Lack of Capital Takes U.S. Out of Competition
“For want of a nail,” wrote Benjamin Franklin, “the shoe was lost.” From a decision by a medium-sized company in an obscure but crucial business, we can draw a lesson and a warning.
Perkin-Elmer Corp., a 50-year-old company in Norwalk, Conn., that gets about $200 million of its $1.2 billion in annual revenue from lithographic equipment for making semiconductors, announced Friday that it was going to sell that business and use the proceeds to repurchase shares or pay extra dividends.
The decision was seen by knowledgeable people as terrible news--a possible body blow to U.S. prospects in electronics and computers and evidence that the U.S. financial system is not suited to development of the industries and jobs of tomorrow.
“This is what happens when you don’t have the savings to provide capital for industry,” said Robert N. Noyce, founder of Intel Corp. and now chairman of Sematech, the government-industry consortium trying to help U.S. companies develop advanced semiconductor equipment.
A Worldwide Leader
“Perkin-Elmer’s decision is one of the most serious blows to the interests of the U.S. electronics and computer industries,” said Jerry Hutcheson of VLSI Research in San Jose. “It shows that our financial system is not conducive to financing long-term technological development.”
Are such comments overdone? Not really. Perkin-Elmer is a technological leader in a worldwide, $8-billion industry that is key to much larger industries. Its equipment makes integrated circuits, which in turn govern everything from computers to car engines.
U.S. companies dominated the equipment field 10 years ago, but now Japanese companies are in the lead. And the industry is so critical that the U.S. government is spending $500 million, matched by $500 million from industry, to finance Sematech’s effort to keep U.S. companies in the race.
But Sematech can succeed only if there is a vibrant industry. And in that respect, Perkin-Elmer was one of the great hopes. Its electron beam and template-making equipment is the world standard and its new $4-million machine, called Micrascan, is ahead of the field.
No slouch in research, Perkin-Elmer had invested $100 million to develop Micrascan, a lithography machine that is getting a good reception from customers.
Little Return Expected
Yet Perkin-Elmer, which got into the equipment field 15 years ago when U.S. companies were creating the modern microelectronics industry, is weary. It saw the game grow riskier as American semiconductor makers dropped out under the assault of Japanese competition.
“The only return we could see on that $100 million Micrascan investment was break even at best,” says Perkin-Elmer President Gaynor Kelley, “and if we went on to the next generation in equipment (superpowered X-rays), the research expense would take away from other business (analytical instruments for the chemical industry) where we see a higher return.”
Kelley, 57, a mechanical engineer who has been with the company 37 years, blames the semiconductor equipment business for Perkin-Elmer’s lagging profits and stock price, which drew complaints from Wall Street’s institutional investors. “You can only expect an investor to be patient for so long,” he says.
Perhaps. Japanese companies face the same research costs--but not the same investor pressures. Their secret is that small companies are supported by large ones.
Nikon, where semiconductor equipment sales now exceed camera sales, is a member of the Mitsubishi Group, an agglomeration of 42 companies that may be the world’s largest business organization. Advantest, another equipment leader, is 21% owned by Fujitsu. The focus is on winning markets. “In memory chips, the Japanese companies lost $4 billion,” says Noyce. “The U.S. industry blew $2 billion and quit the field.”
Clearly, U.S. companies need protectors, too, but who would buy Perkin-Elmer’s operation? “The Japanese would love to buy it,” says Hutcheson of VLSI “but that would be disastrous for U.S. industry.”
He mentions Applied Materials, a U.S. equipment maker, or Motorola, which is resuming memory chip production, as possible American buyers. The deal makes sense economically, Hutcheson says, because a lot of semiconductor plants are being built worldwide, which means big demands for equipment.
The catch is that an American buyer would have to be able to sell in Japan. And, says Noyce, “Japan doesn’t buy unless their companies absolutely don’t make it themselves.
“But that’s not the heart of the problem,” he adds. Not buying U.S. goods, “that’s their fault,” says Noyce. But low personal savings and government deficits that make capital scarce and costly to U.S. industry, “that’s our fault,” he says.
“I wouldn’t blame Wall Street; it’s only the go-between, channeling funds around a society that gives tax breaks to vacation homes but not to investment in industry,” says Noyce, recalling and repeating the classic line from the comic strip Pogo: “We have met the enemy and he is us.”
