Another day passed, and another name was added to Takuya Nakayama's schedule:
[ Director Terauchi ]
As a core executive at Sega responsible for supply chain, production, and cost control, Terauchi had just returned from an inspection of semiconductor manufacturing capacity in Taipei.
He knocked on the office door.
Terauchi was poring over a thick report.
Two exquisitely packaged boxes of Dong Ding Oolong tea sat on the desk.
"Sit down," Terauchi said, gesturing to the chair opposite him. He closed the report. "I heard about your meeting with Takahashi yesterday. That old man usually doesn't listen to anyone, so getting his support is quite an achievement."
Takuya Nakayama pulled out the chair and sat down, casually picking up a box of oolong tea to examine the packaging.
"Uncle Takahashi is a pragmatist," Takuya replied. "If I can help him overcome his technical bottlenecks, he's happy to cooperate." He set the tea box down. "You came straight to the office to review reports right after landing. Your work ethic is even more intense than the younger employees'."
"That Hatano guy is stationed in Mexico, keeping a close eye on the progress of the second main console production line and the game disc pressing line every day," Terauchi said, taking a sip of his tea. "He called the day before yesterday complaining that the local union is still striking over an extra ten minutes for taco breaks. If I don't smooth out the front-end material supply, he'll fly back from Monterrey and flip my desk."
Takuya Nakayama burst out laughing.
Hatano and Terauchi were the dual pillars of Sega's supply chain management—Hatano overseeing production abroad and Terauchi managing domestic material control.
"Sega's industry-leading cost efficiency is all thanks to you and Director Hatano, the two pillars holding up our foundation," Takuya Nakayama said, showering them with praise. "Sony's PS consoles are losing money on every unit sold, propped up by the group's cash infusion. Our Jupiter, on the other hand, is profitable. That difference in margins—it's all due to the two of you squeezing every last cent from the supply chain."
Terauchi waved his hand, enjoying the flattery but remaining clear-headed.
"When it comes to cost control, your foresight was truly exceptional," Terauchi leaned back in his chair. "If you hadn't proposed transferring the assembly plants and non-core component supply chains entirely to Mainland China, we'd still be struggling with Japan's exorbitant labor costs. There was significant opposition on the Board of Directors when you suggested building a factory in Shenzhen. The old guard feared that placing core assembly lines overseas would compromise quality control. Yet you pushed it through despite the pressure, transforming local contract manufacturers into Sega's model workshops. The Shenzhen factories are efficient and fully integrated—from plastic injection molding for the casings to controller assembly and even packaging and printing—all located there. We've slashed costs by a huge margin. Without your boldness back then, Sega's financial statements would be half as good as they are now."
He paused, his gaze settling on Takuya Nakayama.
"We've basically exhausted the benefits of low-end manufacturing and assembly. The supply chain has entered a plateau. You didn't come here to beat around the bush, so get to it—what's the next strategic move?"
Nakayama's smile faded, and he leaned forward slightly.
"We've built a strong moat in the low-end supply chain. The next step is to move upstream—into the high-end supply chain. Chips and memory."
Terauchi remained silent, his fingers tapping absently on the table.
"You're interested in semiconductor manufacturing?" he asked after a moment. "TSMC?"
"Yes," Takuya Nakayama replied.
It was interesting that Sega had always relied on external suppliers for its hardware architecture.
With the rise of polygon-based gaming, the demand for custom chips had surged exponentially.
Without securing upstream production capacity in advance, Sega would be at a severe disadvantage when it came to scheduling future production.
Terauchi shook his head, pouring cold water on the idea.
"TSMC's ownership structure is too insular," he explained, analyzing the market he had just investigated. "The majority stake is held by the government-backed National Development Fund. The remaining shares are divided between entrenched local players like Formosa Plastics Group and technology partners such as Philips. There's no room for outside capital to intervene."
"Buying existing shares directly won't work," Takuya Nakayama countered, prepared for the objection. "They're currently expanding. TSMC is about to partner with clients like AItera to build its first overseas 8-inch wafer fabrication plant in Washington State. The funding gap is substantial. That's our opportunity."
Terauchi paused.
"Sega is a major TSMC client," Takuya Nakayama laid out his bargaining chips methodically. "With the upcoming Jupiter..."
"With the release of the revised Saturn and the development of the next-generation console, our order volume will only continue to skyrocket. It's worth noting that we also hold NVIDIA, a chip design company heavily reliant on foundry services. Jensen Huang has already prioritized a triangle-rendering-based architecture. The transistor count in their graphics processors will undoubtedly surpass the NV1's, placing extreme demands on foundry capacity. Packaging these orders in exchange for a stake in TSMC is a reasonable request. Morris Chang will see the logic in that."
"Joint ventures carry significant risks," Terauchi raised his concern.
"A joint venture isn't mandatory," Takuya Nakayama explained. "Sega doesn't need to shoulder the burden of such a capital-intensive project in the coming years. Doing so would overstimulate our existing chip suppliers. Game consoles don't require the absolute cutting-edge process technology. The key to a console's survival lies in keeping chip costs within reach of ordinary players.
"While TSMC's current process is one generation behind Intel's mainstream offerings, their foundry pricing is the most competitive."
He leaned back, his tone relaxed. "When these guys first founded TSMC, they were three generations behind the mainstream process. Who's to say they can't catch up technologically down the line? Consider it buying a long-term entry ticket."
Terauchi stopped tapping his fingers, his expression thoughtful. The young man's business acumen was terrifyingly sharp.
"Your logic holds up for chip manufacturing," Terauchi said, changing the subject. "What about storage? That's a bottomless pit of cash."
Takuya Nakayama rubbed his chin.
"For DRAM, it depends on whether Director Hoshino is willing to get involved in South Korea," Nakayama replied. "Japan's domestic DRAM manufacturers have hit a dead end. Their corporate structures are bloated, and their obsession with over-engineering for longevity has resulted in extremely high yields but uncompetitive costs. PC-era consumers don't need RAM modules that last twenty years; they just want something cheap and functional. Besides, if any Japanese manufacturer were willing to let us invest, it would mean their business model has already broken their cash flow, making them worthless investment targets."
He took a sip of tea and continued, "The Koreans are different. Samsung and SK pursued a contrarian, wild-West approach, aggressively expanding production and waging price wars during industry downturns. This counter-cyclical, suicidal investment strategy allowed them to surpass Toshiba overnight. However, getting involved with Korean companies isn't easy either. I'll ask Director Hoshino to keep an eye out for opportunities over the next few years."
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