Takuya Nakayama quickly arranged a meeting with Director Terauchi and Director Hatano in the executive conference room at headquarters.
He gently placed a neatly printed cost analysis report in front of the two directors.
"Director Terauchi, Director Hatano."
Takuya Nakayama's voice was calm, without much fluctuation.
"This is the latest estimated unit production cost for our new console: 26,000 Japanese Yen."
Director Terauchi picked up the report, his gaze behind his glasses meticulously scanning it, his brow furrowing almost imperceptibly. He pushed up his glasses, his fingertip pausing for a moment on the number "26,000."
Director Hatano also leaned in, his expression equally serious. He did not immediately pick up his own copy, but instead looked at the report in Director Terauchi's hand, his face changing several times.
"26,000 Japanese Yen—" Director Terauchi put down the report and looked at Takuya, "Takuya, this figure, referencing this hardware list, is already better than our initial worst-case scenario. However, Nintendo's Nintendo FC's cost is probably already unbelievably low, but they haven't lowered their price in 4 years since its release. We must guard against a price war." His tone showed no accusation, but rather a heavy consideration of market realities.
Director Hatano sighed, took his report, and flipped through it: "We've all seen the technological breakthroughs, and the hardware department's efforts are commendable. However, with this cost, our pricing strategy will be very passive. The market, especially parents and children, are very sensitive to prices." He rubbed his temples.
Takuya Nakayama nodded, not surprised by the two directors' reactions. "I completely understand your concerns. This cost figure is indeed a challenge we must face." He leaned forward slightly, "The hardware department has made its utmost efforts to optimize within the existing technical framework. However, this report is only a current interim result, not the final conclusion."
He paused, his tone calm but carrying undeniable weight: "I have already instructed the hardware department to continue researching alternative components and optimizing the supply chain's feasibility, without sacrificing core performance and stability."
Director Terauchi and Director Hatano exchanged glances, seeing a hint of surprise in each other's eyes. They had expected to hear more complaints about the difficulties of cost control, but Takuya had already made subsequent arrangements.
This eased the slightly tense atmosphere in the conference room.
They were both seasoned businessmen, well aware of what cost control meant for a product, especially a home game console aimed at the mass market.
A cost of 26,000 Japanese Yen meant that the retail price would have to be set even higher to ensure a reasonable profit margin.
And as a special commodity, the main profit model for game consoles revolves around royalties. Even if sold at cost, at this price, competitiveness would be greatly reduced.
As for selling at a loss, Takuya knew that in his previous life, it was the continuous loss-making sales of consoles that dragged down Sega, and the loss not covered by game royalties. Naturally, he would not approve of Sega selling consoles at a long-term loss; at most, he could accept an initial release at a price slightly below cost, with the expectation that the cost would drop below the release price in a short period.
This price would undoubtedly make them quite passive in the face of the Nintendo FC, which already had a massive user base and a lower price.
"This cost—"
Director Terauchi put down the report, his knuckles gently tapping on the table, making a dull sound.
"If we price it based on this, we will face significant pressure in market promotion."
"I understand the concerns of both directors."
"Therefore, I am here today to discuss with you how to further reduce this cost."
He first presented the first layer of cost reduction solutions.
"Regarding the parts of the console with relatively low technical content, which rely more on labor, such as the injection molding of the console casing, internal brackets, various connecting cables, power adapters, and even the welding and assembly of some simple circuit boards..."
"My idea is to further expand the scope and depth of outsourcing, entrusting it to the electronic factories with which we have already established preliminary cooperative relationships in Dongguan through our Hong Kong company."
Upon hearing this, Director Terauchi and Director Hatano's eyes flickered slightly.
Since their last trip to Hong Kong, some of their factories had indeed tasted success by outsourcing part of the production of pokémon electronic pets and some arcade components to factories in Hong Kong and even Dongguan.
Not only were costs significantly reduced, but production efficiency was also ensured, and more importantly, it allowed them to free up more energy to focus on core technology research and development and production.
"We agree in principle to expanding outsourcing."
Director Terauchi mused.
"The previous cooperation on pokémon balls and arcade parts was indeed effective, and the production capacity and cost control of those factories basically met our expectations."
Director Hatano interjected: "But Takuya-kun, the cost proportion of these peripheral components is ultimately limited."
"The real bulk is still in the core components, especially—chips."
This was the crux of the matter.
Takuya Nakayama took a deep breath, his expression becoming serious.
"Yes, Director, you are absolutely right."
