Silicon Valley crisis: Rise of Japan and rivalry with America

America's semiconductor industry, once the pride of Silicon Valley, suddenly found itself in the midst of fierce competition in the 1980s. Japanese companies were surging like an irresistible wave. One silent but important hero in this story was Hewlett-Packard (HP) executive Richard Anderson. He set strict criteria for which memory chips HP would buy. Therefore, the fate of semiconductor vendors depended on his decisions.

HP, which had started in a simple garage in the 1930s, had by then become one of the largest technology companies in the United States. They bought chips in bulky quantities, and so Anderson's every decision could make or break the fortunes of many small and large companies.

Salesmen were desperate to please him, but Anderson was incredibly professional. Sometimes he wouldn't let them near him except for lunch. With his keen observation, he quickly realized that a serious and worrying situation was waiting for the American chip industry.

He saw that the DRAM chips that Japanese companies—such as Toshiba, NEC, and Hitachi—were much more reliable than American chips. Everyone's eyes widened when they heard the sensational information he delivered at a conference in Washington in March 1980. He said that the failure rate of Japanese chips in the first 1,000 hours of use was less than 0.02%! However, the rate for chips from the best American companies was 0.09% while for the worst, 0.26%! Surprisingly, the price and performance of chips from the two countries were almost the same. So who would buy American chips in such a situation?

At first, Silicon Valley engineers laughed at the Japanese. They would say sarcastically, "Oh, Dad, the Japanese just come to conferences, take pictures with their cameras, and then copy them!" Some American companies even filed intellectual property theft lawsuits against the Japanese. But these lawsuits brought a bitter truth to everyone's attention—the Japanese were not just copying, but were also far ahead in terms of quality!

Not only chips, but at that time Japan was challenging America in all sectors—cars, steel, and electronics. Sony's founder Akio Morita single-handedly broke the stigma of 'cheap products' that had been stuck on Japan's forehead.

His transistor radio was the first major success, which brought Japan a new identity in the world market. Then in 1979, he brought a groundbreaking product to the market—the Walkman. It was a portable music player, which contained five sophisticated integrated circuits made by Sony. This little device changed the way we listen to music. And the chip used was invented in America, but Japan used that technology to bring excellence to the product.

Interestingly, it was America itself that showed Japan the way to chip manufacturing after World War II. They generously shared their knowledge of transistor manufacturing with Japanese scientists. American policymakers made sure that Japanese companies could easily enter the American market. The strategy worked well—Japan became an advanced capitalist nation.

But by the 1980s, many Americans began to ask, "Has our generosity created a competitor that is now more powerful than us?"

Charlie Spork, who joined National Semiconductor from Fairchild as CEO, was a wizard at increasing efficiency on the assembly line. That spark was also surprised to see that the Japanese workers were so efficient, loyal, and productive that his own workers were nowhere near them. He sent one of his foremen and a few workers to tour various semiconductor plants in Japan. When they returned, they reported that the Japanese workers were 'surprisingly loyal to the company!' One foreman even said that they valued the company more than their families!

On the other hand, the Americans still believed that their 'innovative power' was superior to Japan's. Japanese physicist Makoto Kikuchi once said, "We have fewer 'geniuses' than America, but there are many people in America whose intelligence is below normal." So Japan is ahead in quality and consistent performance. However, his boss Akio Morita proved that Japan is not only good at imitation, but also at innovation. Sony's Walkman was a shining example of this, a groundbreaking product that changed the world.

By the late 1980s, it was clear: Japan was not just catching up with America—it was surpassing the country in many ways. The semiconductor industry, once a symbol of American superiority, was now facing new and tough competition.

(Adapted and abridged from Chapter 9 ('The Transistor Salesman') of Chris Miller's acclaimed book 'Chip War')