Segments of the Japanese electronics industry's vertically integrated industrial structure are becoming more disintegrated and market dependent. This paper uses recent changes in the Japanese semiconductor equipment industry to examine what caused this disintegration in one of the most technologically advanced segments of the Japanese electronics industry. The findings suggest chat, as the technological advances in the semiconductor equipment industry pushed the Limits of the existing technology, the exclusive advantages that the Japanese DRAM producers had as a result of closely linking the know-how in DRAM manufacturing to equipment production were undermined by other economic changes in the industry. The factors affecting the structural changes towards Vertical disintegration in the equipment industry include: (1) the need to achieve economies of scale to reduce production costs; (2) strategic alliances that allowed the transfer of production technology to other countries such as Korea, which in turn facilitated US equipment vendors' access to semiconductor processing technology; (3) the decline in the importance of DRAMs as the definitive semiconductor process; (4) the disadvantages of being locked into internal suppliers in an industry where the pace of technology change is fast; and (5) the need to have multiple technological inputs on the pare of equipment suppliers to stay ahead in technological innovation. Thus, many of the Japanese electronics giants are ending direct semiconductor equipment production, while independent producers and US firms are gaining market share in Japan.
