In the late 1980s, Japan dominated the global computer chip industry, overtaking the US in what was seen as a symbol of US economic decline and Japanese ascendance.
Those roles have been reversed. Japan's global market share is now half of what it was then, while Intel Corp of Santa Clara, California, has risen to become the world's largest and most profitable chip maker. Indeed, Intel and Samsung Electronics Co, a South Korean company that was not even in the picture in Japan's glory days, together have a market share as large as the combined shares of the 20 large Japanese chip makers tracked by the research firm iSuppli Corp.
Japanese chip makers are trying to snap out of this decline by joining forces, either by sharing factory construction costs or through outright mergers. The latest move came Dec. 28, when the Japanese chip makers Hitachi Ltd, Toshiba Corp and Renesas Technology Corp announced they were in talks to jointly build a semiconductor factory, a project that would be backed by the government. The media has called the plant the Rising Sun chip factory, after Japan's flag.
Efforts to combine forces have failed in the past: A wave of mergers two years ago produced companies as unprofitable as their predecessors.
At their height in 1988, Japanese companies produced 51 percent of the world's semiconductors, and the top three chip makers by market share -- NEC Corp, Toshiba and Hitachi -- were all Japanese. This year, Japanese companies have a combined share of 23.4 percent of the US$237.3 billion global semiconductor market, according to iSuppli. Just three Japanese companies made the Top 10.
"This has been a lost decade and a half for Japanese semiconductor companies," said Yoshiharu Izumi, an analyst at J.P. Morgan Securities. "Japan has been caught between the United States and Asia, and this middle ground keeps shrinking."
The chip makers' woes have spurred much soul-searching in Japan, where the industry had been a source of national pride. But analysts say an intense sense of national mission in Japan's chip industry has been one cause of its undoing.
For years, chip makers helped the country's export machine by supplying consumer electronics companies with every type of semiconductor imaginable, often at little regard for profits. Much of this was done in-house, as many of today's chip companies started life as divisions of Japanese electronics giants.
Chip sales rose while Japan's consumer electronics were globally dominant, but plunged when the world started buying cheaper televisions, laptop computers and other products made elsewhere in Asia. As losses mounted, many Japanese electronics companies could no longer afford their chip operations and spun them off as separate companies. These new companies lacked the cash to keep pace with the billions of dollars that rivals like Intel and Samsung were spending on new factories and production lines.
Now, many analysts here say, the only way the industry can save itself is by learning from US chip makers like Intel and Texas Instruments Inc, which reinvented themselves two decades ago in response to Japan's strength. These US companies succeeded by building strong overseas sales networks and concentrating their resources.