Online Extra: Q&A with NEC Chairman Sasaki

His prediction for the world's memory-chip makers: DRAM players will be reduced to four

Hajime Sasaki, chairman of NEC, heads a team of top execs charged with turning around the Japanese electronics giant. As the former chief of NEC's chip division, Sasaki started with the business he knew best, inking a deal with archrival Hitachi in 1999 to combine their dynamic random-access memory (DRAM) operations.

This year, he helped draft plans to split off NEC's remaining semiconductor operations into a separate subsidiary by November, with the aim of taking it public in the future. Sasaki has also played an instrumental role in organizing huge research and development projects to boost Japan's waning competitiveness in chip development. Recently, Sasaki met with BusinessWeek Tokyo Correspondent Irene M. Kunii to discuss the future of Japan's chip industry. Here are edited excerpts of the interview:

Q: Recently, Hitachi and Mitsubishi Electric announced that they would merge their system operations into a joint venture, along the lines of Elpida Memory [the DRAM venture NEC created with Hitachi]. Is this the beginning of an industry trend?


I think there will be two trends. One involves the integration of businesses, such as what Hitachi and Mitsubishi Electric have agreed to. Another is specialization. In the case of NEC, we've split off our compound semiconductor operations [without forming a merger] because we plan to specialize in this area.

Q: What does the future look like for memory chips?


I think that the number of DRAM players will be reduced to four. In Japan, Elpida will be the only survivor, while in the U.S. it will be Micron. There's no doubt that Samsung of South Korea will survive, as will Europe's Infineon. In DRAM, you need scale to be competitive. It applies not only to capacity, but also to design and process engineering.

Q: Are you concerned that this type of 50-50 joint venture, with neither side taking strong leadership, could fall apart?


Strategy in the DRAM business is simple, as is the business model. Also, the road map for future development is clear, so I think our joint venture will work out.

Q: Is there a future for Japanese chipmakers?


It depends on whether Japan can keep its competitiveness in finished products. As long as we remain leaders in digital electronics, video games, and automotive products, there will be strong demand for the kind of system chips we excel in. We do face growing competition from Korea and, in the future, China. But as long as chip design remains in Japan, we can maintain market share. Assembly and other labor-intensive work will move to China.

Q: What are the strengths of Japan's chip industry?


Japanese companies can maintain their competitiveness by building on their strengths. Already, Japanese chipmakers are integrating a variety of functions on one system chip. For example, NEC supplies the video chips for Nintendo's GameCube game console, as well as the microcontrollers that Toyota uses in its engine controls. In manufacturing, we can offer shorter chip-development time and fast response to orders. We happen to be excel at providing reliable products.

Q: What needs to be done to improve competitiveness?


It's important to build alliances between industry and academia. The U.S. is successful today because of reforms it introduced in the early 1980s, which encouraged universities to develop intellectual property and to cooperate with industry. We're now working very hard to introduce similar reforms in Japan.

I'm the chairman of this government-industry project that aims to form closer links between industry and universities. In the next couple of years, national universities will become independent organizations and gain autonomy. That means that research will become more competitive and professors will be encouraged to work closer with industry.

Looking at the national budget for 2002, there's a strong focus on science and technology. The government recently approved $240 million for a pilot wafer plant [to develop a next-generation chip-technology plant]. We've never seen this kind of project [here] before.

Q: You've spun off a number of businesses over the last several years, but it looks like you still have a long way to go. When are we going to see more progress?


We're continuing to spin off noncore operations, but we can't do it all at once. We've sold our printer business to Fuji Xerox and transferred our electronic-component business to Tokin. In the area of next-generation displays, we transferred the technology to a joint venture we created with Samsung.

We decided that the capital investment required to develop this business was too big a burden for NEC. We're still interested in it, but this setup allows us to raise the money. We're pursuing alliances not only with Japanese partners but also with Koreans and Chinese.

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