Rockwell Executive Helping Chip Makers Take on Japan

For the past year, Gilbert F. Amelio has logged a lot of flight time in the small Piper aircraft he owns and pilots.

Amelio, 44, has been pulling double duty as president of Rockwell International’s Semiconductor Products Division, a Newport Beach-based operation with 1,900 employees. He has also been a key organizer in a national industry-government consortium called Sematech. The consortium was formed to help U.S. computer chip companies develop manufacturing techniques that will help them fight back against formidable Japanese competition.

Amelio, who headed Sematech’s site selection criteria committee and is chairman of its budget committee, often flies his plane between Orange County and San Jose, where Sematech’s organizing committee is located. When time permits, he likes to fly to Lake Tahoe to get in some skiing.

Sematech, which some experts believe will be a model for other American industries battered by imports, has chosen Austin, Tex., as the site of its research center. Rockwell is one of 14 member companies in Sematech.

Semiconductors, or computer chips, are the heart of all kinds of electronic gear, from talking teddy bears to super-fast military computers.

Under Amelio’s leadership the past five years, Rockwell’s semiconductor group has emerged as one of the bright spots among American companies competing against Japan. A large exporter to Japan, it has achieved success in the Japanese market by focusing on a specialized market: modems for facsimile, or FAX, machines.

Modems are small devices that allow computers to talk to each other over telephone lines.

The division also makes modems and computer chips for personal computers and manufactures digital communications products.

Last week, Rockwell promoted Amelio to president of its Texas-based telecommunications unit. He will continue to head the Newport Beach division and hasn’t decided yet whether he will relocate to Texas. Amelio, who has four grown children, now lives in Newport Beach.

In a recent interview in his Newport Beach office, Amelio talked with Times staff writer David Olmos about Rockwell’s semiconductor business and the Sematech project. Q: What’s happening in the FAX market now and how is that affecting Rockwell’s business?

A: It’s been a very rapidly growing business for us. The whole notion of people wanting to communicate with one another through personal computers or facsimile is just exploding right now. The worldwide FAX market probably grew 40% to 50% last year. FAX machines have always been popular in Japan, but only recently become very popular in the United States and Europe.

Q: What kind of growth do you see in the FAX market during the next five years?

A: We think it’s going to slow somewhat. It will probably drop to about 30% growth in 1988 and then gradually tail off to 20% and then 10% as the big surge of use in the United States and Europe slows.

Q: How is the market growth affecting employment in Newport Beach?

A: This plant has grown about 50% in the last 3 1/2 years. We have about 1,500 employees here, up from about 1,000 people in 1984.

Q: Do you anticipate more growth in Newport Beach?

A: Yes, we’ll be growing. But most of our growth probably will be at some of our other plants. We’re willing to have some more growth here, maybe another 200 to 300 positions. Any more than that and we’d rather grow at some of the other locations. One reason for that is you don’t want to concentrate all your assets in one location. In addition, Orange County is getting more and more crowded. And perhaps most importantly, some of the skills we need out in the field as opposed to just here at headquarters.

Q: What percentage of Rockwell Semiconductor’s business is from exports?

A: In 1987, 53% of everything we made was exported outside of North America. We’re one of the larger electronics exporters to Japan. This is one of our real success stories.

Q: Is that because Japanese companies manufacture a lot of FAX machines?

A: Yes. But they have the capability to make a lot of their own FAX boards, just like they make a lot of their own semiconductors. We have managed to keep the product new enough and fresh enough and changing fast enough where they’ve never quite caught up with us.

Q: What in your opinion are some of the other keys to your success in the Japanese market?

A: We have a good niche product and we service the heck out of it. I think we also work very hard at trying to build a working relationship with our Japanese customers. They have a lot of customs that we, as American businessmen, get uncomfortable with. But you have to accept them. For example, they place a lot more importance on verbal communication. It would be considered very ordinary for them to say: ‘We need 10,000 more modems next month and don’t worry about the paper work. We’ll cover it later.’

Here in the United States, we’d be very nervous about committing that much new production without a piece of paper backing it up. But that’s the way they do business there. So, if they tell us that and we have a relationship with them, we’re going to do it, because that’s their custom and culture. You’ve got to get close to these people.

Another factor is we’ve been very successful at driving our product cost down. And they are very cost-competitive over there.

Q: How have you reduced costs?

