Kyocera Corporation
Corporate History & Strategy

In April 1959, Kazuo Inamori (then 27 years old) established Kyoto Ceramic (now Kyocera) in Kyoto. Inamori was an engineer who had been developing specialty ceramics such as alumina porcelain and forsterite porcelain at his employer Shofu Kogyo, and the deterioration of Shofu Kogyo's management prompted his transition from salaried employee to entrepreneur. These materials had excellent insulating properties and were essential for electronic components from the 1960s onward, but at the time the electronic components market itself was immature and demand was limited.

To establish the company, Inamori sought investors and, through the introduction of Masaji Aoyama, a former colleague at Shofu Kogyo, made contact with the founding family of Miyaki Electric. Mr. Nishieda, a managing director of Miyaki Electric, was a college friend of Aoyama's, and Mr. Miyaki of the founding family evaluated Inamori's 'passion' and decided to provide seed investment. The initial capital was 3 million yen, and through three rounds of capital increases by 1962, the capital grew to 17 million yen.

Due to the circumstances of the investment, Inamori was not the largest shareholder. As of 1963, the largest shareholder was Masaya Miyaki (President of Miyaki Electric, 4,300 shares), with Kazuo Inamori (3,500 shares) ranked fourth. However, by the time of the stock listing in 1971, Inamori had bought back shares and became the largest shareholder with a 31.6% holding as of May 1972. While Kyocera was a company founded by Inamori, it had an unusual capital structure in which Kyoto business figures provided the backing.

Because Inamori was a ceramic engineer, Kyocera developed electronic components utilizing ceramics from its earliest days. The product that grew into the company's mainstay during the founding period was the 'U-shaped Cersima,' an insulating component for CRT televisions. The U-shaped Cersima was a high-frequency insulating component made from forsterite porcelain. Previously, expensive imports had dominated the market, but Kyocera succeeded in domestic production through in-house development.

The major customer was Matsushita Electric (Panasonic), and Kyocera built a mass production system of 200,000 units per month. As CRT televisions spread from the late 1950s through the 1960s, Kyocera expanded its business and began transactions with major electronics manufacturers including Panasonic, Mitsubishi Electric, Sony, Toshiba, Hitachi, and NEC.

By 1963, the company posted operating income of 11.9 million yen on revenue of 84 million yen, with 129 employees. The high-profitability structure of achieving profitability from the second year after founding came to characterize Kyocera's management going forward.

From 1959 to 1985, during which Inamori served as top executive, Kyocera expanded dramatically from a small-medium enterprise to a major corporation. However, throughout this growth process, Kyocera never formulated any medium- or long-term management plans. Inamori adhered to his conviction that 'I can roughly predict next year, but no mortal can know what lies two or three years ahead,' and managed the company using only annual plans.

Inamori believed that multi-year management plans would be thrown off by external environment fluctuations, and that attempting to execute on schedule would create strain. His management philosophy was to grow the company through the accumulation of doing one's best each and every day.

After Inamori stepped down from president to chairman in 1985, Kyocera transitioned to management based on formal business plans. The 'strategy-free management' of the Inamori era is understood to have been a personalized management style that could only function thanks to the founder's deep understanding of ceramic technology and his ability to respond immediately to market changes.

Kyocera, established in 1959, was an electronic components manufacturer built on ceramic technology, but as a small company only a few years old, it could not gain sufficient credibility as a supplier from major domestic electronics manufacturers. Kazuo Inamori reasoned that 'since Japanese electronics manufacturers are licensing technology from American companies, if we get adopted at the source, it will be easier to sell in Japan as well,' and began cultivating the U.S. market at a stage when the company had fewer than 100 employees and annual revenue of only 50 to 100 million yen.

In 1963, Kyocera built a new factory in Shiga Prefecture with a site area of 8,000 tsubo (approximately 26,400 square meters), establishing the foundation for mass production. Employee count also expanded to 200, securing production capacity to handle large overseas orders. It was unusual for a small company to build a large factory in advance at a stage when demand prospects were uncertain, but Inamori made the investment decision premised on winning overseas orders.

