Fairchild Plans Tie to Fujitsu Despite Collapse of Sale : Management of U.S. Firm Proposes Buyout, Then an Alliance With Japanese

One day after the collapse of Fujitsu’s proposed purchase of 80% of Fairchild Semiconductor, Fairchild officials said Tuesday that the two companies would pursue a partnership involving exchanges of technology and manufacturing.

Fairchild’s current management, led by Chief Executive Donald W. Brooks, has submitted a proposal to buy the Cupertino concern from its parent company, French-controlled Schlumberger Ltd. Details of the Fujitsu alliance and buyout proposal were scheduled to be released today.

On Tuesday, Fairchild spokeswoman Francine Plaza said: “We’re disappointed by the outcome” of the acquisition talks, “but we’re very pleased with the relationship that we’ve developed with Fujitsu, and we’re ready to move forward with Fujitsu.”

The companies, she said, have “reached a number of agreements” concerning technology development, manufacturing and licensing of existing products. The major difference in the new relationship being forged, she said, is that Fairchild will turn elsewhere for funding.

At Fujitsu’s Santa Clara office, Vice President Ken Katashiba said that the company was “in discussion” with Fairchild about future joint ventures.

Officials at Schlumberger’s New York headquarters said only that the Fairchild management buyout proposal was among various options being considered for the money-losing chip maker.

Though industry observers expressed serious doubts that the troubled company is a suitable target for leveraged buyout--in which the buyers of a company take on massive debt to finance the transaction--they believe that the new arrangement goes a long way toward quelling U.S. industry and government objections that scuttled the proposed acquisition by Fujitsu.

U.S. Defense and Commerce officials declined comment Tuesday.

Fairchild, an early pioneer in the semiconductor industry, is a major supplier of electronic components to the U.S. military. Its declining fortunes in recent years led Schlumberger, principally an oil services company, to Japan in search of the financial backing needed to restore Fairchild’s health.

But U.S. government officials fretted that Japanese ownership of Fairchild would mean increased reliance on foreign producers for sensitive, advanced technology, jeopardizing national security and inflaming already strained high-tech trade relations with Japan.

‘Political Controversy’

Industry executives, publicly mute about the proposed sale, privately were outraged by the possibility that one of the symbols of the U.S. semiconductor industry would fall under Japanese control.

The U.S. industry has accused Japanese companies, including Fujitsu, of using illegal trading practices to buy market share and sap U.S. companies’ strength--moves they contend put companies such as Fairchild in jeopardy.

Monday, Schlumberger announced that the increasing “political controversy” in the United States, stirred by such sentiments and voiced by high government officials, caused the termination of the deal with Fujitsu.

In Tokyo Tuesday, Japanese officials were critical of U.S. government officials’ involvement in the proposed acquisition.

‘Unreasonable Interventions’

Hajime Tamura, minister of international trade and industry, said: “It is strange for high-ranking government officials to stick their noses into a commercial deal.”

Tamura’s comments were directed at U.S. Commerce Secretary Malcolm Baldrige, especially, and Defense Secretary Casper W. Weinberger, who planned to put the matter up for a Cabinet-level discussion.

Osamu Watanabe, MITI’s American division director, called statements by Baldrige and Weinberger “unreasonable interventions . . . which obstructed the sale.”

The deal, he said, “should have been left to the parties concerned.”

Watanabe also suggested that the collapse of the Fujitsu-Fairchild agreement will discourage Japanese firms from attempting to make future investments in American chips companies.

“The fact that in the middle of discussions (between Schlumberger and Fujitsu) obstructionist comments that are hard to understand were made . . . by officials in the U.S. government . . . can hardly be encouraging to the flow of investment,” he said.

But in the United States, some semiconductor industry observers say that while the failure of the deal will chill outright ownership of U.S. chip concerns by Japanese companies, the Japanese electronics companies will continue to make investments in U.S. chip companies that secure for them access to American designs.

Michael Borrus, economist at the Berkeley Roundtable on the International Economy at UC-Berkeley, said the Fairchild incident may keep Japanese companies from trying to buy “highly visible” U.S. chip makers, but they will continue to invest in smaller, innovative companies that are less visible and thus less likely to raise the hackles of the U.S. industry and government.

Alliances Increasing

William McClean, an official with Integrated Circuit Engineering in Scottsdale, Ariz., a consulting firm that tracks foreign investment in the U.S. semiconductor industry, said that in the last couple of years, especially, many smaller American chip companies have turned to Japanese investors for seed funds; in exchange, the Japanese get the small start-up companies’ innovative designs.

About 10 of the 50 or so small chip companies in the United States already have such funding arrangements, and that number is expected to increase.

Ties between large U.S. chip makers and Japanese companies also have increased. For example, Motorola and Toshiba last November announced a preliminary agreement covering extensive exchanges of technologies and products, including establishment of a joint manufacturing venture.

“There’s not a single American semiconductor manufacturer that doesn’t already have arrangements with Japanese companies,” said Fairchild’s Plaza.

Donna K. H. Walters reported from Los Angeles and Sam Jameson reported from Tokyo.

Related story, Page 2