Taiwan DRAM Makers...Trapped by Their Culture?

Can Taiwanese DRAM Makers Decide What to do Next...in Time?
We recently saw yet another article, this one in EETimes Asia, suggesting that Taiwan DRAM makers stop bickering with one another, and go ahead and consolidate their operations into a larger, more powerful DRAM force:

What should Taiwan DRAM makers do to survive? Posted:05 May 2009

Not too far down in the article was this observation, which prompts this mini-BLOG. The author said:

"...But don't count on it. Taiwan's DRAM industry has too much pride to give up and consolidate. They would rather go down fighting..."

I have been going to Taiwan since about 1984, when their Sub-Micron Development Center was perched on a hill outside Hsin Chu. Then, High Tech was starting to push out Low Tech, and my cabdriver had to honk twice to get the horse-drawn cart out of his way on the muddy street that ran next to where we were going. Then, I worked for Dataquest, and we gave an annual Semiconductor Market Update Seminar to the then-nascent Taiwan chip industry. Attendance was reasonably good, exceeding expectations, especially for such a still undeveloped 'local' industry. After the meeting, I collected business cards, and talked with attendees about their companies and the local chip industry.

When I sorted the cards out on the plane home the next day, my seatmate, peering across the arm rest, commented on how large my card collection was. It was, and they were all 'President' and 'Vice President' of their own companies.

What I pieced together later was the following:

At that time, there was ONE significant semiconductor company in Taiwan, General Instrument, once the signal diode market leader. GI produced about $90M in diodes a year in Taiwan (the total worldwide chip industry was only about $20B at that time, and maybe ICs were still a minority share compared to discrete chips). In this market and place of business, GI was surrounded by Taiwanese Diode Minions, making much the same products, who had all worked at GI earlier in their careers. I had all THOSE business cards (maybe I still do). I counted about a dozen 'Presidents' and 'VPs', proudly running their own companies in small buildings around and about, and each of those companies had revenues of $2-3M each. No scale, no capital, no large organization, but lots of pride, talent and energy. (Of course, the world did not have to wait long for Morris Chang, Father of the Foundry Manufacturing movement and TSMC, and Father of the Taiwanese chip industry, to show up in 1986-87, so change was not far behind my visit).

Taiwan has made huge progress since then. After avoiding DRAMs as 'too risky', literally, for nearly two decades, and focusing on SRAMs, ROMs, and simple Logic, they finally bit into the forbidden fruit, licensing DRAM technology from Mitsubishi, Hynix, IBM, Qimonda and applying their significant manufacturing skills to be successful in their markets. And for a while it tasted so good.

But today, the Taiwanese DRAM industry has to decide what it wants to be next, with its capital, its machinery and equipment, its infrastructure, upstream system producers, and its human energy. It can be Detroit, which dallied too long, lamenting its past glory; or it can repurpose its talent and resources, and create something no one has seen before.

DRAMs have always been a seductivly large homogenous market opportunty, and therein lies the risk. Most of today's great chip companies did not displace existing players in large established markets. They built their companies and markets, over a decade or two, from the ground up, with products and technology, strategies, discipline, and close attention to profit.

Intel jettisoned DRAMs in 1985, and went on to MPU greatness; TI jettisoned DRAMs in 1998 and went on to DSP greatness. Japanese companies spun out (or shut down) DRAMs in 1998-99, and their remaining business had a chance to recover without huge financial losses. The many who could not bring themselves to cut DRAMs loose crisply and decisively, or combine operations with players in similar situations...and then agressively rationalize the resulting company...saw their future evaporate. And the longer they waited, the more their options closed in.

Taiwan DRAM makers have to decide what they want to be, next, or they may become a mere shadow of what they could have been.