VIEWPOINTS : TAKING A GAMBLE ON U.S. MEMORIES : Experts say a $1-billion joint venture by U.S. firms may not cure all the competitive ills facing the nation’s computer chip makers, but it’s a start.
I n a move to improve the nation’s competitive position in the worldwide electronics industry, seven leading American technology companies unveiled a proposal June 21 to form a $1-billion joint venture to manufacture computer memory chips. While experts laud the goal of reviving the nation’s memory chip industry, the venture’s chances of success are unclear. Times researcher Melanie Pickett asked various experts whether the proposed company, U.S. Memories Inc., is the best way to rebuild the U.S. memory chip industry. Excerpts of their comments follow.
Bobby R. Inman, head of an electronics concern, former chief executive of the Microelectronics and Computer Technology Corp. consortium and a past deputy director of the Central Intelligence Agency:
“I’m waiting to see on U.S. Memories. If this is entirely privately funded by the companies, I applaud it. The reality is that the Japanese companies that are so successful are all combines. They’ve got banks, they’ve got enormous capital support. This is a pretty hard business to try and get back in. IBM is not a merchant manufacturer. To draw them into it and to be able to use their technical expertise and to use the marketing expertise of the other firms, I see as a plus.
“(In setting up a consortium), the key is the clarity of their purpose and how the technology will be shared and how the profits will be shared. And if it’s got those worked out clearly, then there should be no problem. The complexity comes in a consortium when all of the partners do not have the same interest, when they’ve got a different set of interests. MCC (Microelectronics and Computer Technology Corp.) was a particularly complex structure because you had computer firms and semiconductor manufacturers, and you had four different funding streams and all the members were not in all the programs. It’s when . . . the rules aren’t clear on how will the technology get used and how will they profit from it that you run into some interesting complications.”
Charles H. Ferguson, a political scientist at the Center for Technology Policy at MIT:
“Given the very disturbing absence of a coherent, long-term technology policy on the part of the U.S. government and given the equally disturbing absence of governmental efforts to increase savings, reduce the twin deficits and reduce the cost of capital to American industry, I think that U.S. Memories is the most effective response available to U.S. industry at this time.
“The venture, although supported by very good people and very good compa
nies, must unavoidably contend with and work within the general U.S. technological and competitive environment. And that environment includes several extremely disturbing conditions.
“First, there’s the extremely high cost of capital in the United States relative to Japan. Second, there’s the fact that the Japanese electronics industry is exercising increasing and already
substantial market power over (memory chip) markets and there is the extremely disturbing and very real prospect of its exercising market power in semiconductor capital equipment markets. And U.S. Memories, although it has IBM’s technology behind it, must still purchase capital equipment. We may, by the early 1990s, be in the position of finding there are very few, if any, American suppliers remaining in critical portions of the semiconductor capital equipment infrastructure.
“I think it is unspeakably scandalous that U.S. Memories is having any difficulty raising $1 billion when this critical industry is on the verge of being lost in the United States and when President Bush seems to be able to throw $100 billion down the drain for the savings and loan industry.”
Gordon Moore, chairman of Intel and of the Semiconductor Industry Assn.:
“It’s the best way we’ve come up with yet. It turns out that none of the companies in the semiconductor business that haven’t already committed (to the joint venture) seem willing to step up to do this themselves because of the very large investment required and the high risk associated with it. So, collectively--with the users--we thought that we could solve this problem, which really is something of concern to the entire U.S. electronics industry rather than to a particular company.”
Richard B. Edelman, professor of finance at American University:
“The days when entrepreneurs could go out and invent things by themselves in a garage are gone. It requires the same sort of intense investment in research and development facilities, in many ways, that the utilities require. The kind of antitrust laws that prevented this kind of organization in the past--when the United States was pretty much the world economy in many industries--that environment is no longer here.
“We’re competing in a global market where these kinds of big organizations, especially in Japan where resources are pooled, are the realities of life. And if we don’t do it, then it’s certainly very logical to conclude that, down the road, we may certainly lose our inventiveness, our competitiveness, simply because we don’t have the kind of structure in place to funnel the resources into one effort to produce chips that will keep us in a competitive position.”
Yukuo Takenaka, president of the Takenaka & Co. investment banking firm in Los Angeles:
“Most Japanese . . . would like to see a very strong, competitive U.S. industry so they don’t get criticized for their excellence. . . . I don’t know how successful this joint project will be . . . but it’s got to be better than doing nothing. In reality, all these consortia--if they have the proper licensing and proper loyality--may work. The reason Japanese companies excel is because the competition in Japan is so keen--they are always forced to improve, they are always forced to cut cost. Not because of world competition so much, but because of competition within Japanese industry . . . (The Japanese) know how to be patient, including their shareholders. They look at things on a long-term basis. . . . American companies have to do that, too.”
Jeffrey Hart, a visiting scholar at the Berkeley Roundtable on the International Economy at University of California, Berkeley:
“What this does is provide an alternative to re-entry by single firms (into the memory chip market). There are still some problems, and it can still fall apart. The key vulnerability now is they have to raise $500 million in equity capital and $500 million in loan capital to get the thing off the ground, and that could be a problem. (One of the advantages) is there is no government money involved. That means there are no government restrictions and fewer political requirements to get the thing going.
“There’s no way this deal could be anti-competitive, in the sense that what you are really doing is adding competitors to an already fairly competitive market. Clearly, some firms which, in the short term, have an interest in not having new competitors have actually supported U.S. Memories for broader reasons. There is a real problem out there which this addresses, which is that you don’t want to get in a situation where your electronics and computer industries are dependent on foreign firms too much for key components.”
Claude Barfield, director of science and technology policy studies at the American Enterprise Institute:
“One of the problems that all joint ventures, whether for production or research or development, face is the differing motives of companies when they go into it. And if they remain consonant--that is, if they remain more or less equal--and if they send their best people and best technologies, then I’d say they stand a reasonable chance.
“The advantage (of a venture such as U.S. Memories) is that you are pooling your research and resources; the cost of a new plant or plants is quite large. . . . The negative is that there is always a danger that you get a kind of cartel situation where you begin to set prices and production in a manner that does not help consumers of the products. In this case, it probably would not be individual consumers but other companies. The other potential downside would be . . . if you begin to tilt in the direction of substantial government support, then what do you do with the Motorolas and the Texas Instruments? That basically represents a kind of unfair competition for them.”
