Source: DIGITIMES
(IDM model no longer viable for Japan semiconductor industry: Q&A with Socionext CEO Yasuo Nishiguchi)
Though still a global bellwether in many areas of semiconductor technologies, Japan's semiconductor industry is significantly losing ground in world markets, as most Japanese players, operating as IDMs (integrated device manufacturers), bear the brunt of the impacts from changing industrial and market conditions, such as IC design houses and wafer foundry firms collaborating to disintegrate IDMs, new major players emerging around the world, and international mergers and acquisitions consolidating the industries. This has prompted Japanese semiconductor firms to carry out reorganization projects, but some have failed to cushion the impacts well, with Sharp being forced to unload the majority of shares to Taiwan's Foxconn Group and Toshiba Semiconductor actively seeking capital injection.
Accordingly, how to find out optimal paths for sustainable business development and growth has become an unshirkable responsibility for Japanese semiconductor firms including Socionext, a new IC design house founded in early 2015 with investments from the Development Bank of Japan, Fujitsu and Panasonic. It is dedicated to designing system-on-chip (SoC) products and solutions. In a recent interview with Digitimes, the firm's chairman and CEO Yasuo Nishiguchi talked about the evolutions of Japan's semiconductor industry, the latest developments of Socionext, and his mission to grow the company into a globally top IC designer. The following is an excerpt of the interview.
Q: The IDM operating mode long adopted by the Japanese semiconductor industry seems to be gradually disintegrating. How do you see the ongoing disintegration and possible ensuing business opportunities?
A: In the past, the development of Japan's semiconductor industry seemed to be steered by semiconductor departments of various high-tech business groups. Based on a self-sufficiency principle, the departments were usually instructed to develop related chips and solutions needed to make groups' end products, making sure these end products can be launched as scheduled.
But such an operating mode is no longer a main trend, given the fact that decreasing internal demand has increasingly narrowed the room for semiconductor development in Japan. Nevertheless, the undesirable business climate has triggered calls for the industry to make changes, leading to the birth of Socionext as a purely IC design house. Our company has positioned its chip solutions at a higher SoC level, pressing itself to step up business growth and boost profitability. Of course, Socionext should come to realize its mission as the world's foremost IC designer with the global market as its hinterland, and should carry the mission through.
Q: What about markets and industry opportunities that are suitable for Socionext to grasp for the moment?
A: In the past two years, Socionext was just doing a foundation-laying job, with efforts focused on reviewing its own technological competitiveness and advantages and building extensive connections with global customers over future products and applications to work out better product and market promotion strategies. For the moment, Socionext has decided to integrate the applications of its leading technologies in the three fields of imaging, networking and computing to grasp the latest business opportunities in these fields, by incorporating extensive and abundant intellectual property bases and comprehensive customer services.
It's now the moment marking the shortest distance between chip solution providers and terminal technical services companies, with both sides having to maintain unprecedentedly close cooperation in the whole process, from the initial conceiving of product performance, and then the design and development of chips, to the final product assembly and production. Riding on its distinctive competitiveness in imaging, networking and computing technologies, Socionext can manage to cooperate with brand vendors of terminal products and downstream contract manufacturers, so as to directly satisfy new needs of consumers and jointly create business opportunities for brand-new niche products.
Q: How do you assess the advantages and disadvantages for the development of Socionext as an IC design house in Japan?
A: I think Japan's previous advantages in semiconductor development weakened significantly during the shift of focus from analog to digital. In the era of audiotapes and videotapes, for instance, comprehensive technical services were still badly needed; but after VCD, DVD and Blue-ray discs emerged, a single digital chip can comprise all the technical support and services, and such a revolution in chip designs was beyond adaption by traditional Japanese semiconductor firms.
What's worse, Japan's weak performance in export markets and the declining global influence of Japan's brand suppliers and system makers have combined to drag down the competitiveness of Japanese-invested semiconductor firms dedicated to serving domestic market. Language limitations also served to hamper the globalization of Japanese semiconductor firms.
