Japan market share-cropping

Electronic News, March 22, 1993 by Jack Robertson

WAIKOLOA, HAWAII--U.S.-Japan Semiconductor Summit talks here this week will be candid and frank, in diplomatic parlance, but look out for next September, when the real showdown comes.

No matter what emerges from the meetings of U.S. and Japanese industry and government officials here, everything still points to a Semiconductor Shootout in the Tokyo Coral in six months.

The latest fourth quarter totals of the foreign share of the Japanese semiconductor market will be up respectably, but shy of the stated 20 percent goal in the second U.S.-Japan treaty. The progress, however, is enough to likely mute U.S. forceful retaliation. A heavy hand now might undo the progress to date--gains the U.S. Semiconductor Industry Association wants to continue.

A select delegation of U.S. semiconductor executives--Motorola's James Norling, Texas Instruments' Pat Weber and National Semiconductor's Gil Amelio--met their Japanese counterparts yesterday (March 21) to lay the groundwork for broader industry-to-industry talks today. The Americans reportedly expressed appreciation for the higher foreign market share in the fourth quarter figures, although reminding the Japanese that some of the gains came from statistical quirks in currency evaluations and the plunging Japanese market that made foreign sales look much better.

The U.S. executives still stressed that the 20 percent foreign market share must remain a firm minimum level goal. Otherwise they fear that Japan could ease off and many of the gains achieved so far could evaporate.

For their part, the Japanese select delegation--NEC's Hajime Sasaki, Toshiba's Tsuyoshi Kawanishi and Sony's Nobuo Kanoi--told the Americans the U.S. fixation on the 20 percent market share serves no useful purpose. They claimed the emphasis should be placed on the joint promotion programs that increase foreign penetration of the market, regardless of any specific percentage market share.

The Japanese privately claim they made a mistake in agreeing to put the specific 20 percent share number in the latest U.S.-Japan Semiconductor Arrangement. That pact only specified the 20 percent share should be reached by the end of 1992 and then the two sides would use expanded indices for judging market access.

It is unlikely either side will back down on their positions over the disputed 20 percent figure. The Japanese appear to be ready to accept an impasse on this issue, while continuing to stress import promotional programs they claim will give foreign suppliers the sales they want.

That would put the ball squarely in the U.S. court on what to do next. Japan seems prepared for U.S. saber rattling on the 20 percent standoff--and will wait to see what action follows any sharp language.

While the U.S. can threaten tough action, including trade sanctions, to try to force Japanese continued acceptance of the 20 percent goal, lowering the boom now in light of the latest progress in market share doesn't appear too amenable.

Both sides also suspect that the first quarter 1993 market share figures will show a decline. Both have taken enough early soundings of foreign sales in the market to realize that the fourth quarter gains just announced will be reversed when the first period results are released in June.

Also the total Japanese semiconductor market has turned around from its sharp decline last year. This will have exactly the opposite effect on foreign market share, which early sales reports indicate hasn't jumped as much as the overall Japanese market. That would make a statistical foreign market drop.

All the parties in this week's transpacific summit know all this. It is too late to do anything now to change the first quarter market share percentage. It won't change no matter how much the U.S. executives rail on the Japanese that this is the same old story: foreign sales stay essentially flat, whether the overall Japanese market is going down or up.

The U.S. strategy will be to stoke up maximum pressure to break the pattern and get significant increases in sales in the months ahead, whatever direction the overall market is taking. Due to the three-month time lag in announcing market share figures, it won't be known officially until September whether foreign suppliers got acceptably higher sales in the upcoming months.

A likely scenario is this: both sides this week agree on greater import promotion efforts, but are stalemated on the 20 percent issue. The U.S. will continue to insist on 20 percent market share, and may hint at sanctions in the future if the goal isn't met.

The goal won't be met when the first quarter market share is announced in June and may very likely go down. However, the U.S. will be far more interested in the early soundings on sales in Japan during the second quarter. Although this percentage won't be announced officially until September, the U.S. will have a good idea in June whether the results have been good enough to show market share gains or losses.

If the preliminary figures look bad, the U.S. will go into higher gear on counteraction against Japan--based on the worse official first quarter figures that would have just been released.