Maverick Chip Maker Shifts Stance : Micron Backs Protectionism After Launching Price War
In an industry rich with color and legend, a gang of computer-chip cowboys out this way has added to the mythology with its home-grown semiconductors and confrontational style.
It’s an inherently appealing tale of some Idaho-born mavericks, college dropouts and potato farmers who did it their way, by gum, confounding the venture capitalists who refused to lend them money and spurning the old-boy network that makes up the semiconductor Establishment.
The go-it-alone culture of Micron Technology even caught the attention of George Gilder, a neoconservative economist who built a book around the company. Gilder’s 1984 ode to entrepreneurs, “The Spirit of Enterprise,” said the Micron story “shows once again that the crucial capital of industry is not money or machinery, but mind and spirit, and that America--in these crucial domains of enterprise--remains number one.”
Lately, though, life has gotten complicated in the global marketplace, where mind and spirit can get tripped up by such mundane factors as overcapacity, exchange rates and trade policies.
Battered by the worldwide slump in semiconductors, losing money and forced to lay off 700 workers last spring, Micron responded in time-honored, low-tech, non-entrepreneurial fashion: It asked for government protection from Japan.
Suit Still Pending
Last week, its dumping charges against half a dozen Japanese producers of memory chips with 64,000 units of capacity were tentatively upheld by the Commerce Department. A victory will raise prices of the Japanese chips and, from Micron’s view, make life fair. Still pending is its $300-million antitrust lawsuit against the Japanese.
Even if Micron hadn’t been lionized as a paragon of free-market virtues, its legions of critics find Micron’s protectionist move against Japan’s pricing policies difficult to rationalize because it was Micron that unilaterally triggered the price war a year ago.
“Philosophy and everything else changes when you lay one person off,” says Joseph Parkinson, a founder of Micron who now endorses action to block any new semiconductor plants in Japan, among other things. “I know cowboys are supposed to ride the range alone, but this is not going to be whipped individually.”
Reflects author Gilder: “A lot of things in life don’t jibe.”
Micron has abounded with ironies from its unlikely beginnings in 1979, when twin brothers Ward and Joe Parkinson of Blackfoot, Ida., decided to make memory chips on the outskirts of Boise.
“They’re a different kind of crazy out there,” says a vice president at a major Silicon Valley chip company. “We’re talking about people who go out in the morning and plow.”
The Parkinsons weren’t exactly rubes: Ward had designed chips for Motorola and Mostek, and Joe was a well-traveled tax lawyer who had taught at New York University. They brought along a widely respected chip designer from Mostek named Douglas Pitman, a dropout from (where else?) Idaho State.
But their choice of a product, an inexpensive commodity chip known as a DRAM that the Japanese were beginning to make with a vengeance, got them laughed out of venture capitalists’ offices.
They also had to put up with investors’ inevitable doubts and jokes about Boise, said Leslie A. Gill, Micron’s treasurer and vice president of finance. Examples: “Potato chips or computer chips?” “Do you have to close the factory during the harvest?” “There was a real credibility problem,” she said.
So they turned to such local investors as machine shop owner Ron Yanke, sheep rancher Tom Nicholson and one of the nation’s wealthiest men, Idaho potato king J. R. Simplot. After getting into the business for a measly $20 million--the skeptics said it would cost $100 million or up for anyone dumb enough to get into the fray with the Japanese giants--the company did some innovative things with its first memory chip in 1981 and sold a lot of them to personal-computer companies such as Apple and Commodore.
Wouldn’t Join Trade Group
In 1983, while the Japanese were establishing dominance in the U.S. market for DRAM chips and U.S. firms were rushing offshore to make their chips at lower costs, Micron brought all its production home to Boise. And with a Johnny-come-lately brashness that still rankles many in the business, the boys from Boise accused their U.S. competitors of exporting American jobs and shrinking from the Japanese challenge.
