Takuya Nakayama soon convened a meeting in the headquarters' executive conference room with Director Terai and Director Hatano.
He placed a neatly printed cost analysis report gently before the two directors.
"Director Terai, Director Hatano."
Takuya's voice was even, without undue inflection.
"This is the latest estimated per-unit production cost for our new console: 26,000 yen."
Director Terai picked up the report, his gaze behind his glasses scanning it closely, brow furrowing almost imperceptibly. He adjusted his glasses, his fingertip lingering on the "26,000" figure.
Director Hatano leaned in, his expression equally grave. He didn't immediately take his copy but peered at Terai's, his face shifting through shades of concern.
"26,000 yen—" Terai set the report down, looking at Takuya. "Takuya, this number—cross-referencing the hardware list—is better than our worst-case scenario. But Nintendo's Famicom costs are likely far lower than we imagine, and they haven't dropped prices in four years. We must brace for a price war."
His tone held no blame, only the weight of market realities.
Hatano sighed, flipping through his report. "We see the technical breakthroughs—the hardware team's efforts are commendable. But this cost leaves our pricing strategy very passive. The market—especially parents and kids—is price-sensitive." He rubbed his temple.
Takuya nodded, unsurprised by their reactions. "I fully understand your concerns. This figure is a challenge we must confront head-on." He leaned forward slightly. "The hardware team has pushed optimizations within the current tech framework to their limits. But this report is just a snapshot—not the final word."
He paused, his tone steady yet weighted. "I've directed them to explore alternative components and supply chain efficiencies—without compromising core performance or stability."
Terai and Hatano exchanged glances, a flicker of surprise in their eyes. They'd braced for complaints about cost hurdles, not proactive follow-through.
The room's tension eased a touch.
As business veterans, they grasped what cost control meant for a mass-market home console.
26,000 yen implied a retail price high enough for profit margins.
Consoles profited mainly via royalties—even break-even sales at this level would erode competitiveness.
Loss-leader pricing? Takuya knew from history: endless console deficits bankrupted Sega when royalties couldn't cover. The board wouldn't stomach prolonged losses—perhaps initial near-cost pricing if costs dropped below retail soon.
Against Nintendo's entrenched, cheaper Famicom, this positioned them passively.
"This cost—"
Terai set the report down, knuckles rapping the desk dully.
"It'll pressure our marketing heavily."
"I understand," Takuya said.
"So, I'm here to discuss compressing it further."
He led with his first cost-reduction layer.
"For lower-tech, labor-intensive parts—like console casing injection molding, internal brackets, wiring, power adapters, even simple PCB assembly…"
"My proposal: expand outsourcing scope and depth to the electronics factories in Dongguan we've partnered with via our Hong Kong subsidiary."
Terai and Hatano's eyes sharpened.
Since the Hong Kong trip, outsourcing *Pokémon* electronic pet parts and arcade components to Hong Kong and Dongguan factories had paid off.
Costs dropped noticeably, efficiency held, and it freed focus for core R&D.
"Expanding outsourcing? In principle, we agree," Terai said thoughtfully.
"The *Poké Ball* and arcade parts collaborations worked well—their production capacity and cost control met expectations."
Hatano chimed in: "But Takuya-kun, peripheral components are a small slice."
"The real bulk is core parts—especially chips."
That was the crux.
Takuya drew a deep breath, his expression turning solemn.
"Precisely, Director. Our new console's central MC68000 CPU and Z80 sound processor…"
"Short-term, we're stuck with domestic Japanese suppliers."
He unfolded another document, listing potential chip vendors and their tech profiles.
"I've studied this thoroughly: at 1987's tech level and landscape, neither Hong Kong nor Taiwan has fabs licensed for mature CPUs like the Z80 with stable mass production."
"Huake Electronics has a 4-inch wafer line; their 3-5 micron process could theoretically handle Z80's 6-micron needs, with packaging and testing capabilities."
"But they lack CPU production experience—and crucially, no formal Zilog license. Even with government backing to climb yields at huge cost, without authorization, it's moot."
The directors nodded—they'd heard similar. Chip barriers and patents were insurmountable.
Takuya pivoted sharply, eyes gleaming with acuity.
"But this dead end might hide a turning point."
"You've both followed the recent international uproar—the Toshiba incident."
Terai and Hatano's focus intensified.
The U.S., citing Toshiba Machine's CoCom violation for exporting precision CNC tools to the USSR, hammered Toshiba Group and Japan's semiconductor sector with unprecedented pressure.
Tariffs, market access curbs, tech transfer scrutiny—a barrage leaving Japan reeling.
"On the surface, a crisis for Japan's semis," Takuya said, voice lowering with prescient edge.
"But for Sega? Perhaps an 'opportunity.'"
He paused, letting it sink in, then unveiled a bold strategic vision.
"I have a daring idea."
"Leveraging the current bind on Japan's chip firms from sanctions, plus the yen's relentless appreciation driving industry exodus…"
"Sega steps in—or via your affiliated companies—to actively encourage or directly invest in 'nudging' our chip suppliers, like Toshiba, to gradually shift mid-to-low-end chip capacity and tech licenses—like Z80 or less-sensitive logic ICs—to lower-labor, foundation-strong regions."
"Namely—Taiwan."
"Taiwan?"
Terai and Hatano's brows arched in unison, eyes wide with shock.
The leap was audacious.
"Yes, Taiwan," Takuya affirmed.
"Taiwan's government is ambitious about semis, rolling out incentives."
"We should watch a fledgling firm: 'Taiwan Semiconductor Manufacturing Company'—TSMC."
"Or pursue deep licensing with established players like 'United Microelectronics Corporation'—UMC."
"This not only secures Sega low-cost, stable chips long-term but diversifies our over-concentrated supply chain."
"From a broader view, we're cultivating a cost-advantaged chip ecosystem for ourselves."
Terai and Hatano sank into deep thought.
Takuya's pitch transcended mere procurement or foundry deals.
It verged on reshaping regional semi landscapes.
This "backdoor salvation"—or "industry incubation"—stirred shock and veiled thrill.
"Takuya-kun, you mean exploiting the U.S.-Japan trade frictions?"
Hatano asked, seizing the crux.
"Exactly," Takuya said firmly.
"U.S.-Japan frictions leave Japan relatively weaker. With America's style, this pressure—short-term or years—won't ease fundamentally."
"So, offloading non-core but high-volume, lower-tech chip capacity abroad for cheaper labor and flexible models is a path Japan's pressured semis must consider."
"This merits thorough investigation."
The directors shared a look, mutual agreement on the bold plan gleaming in their eyes.