The Semiconductor Industry Association of the US recently announced that the revenues of the global semiconductor industry exceeded US$300 billion this year- a stunning record, given that the former prince of semiconductors, Japan, saw great slowdowns in production and supply chain this year. Despite this, Japan has seen a recovery since the disaster in March- ultimately seeing growth of 2.2 percent month-on-month by October, and shipments to the US up 4.6 percent for the year.

"The combination of record-breaking sales in 2010 coupled with this year's forecast topping the $300 Billion mark for the first time is welcome news for both the semiconductor industry and the entire economy," said Brian Toohey, president of the association, in a statement December 5th.  "Despite a challenging global economic environment this year and the natural disasters that have impacted production in Asia, the semiconductor industry has demonstrated impressive resilience. The growing level of semiconductor content embedded across a wide range of consumer, industrial, business and government applications points to continued growth in 2012 and 2013."

But trouble remains for the sector. As Japan climbed out of the malaise of the 70s and into the boom of the 80s, one of the main drivers was the prowess of the country’s semiconductor industry, which had been one of MITI’s main focuses of investment and subsidization. The country had cultivated formidable electrical engineering talent, secured and improved upon key technologies from American and European laboratories, and built an electronics export industry that became the envy of the world. In the last decade, however- despite no lack of technical capability, production capacity or logistical preparedness- the country’s industry has stalled out and lost significant ground to Japan, China, and a resurgent US.

"Japan's recent economic woes take me back to the 70s when the country's economic engine stalled,” said Junshi Yamaguchi, former chairman of Renesas Electronics and current chair of the Japan Electronics and Information Technology Industries Association (JIETA) Semiconductor board. “The country's competitiveness is sagging and the overall economy seems to be treading water. That's because we failed to catch the wave of digitization and globalization."

In the 1980s and into the 90s, digital devices were primarily individual “artifacts”- analog-digital hybrid devices which played to Japan’s strengths in designing excellent electronics hardware. The growing trend, since the 1990s, towards commodification of electronics, has made software platforms- predominantly made by American companies- more important than the hardware beneath, and Japan has lost out to competitors who can match the country’s quality at a lower price point- especially South Korea and Taiwan.

Beyond this, however, Japan’s industries have failed to address the vast market for electronics in emerging economies. “In 2000 there were about 600 million middle-class people in emerging economies who could afford to buy IT gear, by 2010 there were 1.6 billion, and by 2020 they will likely number 3 billion,” said Akira Minamikawa, senior vice president of IHS iSuppli Japan. “Japan's consumer electronics products and semiconductors are not attuned to the needs this ballooning market composed of newly minted consumers in the emerging economies. Our manufacturers have not grasped what these people want."

Japan is certain to remain an important player in the industry for years to come, but if these trends continue, their days as a leader are numbered.