For good measure, Micron refused to join the Semiconductor Industry Assn., the trade group based in San Jose, many of whose members have forsaken the market for commodity chips. “It was very clear to me that they had a different agenda,” says Joe Parkinson. “Their strategy was, whatever the Japanese get into, let’s get out. The people who are dominant in the SIA are not taking the Japanese on. In my opinion, it’s a self-defeating strategy.”
Although it has remained a small player in the business, getting a peak of about 5% of the DRAM market in 1984, Micron prospered along with the personal-computer firms that bought most of its chips. In 1984, a boom year for the industry, Micron’s revenue surged more than sixfold from the previous year to $87 million, and the firm recorded its first full year in the black with profits of $29 million.
The company went public in midyear and was one of 1984’s top-performing new issues, with the stock hitting $40 a share by year-end.
About that time, Micron further enraged its competition with a controversial move that began a precipitous yearlong slide in prices: It announced that it was slashing prices on the 64,000-character DRAM--also called a 64K chip--from about $3 to about $1.90 apiece. From there, prices continued to plummet, bottoming out at about 35 cents last summer.
Micron argues that the prices were too high anyway and that it was rushing to act before an anticipated price decline in the Japanese home market, preparatory to Japan cutting prices here. But it was no way to make friends, and Micron’s pricing action is part of the Japanese defense in the dumping case.
“Everyone was cruising along at $3 until they started the price war. Then they turn around and sue Japan on prices,” said a scornful Jack Beedle, president of In-Stat, a semiconductor market research firm in Scottsdale, Ariz.
Others in the industry like to belittle Micron’s products and manufacturing expertise, which are its chief claims to fame, and to cast doubt on the company’s survival prospects as a one-product company. An American executive for a Japanese chip company said, “They don’t have any technological edge. We’re a lot more worried about the Koreans.”
Added Beedle: “Any company that only manufactures one kind of part, when that part is also manufactured by the Japanese, is going to have serious problems.”
Some Analysts Bullish
As the slump deepened, the skepticism about Micron began to look justified. Micron lost about $19 million in the final half of its 1985 fiscal year, which ended Aug. 28. Its first-quarter results are due out this week, and little improvement is expected. But the slump in demand and prices has apparently bottomed out, and some analysts are bullish about Micron’s outlook for the next year.
As a survivor, at least so far, of the semiconductor industry shakeout, Parkinson said the company is picking up business that it didn’t have before. He referred to computer firms that used to buy memory chips from such firms as Motorola, Intel and National Semiconductor, all of which quit the DRAM market this year when prices fell too far. The only U.S. firms still in the market are Micron and Texas Instruments, which makes them in Japan.
Said Parkinson: “Sales guys at places like Motorola are sending customers to us. Some of them consider it a patriotic thing. For the first time, our product is being ordered for mainframe use,” referring to large computers that use thousands of memory chips. “This is the advantage to surviving.”
Semiconductor analyst Michael Gumport, based in New York for Dean Witter, said:
“It’s still basically a one-product company. An engineer slips on a banana peel and that’s it. But we’ve turned less negative on the stock. Chip prices are going up, and this dumping decision was as favorable as it could be. It’s a high-risk situation, but they have a chance of annualized earnings . . . of $2 a share” within another 18 months.
One optimist is 76-year-old Simplot, who has sunk a reported $20 million in Micron and owns about one-third of the stock. Simplot’s potato and cattle empire makes him worth $550 million, according to Forbes magazine. He sells french fries to McDonald’s and Burger King. The license plate on Simplot’s car says “Mr. Spud.”
And as a potato man who came late in life to high technology, he doesn’t flinch at the notion of government retaliation against Japan. “They’ve got a big tariff on potatoes. You can’t ship anything in there,” Simplot barked. “We’re paying through the nose on potatoes. We can out-tech ‘em and we can out-produce ‘em. We’ll beat the hell out of ‘em. But they’re giving those chips away. You ask why we go to the government? Cuz the law says they can’t do that.”
