DESTROYING THE MYTH OF VERTICAL INTEGRATION IN THE JAPANESE ELECTRONICS INDUSTRY - RESTRUCTURING IN THE SEMICONDUCTOR MANUFACTURING EQUIPMENT INDUSTRY

Segments of the Japanese electronics industry's vertically integrated industrial structure are becoming more disintegrated and market depend ent. This paper uses recent changes in the Japanese semiconductor equi pment industry to examine what caused this disintegration in one of th e most technologically advanced segments of the Japanese electronics i ndustry. The findings suggest chat, as the technological advances in t he semiconductor equipment industry pushed the Limits of the existing technology, the exclusive advantages that the Japanese DRAM producers had as a result of closely linking the know-how in DRAM manufacturing to equipment production were undermined by other economic changes in t he industry. The factors affecting the structural changes towards Vert ical disintegration in the equipment industry include: (1) the need to achieve economies of scale to reduce production costs; (2) strategic alliances that allowed the transfer of production technology to other countries such as Korea, which in turn facilitated US equipment vendor s' access to semiconductor processing technology; (3) the decline in t he importance of DRAMs as the definitive semiconductor process; (4) th e disadvantages of being locked into internal suppliers in an industry where the pace of technology change is fast; and (5) the need to have multiple technological inputs on the pare of equipment suppliers to s tay ahead in technological innovation. Thus, many of the Japanese elec tronics giants are ending direct semiconductor equipment production, w hile independent producers and US firms are gaining market share in Ja pan.