2 Fujitsu 427 634 48.5% 3 3 Hitachi 306 621 102.9% 4 5 Toshiba 251 534 112.7% 5 4 Mitsubishi 279 501 79.6% 6 6 Sharp 107 264 146.7% 7 7 Matsushita 87 137 57.5% 8 8 Oki 48 110 129.2% 9 9 Sony 48 92 91.7% 10 11 Texas Instruments 42 90 114.3% 11 13 Sanyo 25 84 236.0% 12 10 Seiko Epson 42 58 38.1% 13 12 Intel 35 42 20.0% 14 20 Samsung 4 35 775.0% 15 19 Motorola 4 28 600.0%

Total Market Estimate 2,268 4,204 85.4%

Source: Dataquest January 1989

1988 1987 1987 1988 Percent Rank Rank Company Revenue Revenue Change

1 1 NEC 369 533 44.4% 2 2 Hitachi 280 350 25.0% 3 4 Mitsubishi 245 346 41.2% 4 5 Matsushita 187 247 32.1% 5 3 Toshiba 249 236 (5.2%) 6 7 Intel 113 235 108.0% 7 6 Fuj itsu 125 169 35.2% 8 9 Motorola 49 73 49.0% 9 8 Oki 57 70 22.8% 10 11 Texas Instruments 42 60 42.9% 11 10 Sanyo 42 55 31.0% 12 12 Sharp 31 45 45.2% 13 14 Sony 21 37 76.2% 14 13 Advanced Micro Devices 28 36 28.6% 15 15 Vfestern Digital 19 32 68.4%

Total Market Estimate 1,913 2,609 36.4%

Source: Dataquest January 1989

Table 9 1988 Japanese Semiconductor Market Share Rankings Total MOS Logic Devices (Millions of Dollars)

1988 1987 1987 1988 Percent Rank Rank Ccniffajjy Revenue Revenue Chanae

1 1 NEC 484 699 44.4% 2 3 Toshiba 266 460 72.9% 3 2 Matsushita 271 368 3 5.8% 4 5 Fujitsu 191 254 33.0% 5 4 Oki 193 244 26.4% 6 8 Sharp 109 231 111.9% 7 6 Hitachi 158 201 27.2% 8 7 Seiko Epson 116 146 25.9% 9 9 YamzUia 102 135 32.4% 10 10 Sony 70 110 57.1% 11 11 Sanyo 47 107 127.7% 12 20 Rockwell 9 88 877.8% 13 12 Mitsubishi 45 73 62.2% 14 14 Motorola 34 59 73.5% 15 13 Texas Instruments 42 56 33.3%

Total Market Estimate 2,258 3,395 50.4%

Source: Dataquest January 1989

.988 1987 1987 1988 Percent laaJi B9«l? Company Revenue Revenue Chsng?

1 2 Toshiba 487 630 29.4% 2 1 Hitachi 522 580 11,1% 3 3 NEC 384 447 16.4% 4 4 Matsushita 263 312 18.6% 5 5 Mitsubishi 203 277 36.5% 6 8 Rohm 153 184 20.3% 7 S Fuji Electric 164 175 6.7% 8 9 Sanken 101 138 36.6% 9 7 Sanyo 159 138 (13.2%) 10 10 Sony 67 106 58.2% 11 11 Fujitsu 55 65 18.2% 12 12 General Instrument 21 27 28.6% 13 13 New JRC 18 24 33.3% 14 15 ITT 9 15 66.7% 15 16 Motorola 8 10 25.0%

Total Market Estimate 2,655 3,169 19.4%

Source; Dataquest January 1989

Table 11 1988 Japanese Semiconductor Market Share Rankings Total Linear Devices (Millions of Dollars)

1988 1987 1987 1988 Percent SaaJs Rank Company RSV9?W? Revenue Chanae

1 1 NEC 465 408 (12.3%) 2 4 Sanyo 311 387 24.4% 3 2 Toshiba 347 370 6.6% 4 3 Matsushita 316 354 12.0% 5 7 Sony 197 309 56.9% 6 5 Hitachi 273 301 10.3% 7 6 Mitsubishi 229 233 1.7% 8 8 Rohm 187 205 9.6% 9 9 Fujitsu 146 160 9.6% 10 12 Texas Instruments 86 125 45.3% 11 11 Sanken 88 111 26.1% 12 10 New JRC 92 94 2.2% 13 13 Sharp 51 65 27.5% 14 14 Analog Devices 50 60 20.0% 15 16 Motorola 36 55 52.8%