A: By being very aggressive with manufacturing efficiencies. And, I think, just smart business negotiating. Another thing--and I don’t want to make it sound like it’s the least importance--is product quality. Our Japanese customers have told the news media that we have the best quality of any of their suppliers, including Japanese competitors.

Q: Can you be more specific about what you think you do differently from others to improve the quality of your products?

A: I don’t know whether it’s so much different from other people, but I think we execute it better. The idea is simple; doing it is hard. Everyone is responsible for quality. Everyone who works in this division also wears a quality arm band. One of the things I did was to reduce the size of our quality control organization over the last few years because I did not want people to get the notion there was a quality organization that was going to build in quality. A worker can stop our production line if the quality isn’t good by just raising his hand. And the managers back them up on that because the first time you ship something that’s bad quality, you’ve lost the war. At first, that’s very painful. After a while, it’s very rewarding.

Q: What kind of defect rate do you have for your products?

A: We measure ourselves by our return rate. If a customer sends a product back to us, that’s what we measure. In a recent month, one of our largest customers who reports quality to us every month--and I would say this is fairly typical--reported only three failures in 10,000 modems we shipped. For a fairly sophisticated product, that’s remarkably good.

Q: Does Japan place any tariffs on your exports?

A: The tariff in Japan is about 4%. In the past, it used to be four or five times that much. In some countries, it’s still a lot more than that, but in Japan it’s relatively small.

Q: How would you describe the objective of Sematech?

A: The purpose of Sematech, plain and simple, is to get (semiconductor companies) together to improve our manufacturing technology. It’s to make us more competitive and to give the United States a critical resource for defense and commercial competitiveness. The semiconductor industry, a $25-billion to $30-billion-a-year business, is somewhat small compared with the oil or auto industries. But that’s chicken feed compared to the business it supports--the total worldwide electronics industry. The entire electronics industry is fueled by semiconductor technology, and its fortunes are going to depend on semiconductors. It’s incumbent upon us to make sure that we’ve got strong semiconductor technology in this country for that industry.

I can make the same remarks about defense. More and more of our defense systems depend on very sophisticated electronics gear. Our edge over the Soviets and other would-be competitors in defense is related to our sophisticated electronics. In that context, the mission of Sematech is pretty important. What we would like to do is to make semiconductor manufacturing process technology a commodity. We’d like to make sure our technology is of high quality and is readily available to all member companies. (Sematech will develop advanced manufacturing technology but won’t actually produce chips for commercial purposes. It will be up to the member companies to apply the technology to commercial chip production.) This way, as we compete with one another and as we compete with other people around the globe, the U.S. chip companies are all operating on the same plane of excellence in manufacturing. So, our mission is to raise the high watermark on our manufacturing excellence to a plane that’s truly globally competitive.

Q: Meanwhile, the Japanese semiconductor companies are not standing still?

A: Absolutely not. They’re moving very quickly, investing heavily and doing all the right things. No question about it.

Q: What does Rockwell hope to gain by being a part of Sematech?

A: Well, I think a lot. First of all, we have a reasonably substantial semiconductor operation here that supports not only our commercial businesses but also our defense and military businesses. It’s pretty important that we have access to advanced technology in order to do that. Second, it’s just good sound business sense. For the price of membership, you can have almost unlimited access to a $250-million-a-year research effort. We figure our pay-back is going to be quite substantial.

Q: How well have the Sematech companies cooperated together? Aren’t many of these companies fierce rivals?

A: I guess the surprising thing was how you could get together a room full of ferociously competitive businessmen and have them agree to work together for a common cause. It’s incredible. We had people from Intel, IBM, National Semiconductor, Digital Equipment, Hewlett-Packard and Rockwell together in the same room. The spirit of cooperation was remarkable. We knew that, together, we ultimately could be more competitive than we could individually.

Q: What will be the measure of Sematech’s success, and do you personally believe it will achieve its goals?

A: I’m absolutely confident it’s going to be successful. It’s going to require some patience to get there. I think it’s going to be five years before you’re really going to see the payoff. It took us a decade to get in trouble, and we’re not going to fix it overnight. The task is enormous. If you think putting a man on the moon was tough, we’re talking about some technology that is just scary in terms of its sophistication. I think the ultimate measure of success will be a manufacturing technology transferred to the member companies that allows them to be fully competitive with anyone in the world. I think you’re seeing the dawning of a new way of American business competing on a global basis. We’re recognizing that what really matters is not how effectively we compete with each other, but how effectively we compete in the global arena. I think, ultimately, you’re going to see others following our model.