In 1966, Kyocera won an order from IBM of the United States for 'alumina substrate boards for ICs.' IBM was adopting ICs (integrated circuits) in earnest for mass production of its general-purpose computer 'System/360,' and selected Kyocera as a supplier of ceramic substrates on which ICs would be mounted. A small Japanese ceramics manufacturer had become a component supplier to the world's largest computer maker.

This substrate delivery to IBM signified Kyocera's full-scale entry into ceramic packages for semiconductors. While the diffusion of ICs was still in its early stages in the 1960s, Kyocera would go on to establish its position as a package substrate supplier as semiconductor demand surged from the 1970s onward. Winning the IBM business was the turning point at which Kyocera moved from being a subcontractor of electronic components to entering the semiconductor industry supply chain.

In the late 1960s, Kyocera received a development request from Fairchild Semiconductor of the U.S. for ceramic multilayer packages. Conventional semiconductor packages had a single-layer structure, but as IC integration density increased, multilayer structures with stacked wiring layers became necessary. Multilayer ceramic firing was technically challenging, and development proved difficult, but in 1968 Kyocera succeeded in prototyping a ceramic multilayer package.

However, as of 1968, market demand for multilayer packages was an unknown quantity. It was impossible to predict how far IC integration density would advance or at what scale multilayer packages would be adopted, and Kyocera was forced to decide on mass production investment for a new product whose market might not even exist.

In 1969, Kyocera built a new factory in Sendai, Kagoshima Prefecture, establishing a mass production system for ceramic multilayer packages. The invested capital (land, buildings, machinery) in the Sendai Plant as of FY1973 was 560 million yen, a substantial investment relative to Kyocera's revenue of approximately 7 billion yen at the time. Kazuo Inamori later reflected on this investment decision as 'close to gambling.'

The decision to set up mass production facilities in advance before demand materialized was a bet on the growth of the semiconductor industry. In 1971, Kyocera built another new factory in Kokubu, Kagoshima Prefecture, further expanding production capacity. By translating advanced ceramic firing technology into mass production processes, Kyocera constructed entry barriers that made it difficult for competitors to follow.

Throughout the 1970s, the semiconductor market expanded rapidly, and Kyocera's ceramic package business experienced explosive growth. Because advanced firing technology was required, competitive entry was limited, and by 1983 Kyocera had secured approximately 70% global market share. Revenue grew from 6.5 billion yen (FY1971) to 50.3 billion yen (FY1978), and net income increased from 1.1 billion yen (FY1971) to 6.8 billion yen (FY1978).

The early establishment of mass production capacity through preemptive investment made it possible to achieve both high market share and high profitability. Rather than investing after demand materialized, by having facilities ready at a stage when demand was unclear, Kyocera was able to begin supply simultaneously with the market's emergence. Kyocera attracted attention as a high-growth venture and proceeded to its stock listing in 1971.

In April 2008, Kyocera acquired the mobile phone business (mobile phone handsets, PHS handsets, PHS base stations, WiMAX base stations) from financially distressed Sanyo Electric. Sanyo Electric's mobile phone business had revenue of 277.3 billion yen (FY2006) but was posting continuing operating losses, and the business divestiture was part of Sanyo Electric's management restructuring. Kyocera's acquisition price was approximately 50 billion yen, and it simultaneously acquired part of Sanyo Electric's Suminoe Plant.

Sanyo Electric employees in the mobile phone business division transferred to Kyocera, and a structure was established for Kyocera to take charge of the business turnaround. Kyocera's plan was to introduce its 'Amoeba Management System' to visualize the cost structure and achieve profitability through thorough profit management. This was a case that tested the effectiveness of Kyocera's management methodology — turning around a loss-making business through Amoeba Management.

Kyocera's plan was to enhance the cost competitiveness of the mobile phone business through the introduction of Amoeba Management, but this premise was fundamentally undermined as smartphones proliferated rapidly from the 2010s. Demand for conventional mobile phones (so-called 'garakei' or feature phones) plummeted, and the turnaround scenario of achieving profitability through cost reduction lost its meaning as the market itself shrank.

Kyocera's telecommunications equipment business entered a period of continuous revenue decline following the acquisition from Sanyo Electric. While Amoeba Management was effective for improving profitability in existing markets, it could not respond through cost management refinement alone when the market structure was fundamentally transformed by a technological paradigm shift. This case illustrates the structural mismatch between business turnaround methodology and the speed of market environment change.