Cutting orders and remaking production through the semiconductor slump (1991)

Chase volume, or take the profit

The heart of this decision is that it addressed not a financial crisis but low profitability exposed in good times, and that Sato cut into it prepared to lose business altogether. “Busy but poor” — the more orders came in, the thinner the profit — was produced by the very structure of a component maker that had answered the demands of set makers without limit. Removing directors to show the company he meant it, ordering every salesperson to hand back unprofitable orders, and at the same time requiring productivity gains that did not depend on new equipment: this reform, moving attack and defence at once, was a switch from management that pursued growth in sales to management that questioned the economics of each individual order.

That said, the success coincided with an external wind — a semiconductor recession in which the majors were exhausting themselves in the volume race for commodity memory. Because Rohm had grown by taking the gaps the majors left, on delivery speed and flexibility, it also had the bargaining power to make customers accept higher prices and fewer variants. Sato’s argument that technology cannot advance unless a fair profit is reinvested survives, in changed form, in the high-margin structure that followed and right through to the concentrated investment in SiC that unsettles the company today. By returning to profitability in the middle of a boom, this decision placed the fundamental question for any component maker — chase volume or take the profit — at the centre of management early on.