Ceramics, one of the world's oldest technologies, is the basis for one of the newest Japanese-American business rivalries. And so far, the Japanese are way ahead.
Kyocera Corp., an aggressive -- some competitors say arrogant -- Kyoto-based outfit with 2,000 workers in plants in the United States, has carved out 70 percent of the fastest-growing part of the technical ceramics market, the manufacture of wafer-like ceramic packages used to carry high-quality electronic chips in a variety of military and commercial applications. And the company also is gobbling up huge portions of what ultimately may be a more lucrative market: the use of "structural" ceramics to make such diverse products as scissors, artificial human joints and automobile engines.
But this is not necessarily another story of the United States losing a market to the wily Japanese -- although that has been the case so far. American companies are entering the industry in droves, and experts say that, although the Japanese may have a sales advantage, they don't seem to hold any technical edge. "Can we catch up? I think so," said Gary Carlsson, head of the ceramics division of General Electric Co., one of the biggest American entrants in the race.
Ceramics -- the time-honored technique of molding earth into shapes and then firing them into hard finished products ranging from tea cups to toilet bowls -- currently is a technological hotbed, and experts predict that the current $4 billion world market for technical and industrial ceramics could increase to many times that size by the turn of the century.
That optimism is based on a number of assumptions, however. One is that the market for ceramic semiconductor packages stays strong -- no sure bet if there's any weakness in the semiconductor industry. Another is that ceramics makers can overcome fears and misconceptions about the sometimes delicate physical properties of ceramics to make them widely accepted for such critical applications as jet-engine turbine blades.
A third assumption is that the manufacturers can prove that ceramics have enough value to become standard for big-ticket items such as automobile engines -- something that seemed imminent a couple of years ago, but now looks years away.
Although ceramics have been around for a long time, the modern industrial ceramics industry is only about a quarter-century old -- just about exactly the age of Kyocera, by no small coincidence.
Kyocera founder Kazuo Inamori didn't invent the technology his company was built on, but he was apparently one of the first to realize that ceramics produced from sand and chemicals rather than clay could be used to protect electronic circuits. The ceramic packages offer excellent electrical insulation, superb dissipation of heat and other properties that make them superior to the plastic packages used for less-critical semiconductors.
With a devotion to service and customer relations -- and inadvertent help from old-line ceramics companies that apparently didn't see the opportunity -- Kyocera cornered the market. "They kept investing and driving the price down. Everybody else stood and watched," Carlsson said, while Richard Spriggs, president of the American Ceramics Society, said that American ceramics companies "somehow were asleep at the switch and failed to see the market develop."
Kyocera officials modestly say market domination wasn't their goal. "Kyocera doesn't have such an intention to dominate the market," said Keisuke Hasegawa, president of the company's San Diego-based American arm, Kyocera International Inc. But that's how things evolved, and last year Kyocera reaped $1.1 billion in sales and a nearly 50 percent increase in profit.
Because semiconductor types vary so radically, electronics packaging is largely a custom business, despite its size -- $1 billion a year and growing fast. Kyocera and its competitors make the packages in small quantities to exacting customer specifications. "You can't set up a production line and run a factory off it," said William L. Everitt, Kyocera's vice president for corporate communications, who likens the process to running "a job shop."
Carlsson agrees that customer service is the key to the ceramics business, and he has been working to build that as well as technology for GE's ceramics division, which the company purchased from 3M 16 months ago. "It will be, in our opinion, a very custom world," he said. "It's the service element of this thing, when you're talking custom, that makes this business."
Doing that requires keeping in close touch with customer needs, something Kyocera prides itself on. "Kyocera is very lucky to maintain this service attitude to the customer," Hasegawa said.
But competitors see it a little differently. "They have a catalogue of technology," Carlsson said, charging that Kyocera often forces customers to take one of the company's 200 or so generic designs rather than wait for a more customized version. Other experts also suggest that Kyocera, in the time-honored Japanese business tradition, has kept prices artificially low to drive out competition and increase market share, something Kyocera denies.
