It Takes Giants to Battle Japan in Chip Market
So now collaborative research efforts in microelectronic chip manufacturing and the possibility of $2 billion in support from the Defense Department are being proposed to save the U.S. semiconductor industry from extinction at the hands of Japanese competition.
No question that the intentions are good and the purpose important. U.S. hopes for continued technological leadership in world industry ride importantly on the electronic capabilities of American industry in the next five years.
But will the effort succeed? Will the Semiconductor Manufacturing Technology Consortium--in which chip makers such as Intel, Motorola, National Semiconductor and Texas Instruments, along with computer giant International Business Machines, pool money and resources in an attempt to come up with new ways to make memory circuits--save the semiconductor industry? A two-part answer: It may do some good for the industry we need to help, but it may not be enough to save the industry we know.
High Cost of Rapid Change
What that means is that it is getting so expensive to keep up with the rapid changes in semiconductor technology that only the bigger companies can afford it. A company has to invest almost $200 million to open up a line for a new semiconductor product today, and the technology is moving so fast that the latest innovation is obsolete in 12 to 18 months. That is why instead of small entrepreneurial companies announcing the latest advance in chip technology, we now have IBM pushing out the frontiers with a memory chip that holds 4 million bits of information.
Big computer makers such as IBM, and telecommunications giants such as American Telephone & Telegraph, can afford the investments such technological leadership requires. But even they have no desire to foot the bill on their own for keeping a strong U.S. electronics capability alive. And so they support the idea of multi-company ventures that will search for new ways to manufacture the all-important electrical circuits.
Such ventures are not looking merely to make the electrical circuitry a little denser--5 million bits, say, as opposed to 4 million. They will be looking at techniques such as X-ray lithography, which is the way electrical circuits will be implanted on wafers of silicon or other materials in the future.
What is happening is that the big computer and telecommunications companies, the end users of semiconductors, are fearful that their U.S. suppliers will fall behind in international competition and their own companies will be next in line.
Currently a Tie
Why should they be so fearful about electronic circuits etched on silicon wafers that sell for a couple of bucks apiece? Because the semiconductor assembly forms the essence of the product, the way the brain forms the human personality. The electronic circuitry defines the capabilities, and thus the efficiency and costs, of computers and communications equipment. Leadership in such products means the world flocks to your factories, as automotive engineers used to travel to Detroit--before they started going to Tokyo.
Right now, in the estimate of analyst James Barlage, of Smith Barney, Harris Upham & Co., the United States and Japan are tied, with 43% each of the $31 billion-plus world electronics market--leaving 14% for South Korea, Taiwan and the European companies. But they are tied because Japan has caught up.
Large Japanese companies such as NEC, Hitachi and Fujitsu, working from a protected home market, have mounted a fierce competitive drive that has brought them control in this decade of the important memory chip market and given them positions in all the other chip markets, including the most technologically advanced.
And now Japanese industry is moving on, trying to capture world markets in lithography and other equipment that makes the semiconductor chips. Those markets still are led by such U.S. companies as Perkin-Elmer Corp. of Norwalk, Conn., and Varian Associates of Palo Alto. But they are under pressure as Japan--led by its Ministry of International Trade and Industry--appears to be aiming straight for world industrial leadership.
The collaborative industry-government efforts being talked about are the beginnings of a U.S. response to that challenge.
It’s the end of an era too. The advent of billion-dollar expenditures to advance the technology and hold world markets, means that the much-admired bunch of small but vigorous electronics companies known collectively as Silicon Valley--Advanced Micro Devices, Intel, National Semiconductor and others--may soon become candidates for merger or acquisition by larger companies. They are too small, even at revenues of $600 million to more than $1 billion, to keep up. So their scientific capabilities will need the clout of big company capital budgets.
But their passing will be only a milestone, not the end of the road, if joint research efforts can help keep a strong U.S. electronics capability alive.
