JIN-150 -- Update on the Blue Laser Guy

J@pan Inc Magazine Presents:
T H E J @ P A N I N C N E W S L E T T E R
Commentary on the week's business and technology news

Issue No. 150
Wednesday, September 26, 2001
Tokyo

CONTENTS

+++ Viewpoint: Update on the Blue Laser Guy
+++ Noteworthy news
- Usen Struggles?
- Retail Hits Another Iceberg
- Less Capex Than Last Year
+++ Events

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+++ VIEWPOINT: Update on the Blue Laser Guy

The July 2001 J@pan Inc cover story on Shuji Nakamura appears to have
presaged some major developments in the story of the blue laser.

Nakamura is an ex-researcher at Shikoku-based Nichia Corporation,
where, in 1993, he became the first to create the bright blue LED
(light-emitting diode), and then the blue laser.

These semiconductor devices weren't abstract lab curiosities. His
devices were the bright blue light emitters long sought by
manufacturers worldwide for industrial, engineering, computer, and
consumer electronics applications.

Our story mentioned:

Nakamura created a successful semiconductor
device that reliably emitted blue light as
brightly as existing red and green lasers.
Blue-light-emitting semiconductors have
applications in CD-ROM drives, DVD players,
optical networking, computer displays, and
future-technology optical storage systems, as
well as such mundane gadgets as light bulbs and
outdoor display signs. As the wavelength of
blue light emitted from such semiconductors
becomes shorter (i.e. bluer), the storage
capacity on a CD-ROM or DVD increases, for
example, from one to nine full music albums.

Some estimates have placed the value of Nichia's blue laser and LED
patents in the billions of dollars, and it would be natural to expect
that inventor Nakamura has been richly rewarded for this massive,
single-handed contribution to the company's coffers.

Alas, Nakamura received JPY10,000 for each patent (there are now some
80 patents covering the technology) when they were filed, and the same
again when they were issued, and little else. Certainly, he received
little local professional recognition, since the company prohibited
staff from publishing research papers due to fear of being
steam-rolled by Japan's technology giants should word of Nichia's
expertise leak.

Nakamura left the company, abruptly, in 1999 and moved to California,
where he took up a post teaching at the University of California,
Santa Barbara (UCSB). He is also consulting for several companies,
including Cree, a North Carolina-based maker of semiconductor devices.

As the J@pan Inc story details, he left Japan, and its stifling
paternalistic corporate lifetime employment system, as a result of the
lack of recognition or reward. How ironic that he should be hired by
UCSB after no Japanese university would hire him (at the time, he
didn't have a Ph.D., nor had he graduated from a big name university
or worked for a big name corporation).

Since our story, a number of events have turned this melancholy but
compelling tale into a melancholy but really compelling tale. On July
2, Kyoto-based Rohm Corporation, one of Japan's largest makers of
electronic components, filed suit against Nichia in Kyoto District
Court, claiming Nichia had infringed on a patent related to blue LEDs
that Rohm owns; Rohm has already started to supply the technology to
Sony and Matsushita. The two opponents had already discussed
cross-licensing, but Nichia has refused to allow its patents to be
used by anyone.

A similar suit was filed by Rohm against Nichia in the US in 2000, but
was withdrawn after an unfavorable ruling by the International Trade
Commission. There may be some measure of desperation behind Rohm's
moves; in July, the company announced that orders had fallen 22
percent due to the continuing slump in demand for electronic products.

Rohm's latest action came after Cree -- the company Nakamura now
consults for -- filed a suit in May against Nichia, yet to be decided,
claiming infringement of one of its semiconductor manufacturing
processes.

Finally, on August 23, Nakamura filed suit against his former employer
in a Tokushima (home of Nichia) court, demanding JPY2 billion and
recognition that the patent(s) on the semiconductor invention belongs
to him. Phew!

Rarely has J@pan Inc covered in such depth a central figure in a story
having as many twists and turns, cutting-edge technology, raw human
emotions, pride, or -- to be a teensy bit blunt -- oozing so much
cash.

To complicate the situation further, Matsushita Electric has just
announced that it has developed a way to produce blue LEDs that it
claims does not infringe Nichia's patents and that is much cheaper.
Also, Sony Shiroishi Semiconductor said on September 21 that it has
developed a large output blue-purple semiconductor laser diode.

There's no telling what the outcome of this story will be, but there
is little doubt that the Japanese court decisions will help shake up
Japan's stolid corporate R&D mindset. Nakamura just might prove to be
the reluctant catalyst who helps reshape attitudes of corporations big
and small, and Japan can do with a little reshaping.

-- Daniel Scuka

J@pan Inc story "Blue About Japan"
http://www.japaninc.com/mag/comp/2001/07/jul01_blue.html

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+++ NOTEWORTHY NEWS
(Long URLs may break across two lines.)

** Usen Struggles?

Extract: Usen Corp. will reduce its total investment in fiber-optic,
high-speed Internet connection services by over 20 percent to JPY265
billion, company sources said. Jettisoning its previous focus on
laying cable on its own, the company will also begin leasing
infrastructure from other companies, the sources said. Also to improve
profitability, Usen will strengthen services for corporate customers
and new condominiums, for which construction costs are lower.