Total Market Estimate 3,120 3,511 12.5%

Source: Dataquest January 1989

1988 1987 1987 1988 Percent Rank Rank Company Revenue Revenue Change

1 1 Sharp 197 252 27.9% 2 3 Sony 138 217 57.2% 3 2 Matsushita 142 180 26.8% 4 5 Toshiba 75 142 89.3% 5 6 Rohm 62 105 69.4% 6 7 Fujitsu 55 94 70.9% 7 8 NEC 46 78 69.6% 8 4 Sanyo 83 59 (28.9%)' 9 9 Hitachi 28 48 71.4% 10 10 Oki 24 34 41.7% 11 12 Hewlett-Packard 20 24 20.0% 12 11 Mitsubishi 22 24 9.1% 13 13 Sanken 13 19 46.2% 14 14 New JRC 10 17 70.0% 15 15 Fuji Electric 3 3 0

Total Market Estimate 923 1,300 40.8%

Source! Dataguest January 1989

DATAQUEST CONCLUSIONS The Japanese continue to dominate their market with an extraordinary 89.4 percent, according to our preliminary numbers. Although gains have been made since 1986, the foreign suppliers are still significantly behind the pre-1984 average market share figure of 11.4 percent. The debate continues over how much of the Japanese market should belong to foreign suppliers, and there are many dynamic factors that must be considered when analyzing the situation. Activity between foreign suppliers and Japanese manufacturers has increased. For instance, Matsushita and Canon have agreed to use Motorola chips in their VCRs and cameras, respectively. There have also been many joint ventures in the memory arena; Hitachi and TI, for example. In addition, the Electronic Industries Association of Japan (EIAJ) has proposed a plan that would increase trade by improving relations between American suppliers and Japanese manufacturers.

JSIS Newsletter © 1989 Dataquest Incorporated January 11 Has this activity had an impact on improving the trade imbalance between Japan and foreign manufacturers? Will it in the longer-term picture? What more must be done on both sides to resolve the trade imbalance? These are all factors and questions that will be considered during the next year as we watch the dynamic Japanese semiconductor market.

Bridget O'Brian

Note: This newsletter summarizes data that will be used in the second half of the "Market Share" section in the Japanese Semiconductor Industry Service (JSIS) binder entitled Markets. Volume I. Until this section is published, you may wish to file this newsletter behind the "Market Share" tab of your JSIS binder, Volume I.

Oun SiHvfaaiKt corpotaiiDn Research Newsletter

CD Code: 1989 Newsletter: January 1989-1 0002248

PRELIMINARY 1988 WORLDWIDE SEMICONDUCTOR MARKET SHARES: JAPANESE GAIN SHARE; MEMORIES AND MICROS DOMINATE MARKET

SUMMARY Dataquest's preliminary 1988 semiconductor market share survey has been completed. An analysis of the data shows the following: • Worldwide market growth slowed in the fourth quarter of 1988 after a very strong showing in the first three quarters, resulting in total market growth of 32.9 percent. • Japanese companies gained market share on all fronts, taking 50 percent of the worldwide market. • U.S. companies gained market share in Japan for the first time since 1984. • MOS memory and microdevices drove the market; those companies with memory and micro strength did extremely well. Table 1 shows the total 1988 semiconductor revenue of the 112 companies surveyed by company base and by region sold into.

The content cfMs rq>ort represents our interpretation and analysis cfinprmation generally available to the ^lic or released by responstitle individuals in the subject companies, but is not guaranteed as to accuracy or completeness, h does not contain material provided to us in cor^idmce by our clients. Individual companies reported on and analyze by Dataquest may be clients of this and/or other Dataquest services. This ir^rmaticm is notfitmish^ in connection with a sale or q^r to sell securities or in a>tmection with tile solicitation of an q^r to buy securities This firm and its parent and/or their officers, stockholders, or members of their families may, fiom time to time, have a long or short position in the securities mentitmed and may sell or imy sudi securities

Dataquest Incorporated, 1290 Ridder Park Drive, San Jose, CA 95131-2398 / (408) 437-8000 / Telex 171973 / Fax (408) 437-0292 Table 1 Preliminary 1988 Market Share Analysis—^Top 112 Companies (Millions of Dollars) Regional Market Company Base North America Japan Europe ROW World

North America 11,262 1,956 3,725 1,859 18,802 Percent of Regional Market 70% 10% 44% 33% 37% Percent of Company Sales 60% 10% 20% 10% 100%