GE is one of several American companies endeavoring to catch up to Kyocera. Others include E.I. du Pont de Nemours & Co. Inc., Coors Porcelain Co. (an affiliate of the brewer) and Norton Co. International Business Machines Corp. is also a major maker of ceramic packages, but only for its own, considerable, use. In many cases, U.S. companies have joined forces with Japanese companies to enter the industry. There may be plenty of business to go around. "If you believe the . . . forecasts, there's a very large market there for a number of good-sized companies," Carlsson said.
But attactive though the ceramic electronic-packaging market is, it still carries risks. It's vulnerable to slumps in the semiconductor industry, loses a good deal of business to the cheaper but less efficient plastics packages, and eventually may fall victim to competitive saturation.
So the big players in it are already diversifying. Carlsson has begun to tap into the plastics know-how elsewhere in GE, and Kyocera, along with everybody else, is pushing forward into what potentially could be an even larger market: structural ceramics.
Ideally, these large-scale ceramics products could end up as replacements for all sorts of metal parts in industry, offering their superior temperature, friction and wear capabilities. But the market has been slow to develop. " "One of the problems is that people think, here is a metal part, we'll make it out of ceramics, we'll drop it in, and life will be glorious," Carlsson said. "Problem is, most of the time it won't work."
One of the big reasons for that is the property of ceramics that at times can outweigh all the other advantages: brittleness. Drop a finely made ceramic part on the floor, and it can shatter like a teacup. This isn't much of a problem in electronics applications, but it has hampered ceramics' acceptance in a number of areas.
Jet-engine makers, for instance, are reluctant to make turbine blades out of ceramics. While the impending failure of a metal blade can be detected and the part replaced, ceramics blades tend to fail all at once -- destroying the engine. As a result, many in the ceramics industry believe it will take decades of development of stronger ceramics before blades made of the material become regular equipment in passenger jet engines -- though they will find their way pretty soon onto unmanned jet aircraft such as cruise missiles.
But the holy grail for the structural ceramics industry is the ceramic automobile engine, a potential showcase for all of the advantages of ceramics -- but currently an excellent illustration of most of the problems with ceramic parts.
A ceramic engine -- more likely a diesel or gas-turbine engine than gasoline-powered, for various technical reasons -- would be lighter, cooler and more-fuel-efficient than a metal engine. It would not need a cooling system, saving weight and power, and would require little lubrication. That's the good news.
The bad news is that it could be a lot more expensive than an equivalent metal engine. Therefore, makers of such an engine would have to prove that the other advantages outweighed the costs. And so far, with fuel prices relatively low, they haven't.
"What was ceramics fever in the U.S. market a few years ago has abated, along with the oil prices," Carlsson said. Auto makers and ceramics manufacturers have cut back on their ceramics-engine programs, and even Kyocera -- which upon unveiling the world's first ceramics diesel engine in 1983 predicted it would be available to the public by 1990 -- now places the target a few years farther off. Durability of the ceramic engine under stress also remains a question.
Still, Spriggs said the ceramic engine "is a big pot of gold at the end of the rainbow. . . . You're looking at a market 20 years out that dwarfs the existing market today." In the meantime, ceramics makers are developing ceramic parts for use in metal engines, including pistons, valves and cylinder sleeves, and some experts believe the ceramics engine thus could evolve rather than arrive all at once.
Kyocera also is insinuating its ceramic products into other areas of life, particularly in Japan. The company is making and selling ceramic golf putters, ballpoint pen tips, scissors and sushi knives, both to increase consumer awareness of ceramics and to gain technological expertise.
To hedge its bets further, Kyocera has been diversifying of late: Its products include KLH audio equipment, Yashica cameras, and the popular lap-model computers it makes for Radio Shack and other companies.
But Kyocera and others in the ceramics industry believe that, given time and technology, ceramics will become one of the world's major materials -- and a huge industry, with plenty of room for competitors from many nations.
"I think it's coming inexorably," Spriggs said. "All of the areas of ceramics of the high-technology type seem to be able to sustain high growth rates for the foreseeable future."
"Acceptance is accelerating around the world," Everitt said. "We think it's going to become almost a revolution when the acceptance factor hits a certain level. The applications are going to be almost unlimited."