THine Founder Out to Liberate Japanese Engineers

Back to Contents of Issue: February 2002

Tetsuya Iizuka runs a chipmaker with a niche focus and global reach, and he's not above headhunting the best and brightest from his bigger rivals

by Sumie Kawakami

Look at Tetsuya Iizuka's resume and you'd guess he'd be one of the last people to form a venture business. He was successful with Toshiba and has a doctorate degree from Todai (University of Tokyo). That's the kind of resume that lands people on the corporate fast-track or possibly in a some sort of government bureaucracy.

'Bureaucracies or big corporations -- that's where Todai graduates are supposed to be,' Iizuka says. But to Iizuka, founder and chief executive officer of THine Electronics, that's the core of Japan's problem. Not being able to use their capabilities fully, Japanese engineers at big corporations remain unsatisfied and their talent often is wasted he claims.

While Japan's major manufacturers continue to suffer from the recession, THine is thriving. The company has no factories ('fabless' in the industry jargon) and is focused on designing, developing and manufacturing system large-scale integrated (LSI) devices for flat panel displays. The company is focused on a niche market but has global reach because of the high quality of its products.

While in Toshiba, Iizuka spent some time in Silicon Valley at the integrated circuit (IC) laboratories of Hewlett Packard during the 1980s. There, he met a number of successful entrepreneurs with engineering or research backgrounds. Japan's semiconductor industry then was in the limelight and he was happy leading a team of 137 engineers, but something nagged at him. 'Japan was, and still is, the only country where the only way for engineers to survive is to be with big corporations, while in Silicon Valley their future is open to new businesses.'

That feeling of frustration, coupled with entrepreneurial aspirations, drove Iizuka to found THine's predecessor THine Microsystems in 1991. Iizuka's initial focus was research and development, but within 10 years, THine Electronics has secured its position as a leading fabless semiconductor venture. The company boasts the world's top share in system-on-chip (SoC) for liquid crystal displays (LCDs). Its semiconductor chips for LCDs are used in the products of world-leading LCD makers such as NEC, Sony, Sharp and Korean manufacturers such as Samsung Electronics and LG.

The company's strength lies in mixed-signal system LSI devices for flat panel displays. System LSIs are designed to perform the functions required by microprocessors, memory and image processing by integrating a multiple number of discrete circuit blocks on a single chip; they are used in a variety of areas, including telecoms equipment, medical equipment, control systems and electronic equipment for household appliances. The company's strategy is to focus on the rapidly growing market for flat panel displays, including LCDs and plasma display panels (PDPs), because of its strength in mixed signal technology that can process both digital and analog signals.

Iizuka says: 'If we are to win, survive and produce a solid outcome in Japan, whose business environment makes it hard for venture firms to grow, we need to advance in the area where we had advantages over Silicon Valley.' Based in Tokyo, THine had the advantage of being close to huge electronics manufacturers in Japan, South Korea and Taiwan. Given that, the idea of focusing on flat panel displays came naturally.

In order to pursue this goal, Iizuka first established THine Electronics as a joint venture with Samsung in 1992 to jointly develop and design memory and LCDs. The relationship with Samsung, which ended in 1997 with THine completing a full-management buyout (MBO) of the company, gave THine firsthand knowledge in the field and a necessary foundation for its transformation from a design house to a fabless manufacturer. He would have done a similar project with a Japanese company, but Japanese corporate culture didn't allow such a mix, he says. 'Samsung has become a global leader in the area of LCDs, and we are proud that we have contributed to the process,' says Iizuka.

Another factor making the company strong is its fabless model: While THine focuses on designing and developing, it outsources the production process to foundry firms, mostly in Taiwan. 'We don't own a fab, not because we don't have capital for it. I believe that fabrication should be managed by those who are good at it,' says Iizuka. Foundry firms usually require a lot of capitalization, but some have emerged as strong companies with good value by being highly specialized in certain areas. THine now deals with Rohm-Yamaha, Kawasaki Microelectronics and two Taiwanese foundry firms: Taiwan Semiconductor Manufacturing Co. (TSMC) and UMC. In order to control the production process at foundry firms and boost sales at the same time, the company established a joint venture in Taiwan as early as 1995. THine bought out the joint venture in 1999 and now has a wholly owned subsidiary, Taiwan THine Electronics, in Taipei.

THine's financial figures paint a picture of a small but robust firm in a struggling industry. At the end of October, management raised its consolidated sales forecast for 2001 from \6.1 million to \6.4 million, up 30 percent from the previous year. It also increased its forecast for recurring profit from \720 million to \945 million and boosted its net profit forecast from \417 million to \485 million. According to Display Search, market projections over the next five years look pretty good for THine. The demand for PDPs and organic electroluminescence displays (OELDs) is expected to grow rapidly (see Statistics section, page 9). LCD TV screens are projected to almost double annually over the next five years, and LCD monitors, especially those for computers, are expected to post average annual growth of 49 percent. Even though the growth in the notebook computer market has slowed from its peak, the market is expected to grow 20 percent annually.

Iizuka projects the company's sales will grow by an average of 30 percent a year in the TV screen, PC and notebook areas, and 20 percent in digital TVs and household appliances.

Although Iizuka's projection may be optimistic, industry sources agree that the company is expected to post a high rate of growth over the next few years. Lehman Brothers, for example, says THine's sales may triple within three to five years because the company is well positioned to benefit from the long-term growth of the flat panel display market. According to Scott Foster, an analyst at Lehman Brothers, the company may be planning to acquire one or more integrated-circuit (IC) design companies in the US, Japan or Taiwan in order to broaden its product line and geographic reach. He expects additional growth through possible mergers and acquisitions as THine tries to expand its line of flat panel display-related products and move into new applications, such as handheld devices, and other markets, such as China.

Based on expectations that the company will continue to grow, THine's shares have been gaining since its IPO on the Jasdaq market in August and have split three for one in spite of the unfavorable market. Foster wonders if its shares may have been overbought but is still confident that the company will grow. 'THine is one of the most promising semiconductor design companies in Japan,' he says. 'There is, of course, uncertainty over potential M&A, but I believe its strategy is sound.'

Iizuka's entrepreneurial dreams go beyond mere financial figures. Iizuka stresses that THine's base will remain solidly in Japan, with his mission to fully use the potential of Japanese engineers and to change a Japanese system that undervalues engineers.

During the early stages of the company's development, Iizuka headhunted leading semiconductor engineers working in big corporations. His actions may have upset his competitors in a country where that kind of practice is still rare: Industry sources say no semiconductor engineers have moved from Toshiba to NEC or vice versa. But Iizuka asks why. 'It happens to professional baseball players, why not engineers? That is exactly why Korea became so successful, while Japan is losing every battle.'

In order to help out struggling entrepreneurs, Iizuka now chairs the Japan Semiconductor Ventures Association (JSVA). The climate surrounding Japan's semiconductor business is by no means favorable for traditional manufacturers, but this is the time when small cap venture firms are able to present new businesses with new ideas, says Iizuka. The liberation of Japanese engineers may not come as easily as he puts it, but at least THine is taking action. @

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