Japan 3,242 17,913 1,438 2,496 25,089 Percent of Regional Market 20% 89% 17% 44% 50% Percent of Company Sales 13% 71% 6% 10% 100%

Europe 1,056 106 3,163 600 4,925 Percent of Regional Market 7% 1% 37% 11% 10% Percent of Company Sales 21% 2% 64% 12% 100%

ROW 420 62 165 704 1,351 Percent of Regional Market 3% 0 2% 12% 3% Percent of Company Sales 31% 5% 12% 52% 100%

Total World 15,980 20,037 8,491 5,659 50,167 Percent of Regional Market 100% 100% 100% 100% 100% Percent of Company Sales 32% 40% 17% 11% 100%

Note: Columns may not add to otals shown because of rounding.

Source: Oataquest January 1989

WORLDWIDE MARKET Dataquest's preliminary survey of 1988 results for the top 112 worldwide semiconductor suppliers shows that the worldwide semiconductor industry grew 32.9 percent. This figure is less than our current forecast of 35.8 percent, mainly due to a slowdown in the North American and Rest of World (ROW) markets in the fourth quarter. Although the ranking of the top five suppliers in the market remained the same as in 1987, the market dynamics were clearly different in 1988. As Table 1 shows. North American companies' sales accounted for 10 percent of the total Japanese semiconductor market; this is the highest market share the United States has attained since 1984. On the other hand, Japanese companies' sales accounted for 20 percent of the North American market in 1988. This is an all-time record for the Japanese, due mainly to their dominance in DRAMs.

As also shown in Table 1, Japanese companies grew in 1988 to 50 percent of the worldwide semiconductor market, while North American companies dropped to 37 percent of the worldwide market. European companies also dropped to 10 percent, and ROW companies grew to 3 percent (up from 1.6 percent in 1987). Figure 1 illustrates the market share trends from 1978 through 1988.

Percent of Total Market 70 • Japanese Companies • North American Companies ^ European Companies X Rest of Worid

1988 Source: Dataquest January 1989

RANKINGS

The Companies Looking back to 1978, the top five semiconductor companies were Texas Instruments, Motorola, Philips, NEC, and Hitachi. In 1983, things changed substantially. The ranking at that time was Motorola, Texas Instruments, NEC, Hitachi, and Toshiba. In 1988, the companies were the same, but the ranking was NEC, Toshiba, Hitachi, Motorola, and Texas Instruments. No European company has been among the top five semiconductor companies since 1982. Toshiba is aggressively moving to surpass NEC as the number one supplier; however, that event did not occur in 1988. Among companies in the top 10, Intel had the highest growth, at 57.6 percent, due to its tremendous strength in microprocessors and the high demand for its 80386. One ROW company— Samsung—^jumped from number 23 in 1987 to number 18 in 1988, becoming the first ROW company to join the top 20 ranking. Figure 2 lists the top 20 semiconductor companies worldwide.

1988 1987 1987 1988 Percent Company Rank Rank Sales Sales Change (Millions of Dollars) NEC ^j^^ 3.368 4.534 34.6% Toshiba Ww^ 3.029 4,302 42.0% Hitachi W'''' 2.618 3.506 33.9% Motorola ^iiiiiiS 2.431 3.035 24.8% Texas Instruments

Mitsubishi ^BS*" 1,492 2,278 52.7%

Matsushita 11 1.457 1.886 29.4%

Philips-Signetics 10 1.602 1.764 10.1% National Semiconductor 11

Sanyo 13 14 "^ 851 1.085 27.5%

SGS-Thomson 14 13 <» 859 1.083 26.1%

Sharp 15 18 590 1.037 75.8%

Oki 16 17 651 947 45.5%

Sony 17 19 574 924 61.0%

Sansung 18 23 327 905 176.8%

AT&T 19 15 802 859 7.1% Siemens 20 16 657 784 19.3% '•amifsmfum^ 0002248-•^^^s;^^^^^^^^^^^^m^^^^^m^^^m^^^^^^^^M^^2 Source: Dataquest January 1989

© 1989 Dataquest Incorporated January Components Division Newsletter Market Concentration In 1988, the top 10 companies accounted for well over half of total worldwide semiconductor market revenue. The top 25 companies together accounted for 84 percent of the market. The remaining companies (ranked 26 through 112) accounted for only 16 percent of the worldwide market. Figure 3 shows the revenue concentration percentages.

