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Toshiba in turmoil

Toshiba's loss of star engineer tells tale of company's decline

Flash memory inventor jumped ship 24 years ago, pointing to Japan tech woes

Toshiba became the first company in the world to develop NAND flash memory, paving the way for smartphones decades later.

TOKYO -- At the Computer History Museum in Silicon Valley, among the photos of Steve Jobs, Bill Gates and others who shaped the computing revolution is a less well-known Japanese engineer.

His name is Fujio Masuoka and he is described in a note beneath the photo as "Inventing memory, but feeling forgotten." The engineer's story is a stark warning for Japanese policymakers and companies struggling to maintain Japan's position as a major high-tech player.

Masuoka "invented flash memory in 1984 while working for Toshiba. Masuoka's idea won praise, Masuoka didn't," according to the photo caption. "Unhappy with what he saw as Toshiba's failure to reward his work, Masuoka quit to become a professor at Tohoku University."

In 1987, Toshiba developed the world's first NAND flash memory chip. At the time, most data storage was done on magnetic tape. A team led by Masuoka paved the way for the practical application of flash memory. The team was small when it was created in the 1980s, with an annual budget in the hundreds of thousands of dollars. But that did not prevent it from dreaming up a new type of semiconductor that could be mass-produced cheaply.

Under Masuoka's leadership, the team took a close look at circuit structures and materials, working all hours of the night. Their efforts paid off hugely in the form of Toshiba's memory business.

Thirty years on, flash memory is part of everyday life, letting people take pictures and listen to music on smartphones. Toshiba's memory business, now sold off, was the company's crown jewel, chalking up operating profits of more than 400 billion yen ($3.63 billion) per year.

But Masuoka was not around to enjoy that success. He left Toshiba in 1994, before commercial production of the chips got rolling. A decade later, Masuoka filed a lawsuit against Toshiba, demanding 1 billion yen in compensation for his work in developing flash memory. Many called Masuoka greedy at the time.

He was unfazed by the critics. "Money is not the issue," Masuoka said. "I just want to continue with research and development. Japanese engineers must be rewarded."

Masuoka eventually decided to quit after he was told by his superior to become an "advisory engineer," equivalent to the head of a department. It was, in effect, an honorary post. He had no subordinates and no budget.

Masuoka "grew increasingly alienated by the company" because of his readiness to appeal directly to senior management without restraint, according to one of his contemporaries.

Toshiba had reasons for not forging ahead with Masuoka's work. Faced with the lawsuit, one former executive said, "It was impossible for us to strike out on our own ahead of Hitachi and Sony." The extreme caution that guides many Japanese companies' behavior hindered the development of Masuoka's brainchild.

Masuoka made the cover of Forbes magazine in July 2015.

When an employee invents something in Japan, the patent often belongs to the employer. Any reward comes in the form of a relatively tiny cash bonus.

Members of Masuoka's team left Toshiba one by one. And the brain drain was not limited to Toshiba: Chip engineers abandoned Hitachi, NEC, Sony and other Japanese electronics companies in droves, starting in the second half of the 1990s. Samsung Electronics of South Korea hired many on favorable terms, helping the company move into high technology.

At Toshiba, bonuses paid to developers of new patents were limited to 100,000 yen as late as the 2000s, a senior official at the company's memory business revealed. Eventually, Toshiba began offering higher compensation for engineers, but it remains below international standards.

But new forces are emerging in the market for chip engineers. Headhunters have been actively recruiting people from Toshiba since last year, dangling annual pay of 10 million yen or more. China's Tsinghua Unigroup is among the companies seeking to hire Toshiba engineers, said a senior official at an employment agency.

Hundreds have already left Toshiba's memory business since an accounting fraud came to light in April 2015. If a flood of talent from Toshiba and others is lured away by overseas companies, the Japanese government's efforts to defend the domestic memory industry will be in vain.

The question is whether Japanese companies can create environments sufficiently attractive to hold onto skilled engineers, and raise the money to pay for them. Masuoka's photo at the Computer History Museum pointedly notes, "Bucking Japan's culture of company loyalty, he sued his former employer, demanding compensation." Star performers these days have fewer qualms about jumping ship. Employers will need to work harder to hold on to those who will create the technologies of the future.

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