American electronics industry . . . has virtually lost the entire memory market to low-cost Japanese competitors . . . Dozens of American manufacturers have fled the commodity memory chip business, unable to match Japan's remarkable manufacturing efficiencies or constant price cutting . . . By most estimates, Japanese manufacturers have seized a remarkable 85 percent of the market for the current generation of chips . . .Moreover, Japan's lead showed signs of widening. By 1988 the country accounted for over half the world's microchip production (51 percent in 1988), with the top three makers (NEC, Hitachi, Toshiba) all Japanese. At the end of the decade Japanese chip makers were expected to put 16-megabit chips onto the market while U.S. companies were just getting around to making 4-megabit ones (two doublings behind), and Japan was the first to unveil the prototypes of far more advanced chips than those--the 64-megabit chip in 1990 and the 256-megabit in 1992 (64 times--6 doublings--as powerful as the 4-megabit chip standard at the time), events which got considerable press coverage. Indeed, Japan's position in the sector was regarded as emblematic of its industrial prowess, and even a basis for claims of superpower status.1
Such talk evaporated during the '90s, and seems virtually forgotten today.
The conventional wisdom chalks it up to the idea that the Japanese companies weren't doing so well as they had been given credit for, the U.S. better--that Japanese business had got about as far as its practices could take it and was too rigid to change, in contrast with freewheeling, endlessly reinventing itself America, epitomized by that subject of endless libertarian paeans, the Silicon Valley start-up.
However, while American films rallied (with Intel the outstanding success story) and Japanese firms made mistakes in coping with the resulting, more competitive market (like the flawed restructuring efforts that spun off firms too undercapitalized to compete), the reality is more complex. Such a disproportionate share of any market as Japan enjoyed in the late '80s generally tends to be fleeting--especially when the product is evolving rapidly, and the market rapidly growing. Both of these considerations applied here, as rapidly growing chip capabilities meant rapid changes in the productive plant, and chip consumption rose exponentially--making advantage temporary, and creating opportunity for those looking to grab a piece of the action.
There was, too, the question of how Japanese chipmakers came to enjoy their extraordinary '80s-era position in the first place--not only through the quality of their chips, but the success of their most important customers in their own lines. These happened to be Japanese makers of consumer electronics (like Sony), who had the dominant global position in their own sectors in those years--which, since they bought their chips from a few Japanese firms, made those industrial giants' squarely orienting themselves to their chip needs a plausible strategy. However, as the share of the world consumer electronics market these companies enjoyed declined, so did their share of the potential customer base for microchips--just as new, lower-cost chip producers entered the world market (like South Korea's Samsung).
Still, for all the changes, and the missteps, Japan remains a significant producer of chips today--accounting for 14 percent of the world total in 2013, after just the United States and South Korea.
Additionally, there is the matter of the market for the equipment needed to make the chips, like the raw materials from which the chips are made (like silicon wafers) and the manufacturing equipment needed to print circuits on them (like photolithography equipment). Japan's production accounts for an extraordinary 50 percent of the former, and 30 percent of the latter. While less often publicized, such totals in these difficult, exacting areas are arguably even more impressive testaments to Japan's manufacturing prowess than the chip sales of three decades ago.
1. Shintaro Ishihara famously declared in his book The Japan That Can Say No that Japan's lead in the technology put the nuclear balance in its hands, because that nation alone could make the chips needed for accurate nuclear warhead guidance, while the victory of U.S. forces in the 1991 Gulf War was hailed as actually a triumph of Japanese technology, because there were Japanese components guiding its weapons.
Review: Power-Up: How Japanese Video Games Gave the World an Extra Life, by Chris Kohler
Revisiting The Japan That Can Say No
Reading Shintaro Ishihara's Season of the Sun