Today we will review episode 2 of the podcast series "The Chip Warriors" by Craig Addison. The podcast is about the history of the semiconductor industry. By studying how things played out in the past, we can better understand the significance of events today, and how to place them in the right context. I recommend listening to episode 2 of the series first, and then reading this post for further insights.
Click this link to hear episode 2 of The Chip Warriors: The First Chip War. You can also download it on Apple Podcasts or Spotify.
Disclaimer: The podcast and videos below do not belong to us. The video creators are mentioned in each video, and Craig Addison is behind the podcast.
Sheldon Weinig Sells Materials Research Corporation to Sony
The episode starts out with Sheldon Weinig, the founder of Materials Research Corporation, discussing the sale of his business to the Japanese company, Sony. Materials Research Corporation started in 1957 and provided materials and supplies to the semiconductor and computer industries.
Below is an article Sheldon Weinig wrote in the NYTimes about the sale of his company. The article provides additional information on why Materials Research Corporation ended up in Sony's hands instead of an American company.
I think American companies did not want to buy Materials Research Corporation because they would need to invest money in the company to keep it competitive, and around this time, US companies were already moving some of their capital- intensive operations overseas to take advantage of cheaper regions.
Japan's Rise from the Ashes After WWII
David Lam, the founder of Lam Research, said Japan owned 50% of the semiconductor market, which is interesting because the country was seriously damaged by World War 2. For Japan to make such a comeback is remarkable.
The video below describes the process Japan took to develop their semiconductor industry after World War 2. The video is inspiring because it shows the Japanese people having limited resources and abundant failures, but still pursuing their dreams. It did not look pretty, but they kept tweaking the formula until they found the solution. Even if a person does not understand all the science discussed in the video, the life lessons provided are valuable.
Below is the charismatic co-founder of Sony, Akio Morita, speaking about the business culture in Japan vs. America. I think this video is interesting because we always hear about the Japanese culture being different, so it was good to hear him explain the reasons why.
Akio Morita was involved in purchasing Materials Research Corporation from Sheldon Seinig.
Japan's Dumping to Win
Episodes 1 and 2 of The Chip Warriors mention the Japanese dominating the market for *Dynamic Random Access Memory (DRAM), but I always wondered if their success was solely based on their manufacturing skills. The article below discuss the Japanese selling their products at a loss in order to gain market share, along with limiting America's access to their markets.
Japanese Chip Dumping Has Ended, U.S. Finds by NYTimes 1987
By selling their products 40% below cost, which is called dumping, Japan was trying to force competitors out of business, and then raise their prices after their competitors left the field. In response to Japan's dumping tactics, the US raised tariffs on Japanese products by 100%.
When we combine a better manufacturing process, dumping, and restricted access to the Japanese market, it's no surprise Intel lost their DRAM business to Japan. Now I understand why people said Japan was a fierce competitor.
*DRAM is a computer's short-term memory.
Sematech's Impact in the Fight Against Japan
Sematech was also brought up in the episode. Sematech was an alliance formed by semiconductor companies to retake the leadership position from Japan. Congress gave them $100 million annually, and members of the alliance also contributed to the group.
One of the benefits arising from Sematech was the increased level of collaboration that was achieved between the semiconductor companies and the equipment makers. Dylan Patel, one of the best semiconductor analysts, mentioned on a podcast that today, semiconductor manufacturers like TSMC, Samsung, and Intel work closely together with equipment makers like Applied Materials, Lam Research, and ASML, so each party can improve their products.
Based on the NYTimes article below, it seems Sematech was instrumental in fostering this type of close, symbiotic relationship between semiconductor manufacturers and equipment makers. When both sides worked together, the semiconductor industry improved. When Intel siloed themselves off a bit from the equipment makers, they stumbled at 10 nanometers.
Does Industrial Policy Work? Lessons From Sematech by NYTimes 1993
Conclusion
The more I study the semiconductor industry, the more I realize the critical role governments have played in the industry's success. In the fight against Japan, the Reagan administration introduced high tariffs to protect America from Japan's illegal dumping, and later Congress earmarked $100 million annually for Sematech to regain semiconductor leadership. We see the same thing today, where governments are allocating billions of dollars to the industry because they realize that if they stay out of the fight, foreign companies with the unwavering support of their government, will advance and leave them at an economic and military disadvantage.
Episode 2 of The Chip Warriors was great because it made us learn about Japan's culture and relationship with America, and it also reiterated the secret to success, which is to never give up!
Stay strong, stay blessed, and next week, God willing, I will review Episode 3 of The Chip Warriors.
But as for you, be strong and do not give up, for your work will be rewarded.”
2 Chronicles 15:7 NIV
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