Figures 1988 Worldwide Semiconductor Market Share— Concentration of Revenue

Companies Ranked 26 - 50 10.5%

Companies Ranked 51 - 100 4.9% Companies Ranked >101 0.2%

0002248-<3 Source: Oataquest January 1989

PRODUCT MARKETS The products driving 1988's strong market growth were memories—especially DRAMs and SRAMs—and microdevices. Table 2 shows worldwide industry growth by product for the 112 companies surveyed. MOS ASIC revenue also showed very strong growth of 37.0 percent. In a total market that grew 32.9 percent, MOS memory grew 91.1 percent and MOS microdevices grew 42.8 percent. If MOS memory were removed from the picture, total industry growth would have been only 21.8 percent. The removal of both MOS memory and MOS microdevices would leave a total market growth of only 17.6 percent. The importance of memory and micros is shown graphically in Figure 4.

Percent 1987 1988 Change

Total Semiconductor 37,759 50,167 32.9% Total Integrated Circuit 29,568 40,689 37.6'Hi Bipolar Digital 4,730 5,162 9.1% Bipolar Memory 620 669 7.9% Bipolar Logic 4,110 4,493 9.3% ASIC 1,671 1,855 11.0% Standard Logic 2,243 2,398 6.9% Other Logic 196 240 22.4% MOS Digital 17,465 26,964 54.4% MOS Memory 6,047 11,555 91.1% MOS Microdevice 5,204 7,429 42.8% MOS Logic 6,214 7,980 28.4% ASIC 4,189 5,741 37.0% Standard Logic 1,105 1,265 14.5% Other Logic 920 974 5.9% Analog 7,373 8,563 16.1% Monolithic 6,443 7,474 16.0% Hybrid 930 1,089 17.1% Discrete 6,557 7,449 13.6% Optoelectronic 1,634 2,029 24.2%

Source: Dataquest January 1989

© 1989 Dataquest Incorporated January Components Division Newsletter Figure 4 Memory and Micros: The Industry Drivers Millions of Ooliars 54000- *ZZ.9% Total Semiconductor 48000 Total Semiconductor Excluding MOS Memory 42000- Total Semiconductor Excluding MOS Memory •i-21.8% and Micro device 3 36000- t17.6% 30000- >> 24000

18000

12000-

6000-

1978 1983 1987' 1983* * "Other" companies are not Included in 1987 and 1988 numbers. 0002248-4 Source: Dataquest January 1989 Tables 3 through 9 rank the top 20 manufacturers in the categories of total integrated circuit, total bipolar digital, total MOS digital, MOS memory, analog ICs, discrete, and optoelectronic. In the MOS digital category, the phenomenal growth experienced by Mitsubishi, Samsung, Sharp, and Micron Technology was due to high demand for DRAMs. The extremely high growth experienced by Western Digital (WD) was caused largely by internal demand for microperipherals from the computer storage companies that WD acquired during 1987 and 1988.

In MOS memory, changes in ranking occurred among the top 10 companies, although NEC remained number one. Samsung and Micron Technology both jumped two places. Advanced Micro Devices, number 10 in 1987, dropped to number 15 because of its lack of participation in the DRAM market.

1988 1987 1987 1988 Percent Rank Rank Company Revenue Revenue Chancre

1 1 NEC 2,795 3,875 38.6% 2 2 Toshiba 2,194 3,223 46.9% 3 4 Hitachi 1,946 2,729 40.2% 4 3 Texas Instrtunents 2,024 2,637 30.3% 5 7 Intel 1,491 2,350 57.6% 6 5 Motorola 1,755 2,259 28.7% 7 6 Fujitsu 1,660 2,166 30.5% 8 9 Mitsubishi 1,239 1,940 56.6% 9 8 National Semiconductor 1,431 1,625 13.6% 10 11 Matsushita 994 1,335 34.3% 11 10 Philips 1,186 1,302 9.8% 12 12 Advanced Micro Devices 986 1,106 12.2% 13 14 Oki 619 902 45.7% 14 22 Samsung 291 850 192.1% 15 13 SGS-Thomson 646 829 28.3% 16 16 Sanyo 556 813 46.2% 17 17 Sharp 367 752 104.9% 18 15 ATST 595 688 15.6% 19 18 Sony 364 595 63.5% 20 20 Siemens 354 480 35.6%

U.S. Companies 12,455 16,323 31.1% ROW Companies 500 1,230 146.0% Japan Companies 13,795 19,702 42.8% Europe Companies 2,518 3.434 21.9%