"Our new console's most core central processor, the MC68000, and the Z80 chip responsible for sound processing, currently, it seems that in the short term, we can only rely on domestic Japanese suppliers."
He spread out another document in his hand, listing several potential chip suppliers and their technical characteristics.
"I have thoroughly researched it, and given the current technical level and industrial landscape in 1987, neither Hong Kong nor Taiwan has a wafer foundry capable of obtaining licenses for relatively mature CPUs like the Z80 and consistently mass-producing them."
"Although Huake Electronics has a 4-inch wafer production line, their process level (3-5 micrometers) can theoretically cover the Z80's 6-micrometer process requirements, and they possess certain packaging and testing capabilities."
But they lack practical CPU production experience, and more importantly, they do not have formal authorization from Ziog Corporation. Even if the Chinese government is willing to strongly support and bear the huge cost of yield ramp-up, without authorization, everything is empty talk."
The two directors nodded slightly; they had also heard about this information. The technical barriers and patent authorizations in the chip industry were unavoidable hurdles.
Takuya Nakayama's tone suddenly shifted, a sharp glint flashing in his eyes.
"However, what seems like an intractable problem at hand might also hide a turning point."
"Both directors should also have noticed a major international event recently—the Toshiba incident."
Director Terauchi and Director Hatano's gazes immediately sharpened.
The United States, using Toshiba Machine Company's violation of the "Coordinating Committee for Multilateral Export Controls" regulations by exporting high-precision CNC machine tools to the Soviet Union as an excuse, was exerting unprecedented pressure on the Toshiba Group and even the entire Japanese semiconductor industry.
Raising tariffs, restricting market access, and reviewing technology transfers—a series of combined punches left relevant Japanese industries crying out in pain.
"On the surface, this appears to be a crisis for the Japanese semiconductor industry."
Takuya Nakayama's voice lowered a few notches, carrying a keen foresight.
"But for us, Sega, it may well be an 'opportunity.'"
He paused, giving the two directors time to digest the information, and then threw out a strategic concept they had never considered.
"I have a bold idea."
"We can leverage the current predicament of Japanese semiconductor companies under sanctions, as well as the pressure of industrial relocation caused by the continuous appreciation of the Japanese Yen—"
"For Sega to step forward, or through associated companies under the two directors, actively promote or even directly participate in investment to 'incite' our chip suppliers, such as Toshiba, to gradually transfer some mid-to-low-end chip production capacity and technical authorization, such as for the Z80 or other less sensitive logic chips, to regions with lower labor costs and a certain industrial foundation."
"For example—Taiwan."
"Taiwan?"
Director Terauchi and Director Hatano raised their eyebrows almost simultaneously, their eyes full of surprise.
This line of thought was too divergent.
"Yes, Taiwan."
Takuya Nakayama nodded affirmatively.
"To my knowledge, the Taiwan authorities are ambitious about developing the semiconductor industry and have introduced many support policies."
"We can pay special attention to a newly established company called 'Taiwan Semiconductor Manufacturing Company,' or TSMC."
"Alternatively, we can seek deep cooperation in authorized foundry services with 'United Microelectronics Corporation,' or UMC, which already has a certain foundation."
"Doing so will not only lay a solid foundation for Sega to acquire low-cost, stable-supply chips in the future, but also effectively diversify the risk of an overly concentrated supply chain."
"Furthermore, from a longer-term perspective, we are cultivating a more cost-advantageous chip supply ecosystem for ourselves."
Director Terauchi and Director Hatano fell into deep thought.
Takuya Nakayama's words had far exceeded the scope of simple procurement or foundry services.
This was almost suggesting that they participate in shaping the regional semiconductor industry landscape.
This strategic concept of "saving the country by indirect means," or even "industry incubation," left them both shocked and subtly excited.
"Takuya-kun, do you mean to leverage the current international trade situation?"
Director Hatano asked, having clearly grasped the key point.
"Exactly."
Takuya Nakayama's tone was very firm.
"In the trade friction between the U.S. and Japan, Japan is bound to be the relatively weaker party. Given the American way of doing things, this pressure is unlikely to fundamentally improve in the short term, or even for several years to come."
"Therefore, transferring some non-core but high-volume and relatively low-tech chip production capacity abroad, seeking lower production costs and more flexible cooperation models, is also an unavoidable path for those pressured Japanese semiconductor companies."
"This plan is definitely worth our in-depth investigation and research."
The two directors exchanged glances, both seeing in each other's eyes an acknowledgment of this bold plan.