Socionext has kept in mind these past disadvantages, and all our staff recognize the need to change the old mentality. Now Socionext is totally a fabless chip design company, and can farm out production to professional wafer foundry companies. This can help to save the cost on developing manufacturing technologies, and can also allow extremely high freedom for Socionext to adjust its cost structure and make its SoC products and solutions more competitive. Furthermore, Socionext can determine optimal terminal products and markets based on its technological advantages and its competitiveness in chip designs, thus better outperforming any possible rivals.
Q: What goals have you set for Socionext's current operations?
A: Having undertaken gradual reforms in the firm's management systems, product structures, as well as operating concepts, goals and visions since its inception in 2015, Socionext has successfully dropped outdated ideas and operation burdens, and has diverted to the normal operation track purely as an IC designer. Actually, I promised to assume Socionext's CEO post with a major prerequisite: All the employees should complete the procedure of resignation from their old jobs, and then join the new company as fresh staff.
While insisting on maintaining a leading position in technology, we are also striving to strengthen our marketing ability to expand sales of our chip products and solutions around the world. In this regard, we have kept expanding global marketing networks and recruiting R&D talent. Socionext now operates marketing and R&D footholds in Japan, Taiwan, China, Europe, the US and South Korea, and keeps recruiting R&D talent in the areas. Taiwan, for instance, has now over 100 employees, sharply up from only five two years ago.
In pursuing profits, I think, IC design companies must set a high profit goal to facilitate constant injection of R&D funds and resources. So, I hope Socionext can accomplish a super-high goal of scoring a net annual profit rate of 15-20%. This is really a big challenge, but only after tackling the challenge will Socionext be able to talk to customers and investors about its corporate visions in the next 5-10 years. In addition, since the first day of Socionext's founding, I myself have assumed the company as the world's foremost IC designer, and I have never changed such an expectation.
Q: As super-large IC designers are dominating the market and the industry, how will Socionext do to counter as a relatively small player?
A: Truly, Socionext can hardly compete with top global players such as Qualcomm, Broadcom, and even Taiwan's MediaTek in business performance in the short term. But we don't intend to zero in on general-type and standard-type chip products that boast massive shipments in the global chip market. Instead, our independent trinity of imaging, networking and computing technologies will allow us to better develop newly emerging applications markets, such as cloud applications, Internet of Things (IoT) applications and automotive electronics. We can team up with peer players or partners in other high-tech sectors to render products and services best catering to the needs of customers in different fields. In materializing the business opportunities from the targeted newly emerging applications markets, our company needs an open, innovative mode of cooperation to maximize the differentiation of terminal products and boost their economic values.
So far, Socionext has forged technical cooperation ties with Israel and US companies in developing drone and cloud applications and working out optimal total solutions in the fields. Our company will move to cooperate with more key partners around the world to tap whatever markets with potential business opportunities.
Q: Semiconductor firms in Asia-Pacific are showing increasing prowess in the global market. How will Socionext do to leverage such a development?
A: Socionext must find out its own value of existence and win customer recognition in the global chip market, and this is the biggest support for stable and healthy growth of the company. In addition, even though the semiconductor manufacturing focus and the largest chip market are gradually shifting to Asia-Pacific, some advantages in chip designs have not necessarily been moved to the region as well. So I have reiterated to Socionext staff the mission of developing the company into the world's top IC designer. Learning how to make best use of global resources, grab the latest technology and market trends, and combine the firm's own cutting-edge technologies is the exact recipe for securing the sustainable development of Socionext.
With this, Socionext has stationed its network communication chips R& D teams in the UK and Germany, while outsourcing production to semiconductor supply chain partners in Taiwan and China. We firmly believe that global deployments and extensive talent recruitment count most for any chip designer to achieve constant business growth.
Q: What is Socionext's operating goal for 2017?
A: Following two years of efforts, our company has tapped into many newly emerging application fields and markets, and has scored brand-new business opportunities. For the moment, our most important goal is to grab the title as the top chip supplier in various new chip application markets. Of course, Socionext won't rule out the possibility of seeking mergers and acquisitions to facilitate its entry into such new applications markets as IoT, cloud, drone, and automotive electronics.