Total World Companies 29,568 40,689 37.6%

Source: Dataquest January 1989

1988 1987 1987 1988 Percent Rank Rank Company Revenue Revenue Change

1 1 Texas Instrxunents 854 940 10.1% 2 2 National Semiconductor 521 575 10.4% 3 3 Advanced Micro Devices 500 562 12.4% 4 4 Fujitsu 495 561 13.3% 5 5 Hitachi 463 501 8.2% 6 7 Philips 405 442 9.1% 7 6 Motorola 429 435 1.4% 8 8 NEC 247 292 18.2% 9 10 Mitsubishi 122 128 4.9% 10 9 Toshiba 125 108 (13.6%) 11 12 Plessey 68 95 39.7% 12 17 Harris 30 62 106.7% 13 11 AT&T 79 61 (22.8%) 14 14 Raytheon 51 55 7.8% 15 18 Sanyo 29 41 41.4% 16 16 Oki 32 38 18.8% 17 22 Gold Star 21 32 52.4% 18 13 Siemens 63 31 (50.3%) 19 21 Chips & Technologies 25 . 30 20.0% 20 20 Matsushita 26 30 15.4%

U.S. Companies 2,583 2,806 8.6% ROW Companies 21 32 52.4% Japan Companies 1,540 1,700 10.4% Europe Companies 586 624 6.5%

Total World Companies 4,730 5,162 9.1%

Source: Dataquest January 1989

1988 1987 1987 1988 Percent Rank Sank Company Revenue Revenue Change

1 1 NEC 2,006 3,114 55.2'lb 2 2 Toshiba 1,593 2,546 59.8% 3 3 Intel 1,473 2,328 58.0% 4 4 Hitachi 1,173 1,885 60.7% 5 5 Fujitsu 1,014 1,437 41.7% 6 7 Mitsubishi 812 1,408 73.4% 7 6 Motorola 987 1,399 41.7% 8 8 Texas Instruments 784 1,271 62.1% 9 9 Matsushita 592 882 49.0% 10 10 Oki 566 841 48.6% 11 18 Samsung 242 765 216.1% 12 15 Sharp 312 683 118.9% 13 11 National Semiconductor 415 500 20.5% 14 12 Advanced Micro Devices 414 483 16.7% 15 13 SGS-Thomson 344 459 33.4% 16 14 Philips 342 404 18.1% 17 21 Western Digital 187 400 113.9% 18 29 Micron Technology 115 382 232.2% 19 16 AT&T 300 380 26.7% 20 17 LSI Logic 262 370 41.2%

U.S. Companies 6,924 10,088 45.7% ROW Companies 383 1,042 172.1% Japan Companies 8,924 14,138 58.4% Europe Companies 1,234 1.696 37.4%

Total World Companies 17,465 26,964 54.4%

Source: Dataquest January 1989

1988 1987 1987 1988 Percent Rank Rank Company Revenue Revenue Chanoe

1 1 NEC 838 1 ,481 76.7% 2 2 Toshiba 679 1 ,439 111.9% 3 4 Hitachi 576 1 ,114 93.4% 4 5 Mitsiibishi 492 943 91.7% 5 3 Fujitsu 634 932 47.0% 6 6 Texas Instruments 445 834 87.4% 7 9 Samsung 170 650 282.4% 8 7 Intel 326 392 20.2% 9 12 Micron Technology 115 382 232.2% 10 8 Oki 193 353 82.9% 11 11 Sharp 130 345 165.4% 12 16 Motorola 86 236 174.4% 13 13 NMB 104 218 109.6% 14 15 Matsushita 91 216 137.4% 15 10 Advanced Micro Devices 155 209 34.8% 16 14 SGS-Thomson 95 183 92.6% 17 24 Siemens 52 150 188.5% 18 17 IDT 85 140 64.7% 19 18 Microchip Technology 84 138 64.3% 20 19 National Semiconductor 80 135 68.8%

U.S. Companies 1,698 2 ,917 71.8% ROW Companies 206 812 294.2% Japan Companies 3,909 7 ,347 88.0% Europe Companies 234 479 104.7%

