JOING HANDS IN THE SEMICONDUCTOR RACE : Joint Venture in Memory Chips Proposed by 7 U.S. Companies

In a move that dwarfs previous efforts to beat back the Japanese challenge in technology, seven leading U.S. electronics firms Wednesday unveiled plans for a $1-billion venture aimed at restoring a strong American presence in the critical area of computer memory chip production.

The proposed company, U.S. Memories Inc., would be jointly owned by American computer and semiconductor companies while operating as an independent commercial entity. It is currently described as “a corporation in formation,” and a final decision whether to go ahead depends on gaining antitrust clearance from the government and attracting additional investors. Semiconductor industry executives expressed confidence that those requirements will be met, however.

Although many of the nation’s major electronics companies already are working together on research to advance America’s technology and competitive position, U.S. Memories would be the first major manufacturing or commercial venture of its kind.

Sanford L. Kane, a 27-year veteran of International Business Machines, was named president and chief executive of U.S. Memories. Wilfred J. Corrigan, chairman and chief executive of LSI Logic, is to be its chairman.

The preliminary business plan is for the new company to manufacture so-called DRAMs, or dynamic random-access memories, using a highly advanced design licensed from IBM. Production would take place at a new U.S. facility in a location yet to be determined.

Kane said building a plant and establishing high-volume DRAM production would require about $1 billion. He emphasized that U.S. Memories is intended to be a “significant participant” in the global market and a profit-making company.

The seven companies that announced their participation Wednesday--IBM, Digital Equipment, Hewlett-Packard, Intel, Advanced Micro Devices, National Semiconductor and LSI Logic--have put up seed money for U.S. Memories and have agreed to take substantial equity stakes in the company, provided that additional investors are found. Kane said he expected that the seven firms ultimately will own less than half of U.S. Memories, with the balance held by as many as 20 other U.S. electronics firms.

Plans call for shareholders to be in place by year-end and for plant construction to begin next year. Commercial chip production would begin in the first half of 1991.

U.S. Memories would employ at least 2,000 people, according to industry analysts, although Kane would not speculate on the number of jobs. He did say, however, that he was determined to avoid a politicized site-selection process such as the one which took place for the Sematech semiconductor consortium.

Unlike the Austin, Tex.-based Sematech, a nonprofit consortium working on the development of semiconductor manufacturing technology, U.S. Memories will not seek government funds. Kane and other officials emphasized that other types of government support will be crucial, however.

In particular, U.S. Memories will have to be approved by the antitrust division of the Department of Justice, since the member companies are each other’s customers and competitors. Kane said no formal opinion had yet been sought, but added that lawyers hired by U.S. Memories had indicated that anti-trust clearance should be forthcoming.

While the government has approved waivers for some 100 high-technology consortiums, those projects have been purely research and development efforts, not commercial or manufacturing enterprises along the lines of U.S. Memories.

Comment From Antitrust

Charles S. Stark, head of the antitrust division’s foreign commerce section, noted that the anti-trust laws contain nothing to suggest that manufacturing is more objectionable than research, from an antitrust standpoint. “There’s no specific bar to manufacturing,” he said.

Neither he nor other Justice Department officials would comment on specifics of the group’s proposals.

Some other observers, including analysts, industry officials and antitrust lawyers, noted that the project has the strong backing of the Defense Department, which desperately wants to ensure that domestic suppliers can satisfy the massive military appetite for chips.

There is considerable sentiment in Congress for joint efforts to catch up with Japanese advances in this technology, observers noted. Several pending bills would broaden the antitrust exemptions for such projects to allow manufacturing, they said.

U.S. Memories is also counting on continued government help on the trade front. “Maintaining strong support in Washington and enhancing the anti-dumping measures will be vital,” Kane said.

Patriotic Promotion

The company’s red, white and blue logo and its name indicate the extent to which the venture is being promoted as a patriotic effort.

Trade in semiconductor memory devices is governed by a trade agreement signed by the United States and Japan in 1986. That pact resulted in a dramatic increase in the price of Japanese memory chips, but failed to produce one desired result: a massive re-entry of U.S. companies into the memory chip market. Currently, among U.S. companies, only Texas Instruments, Motorola and tiny Micron Technology are players in the memory chip market.

At their news conference, officials said the project had the support of all the domestic manufacturers of the DRAM memory chips, who stand to become competitors in the formidable new enterprise.

In an interview, however, a spokesman for Micron Technology stopped short of a wholesale endorsement of the project. “It certainly shows the need for more domestic supply,” said Kipp Bedard, noting also that the project’s biggest backers include some of his company’s best customers.

Efforts to reach officials of Japanese DRAM makers were unsuccessful.

Importance of DRAMs

DRAMs, while not the most complex of semiconductor products, are considered vital because the production techniques used to make them on a mass scale are also used for more sophisticated products, such as microprocessors. A shortage of DRAMs earlier this year also intensified concern about the U.S. computer industry’s dependence on Japanese suppliers.

“Domestic DRAM production is crucial to U.S. defense and economic interests, and is essential to advanced products” such as high-definition television, said Gordon Moore, chairman of both Intel Corp. and the Semiconductor Industry Assn. The industry trade group has been a crucial forum in the development of the consensus that a collective re-entry into the DRAM business was necessary and possible.

The plan for U.S. Memories emerged from the same process that gave rise to Sematech, Kane and others said. Noyce said he expected U.S. Memories to become a full member of Sematech and to benefit from the research consortium’s production advances.

The technology licensing deal with IBM, which must be completed before U.S. Memories can move forward, is crucial to the viability of the plan. “By licensing IBM’s advanced memory design, U.S. Memories will have the jump-start it needs to quickly come on line as a serious player,” Moore said.

The IBM design is for 4-megabit DRAMs, each of which can hold 4 million bits of information. The chips are expected to be put on the market by Japanese firms such as Toshiba and NEC sometime next year, and IBM is already producing them for internal use.

Kane indicated that U.S. Memories would remain dependent on IBM for the next generation of DRAMs, which will hold 16 million bits of information, but he would not speculate on the source of U.S. Memories’ technology after that. It appears, however, that the company ultimately will develop its own technology.

Jonathan Weber reported from Santa Clara and Paul Richter reported from New York.