Commentary: Usen has been pioneering fiber-optic Net access in Tokyo
since March, and offers, get this, 100-Mbps download speeds to home
subscribers. But the pioneer is, perhaps, getting hit by more than
just a few arrows fired by hostiles. The revised capex plan will see a
total of JPY10 billion cut from the construction of telecommunications
centers and branch lines, respectively. A total of JPY55 billion will
be cut from expenditures for laying cable to end-users and for
equipment. Ouch!

But there's no clear indication that the company is hurting
financially, and it states that the savings are due, at least in part,
to a new optical converter that reduces the need to lay as much cable.
Nonetheless, with DSL providers like Yahoo BB, eAccess, and Tokyo
Metallic all fighting tooth and nail for corporate and home users, and
with DSL's greater reach and lower capex costs, the general situation
faced by (capex-intensive, limited-area) Usen is nothing if not tough.

Further, the same dark shadow (NTT's) that casts a pall over all DSL
providers also falls across Usen. How anyone can compete with
heavyweight NTT remains to be seen.

In any event, Usen seems to be following at least one path of least
resistance, and says that it will target new condos and corporate
customers so that it can "boost its customer base fairly quickly at
relatively low cost."

J@pan Inc feature on broadband:
"Mission Impossible For Broadband Providers?"
http://www.japaninc.com/mag/comp/2001/06/jun01_mission.html

Source: "Usen To Cut Fiber-Optic Spending JPY75B," Sep. 24
Nikkei on Yahoo
http://sg.biz.yahoo.com/010923/15/1igvp.html

** Retail Hits Another Iceberg

Extract: Daiei, Japan's largest store group, was forced to make a
public call for calm yesterday after its share price plunged 30
percent to an all-time low of JPY100. The troubled retailer suffered a
flood of selling after it warned on Friday that group recurring
pre-tax profits would be JPY8 billion, or half its previous forecast.
Moody's downgraded its debt rating to junk status with a negative
outlook. The markets were closed on Monday, due to a public holiday in
Japan. The fate of the retailer, which is saddled with debts of
JPY2,300 billion, is being watched closely in the wake of the collapse
this month of Mycal, Japan's third-largest store group, with JPY1,700
billion in debt. Daiei said it was in no danger of missing maturing
bond obligations or its debt reduction targets this year. It plans to
reduce its JPY2,300 billion debts by JPY60 billion (or 2.6 percent) by
the end of February.

Commentary: There is little doubt that retail in Japan is in trouble.
What positive news there is remains confined to the genki newcomers,
like Uniqlo, who steal market share from the traditional chains and
department stores by offering steep discounts to cash-flush but
hyper-cautious shoppers.

Meanwhile, Carrefour and Costco have arrived from France and the US,
and this writer's personal experience is that the foreign operators do
a far superior job of packaging, presenting, and discounting good
quality (and low-cost) products. This has to cause even further worry
to the likes of Daiei, Ito-Yokado, and Daikuma, or the smaller
suburban chains like Sotetsu Rosen. Even Jusco is trying to compete by
adopting the foreigner discount ways.

The Daiei story is also interesting in that the firm's major banks,
Sanwa, Fuji, Sumitomo Mitsui, and Tokai, have made only minimal cash
reserve provisions against any potential collapse. This is precisely
what happened with the much smaller Mycal collapse earlier this month,
and also why the banking crisis has the potential to affect the
country so profoundly.

As overextended borrowers fall apart, there's little to keep the banks
from going with them, unless someone steps in. The final quote in this
news item was from an ING Barings analyst, who said: "Unless sales
pick up, they won't be able to recover."

Source: "Daiei Calls for Calm as Shares Fall," Sep. 26
Financial Times
http://globalarchive.ft.com/globalarchive/article.html?id=010926001269&q...

** Less Capex Than Last Year

Extract: The nation's major companies have earmarked a combined
JPY25.31 trillion for capital spending this fiscal year, up 0.6
percent year on year, according to a Development Bank of Japan survey
released Tuesday. The result highlights that Japanese firms are
curbing a rise in their capital investment. Capital spending plans at
leading Japanese corporations showed a 4.1 percent year-on-year
increase last fiscal year. Planned capital spending for the
nonmanufacturing sector is down 2 percent from the previous year, but
that for the manufacturing sector is up a modest 0.6 percent.

Commentary: The survey, conducted in August, covered 3,539 private
companies having capital of JPY1 billion or more, and valid responses
came back from 87.5 percent of them, so this report can be taken as
reasonably valid and accurate. The good news is that across all
industries, firms reported that they intend to spend more in FY2001
(ending March 2002) than in FY2000 on product development and
upgrading, rationalization and labor saving, R&D, and maintenance and
repairs.

Original report
http://www.dbj.go.jp/english/topics/topi2001/0918-2.html

Source: "Capital Spending at Large Japanese Firms Expected
to Rise 0.6%," Sep. 19
Nikkei on Yahoo
http://sg.biz.yahoo.com/010919/16/1hc1w.html

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Official Publication: J@pan Inc magazine http://www.japaninc.com

====

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STAFF
Written by Daniel Scuka (daniel@japaninc.net)

Assistance with news compilation:
Richard Ochero (richard@japaninc.com)

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