Total World Companies 6,047 11,555 91.1%

Source! Dataquest January 1989

1988 1987 1987 1988 Percent Rank Rank Companv Revenue Revenue Change

1 3 Toshiba 476 569 19.5% 2 2 National Semiconductor 495 550 11.1% 3 6 Sanyo 377 473 25.5% 4 1 NEC 542 469 (13.5%) 5 4 Philips 439 456 3.9% 6 5 Texas Instrmnents 386 426 10.4% 7 8 Motorola 339 425 25.4% 8 7 Matsushita 376 423 12.5% 9 10 Mitsubishi 305 404 32.5% 10 11 SGS-Thomson 282 350 24.1% 11 14 Sony 217 345 59.0% 12 9 Hitachi 310 343 10.6% 13 12 Analog Devices 280 340 21.4% 14 13 Rohm 235 264 12.3% 15 15 AT&T 216 247 14.4% 16 16 Fujitsu 151 168 11.3% 17 21 Sanken 11.9 157 31.9% 18 17 Harris 139 146 5.0% 19 19 Burr-Brown 120 143 19.2% 20 20 Siemens 120 125 4.2%

U.S. Companies 2,948 3,429 16.3% ROW Companies 96 156 62.5% Japan Companies 3,331 3,864 16.0% Europe Companies 998 1.114 11.6%

Total World Companies 7,373 8,563 16.1%

Source: Dataquest January 1989

1988 1987 1987 1988 Percent Sank Rank Company Revenue Revenue Chanae

1 1 Toshiba 703 864 22.9% 2 2 Motorola 652 752 15.3% 3 3 Hitachi 625 707 13.1% 4 4 NEC 518 571 10.2% 5 5 Philips 390 435 11.5% 6 6 Matsushita 318 369 16.0% 7 7 Mitsiibishi r 227 311 37.0% 8 9 SGS-Thomson 213 254 19.2% 9 13 Rohm 200 242 21.0% 10 11 Fuji Electric 206 227 10.2% 11 10 Sanyo 210 210 0 12 14 Semken 162 207 27.8% 13 8 Siemens 218 205 (6.0%) 14 16 International Rectifier 151 200 32.5% 15 18 General Instrument 132 164 24.2% 16 12 AT&T 200 161 (19.5%) 17 15 ITT 160 146 (8.8%) 18 17 General Electric 146 145 (0.7%) 19 19 Powerez 106 115 8.5% 20 23 Sony 72 112 55.6%

U.S. Companies 2,009 2,140 6.5% ROW Companies 92 121 31.5% Japan Companies 3,338 3,938 18.0% Europe Companies 1,118 1,250 11.8%

Total World Companies 6,557 7,449 13.6%

Source: Dataquest January 1989

1988 1987 1987 1988 Percent Company Revenue Revenue Chanae

i 1 Sharp 223 285 27.8% 2 4 Sony 138 217 57.2% 3 5 Toshiba 132 215 62.9% 2 Hewlett-Packard 186 213 14.5% 5 3 Matsushita 145 182 25.5% 6 10 Rohm 70 114 62.9% 71 7 9 Fujitsu 111 56.3% 85 99 16.5% 8 7 Siemens 9 NEC 55 88 60.0% 11 77 82 6.5% 10 Telefunken Electronic 8 47 70 48.9% 11 12 Hitachi 12 85 62 (27.1%) 6 Sanyo 39 5.1% 13 41. 14 Tezais Instruments 25 36 44.0% 14 19 Oki 30 30 0 15 15 Honeywell 26 27 3.8% 16 17 Mitsubishi 26 27 3.8% 17 18 Philips 24 24 0 20 18 Motorola 17 22 29.4% 21 19 Plessey 16 21 31.3% 20 22 General Electric 373 339 (9.1%) U.S. Companies 0 0 N/A ROW Companies 1,046 1,449 38.5% Japan Companies 215 241 12.1% Europe Companies Total World Companies 1,634 2,029 24.2% N/A = Not Applicable Source: Dataquest January 1989

DATAQUEST CONCLUSIONS The Japanese companies have grown from 28,4 percent of the worldwide semiconductor market in 1978 to 50 percent in 1988. Intel reaped the rewards of its sole-sourcing policy on the 80386, which was the microprocessor to have in 1988. Dataquest believes that the tremendous growth of the ROW companies in 1988 was due to the decisions by Hyundai and Samsung to concentrate on DRAMs and SRAMs. In our opinion, the message from 1988 is clear: those companies that participated in strong growth product areas generally gained market share; among those products, proprietary products gained market share. Although products that experience dynamic growth spurts are also more vulnerable to downturns, we believe that market share gains will continue to be made in the long run. Patricia S. Cox 14 © 1989 Dataquest Incorporated January Components Division Newsletter