U.S. Memories Folds Up, Cites Lack of Interest : Technology: The chip-making cooperative had hoped to take on the Japanese. But investors stayed away.
U.S. Memories, an ambitious venture to wrest control of the vital computer memory chip market from the Japanese, officially folded on Monday, a victim of lackluster support from the American electronics industry it was designed to aid.
The venture, unveiled seven months ago amid much hoopla and backing from a veritable Who’s Who of American high-technology companies, pulled the plug on itself after failing to win support from investors and potential customers for its state-of-the-art memory chips.
The failure, which had become increasingly apparent in recent months, came despite last-minute efforts by key organizers to scale back the original $1-billion business plan by nearly two-thirds in order to generate wider support from computer makers.
But, in the final analysis, organizers said, U.S. Memories fell victim to a growing surplus and declining prices for memory chips.
“No one was willing to make a commitment for the future,” shrugged a clearly frustrated and disappointed Sanford Kane, the cooperative’s president who had tried to pull the chip-making cooperative together over the last seven months. “The problem is that U.S. companies think tactically, not strategically.”
The failure of the venture raised questions as to how the U.S. electronics industry would counter growing Japanese superiority in semiconductors and cope with a possible shortage of chips in a few years. However, critics of the venture said its demise was well justified because efforts to fight the Japanese are best carried out by individual companies, not cooperative ventures.
The plan for U.S. Memories called for the new company to begin churning out dynamic random access memory (DRAM) chips by the end of next year, at a plant that would have been built later this year. Most computers use DRAMs for memory.
The venture’s ultimate goal was to supply as much as 40% of the DRAM requirements of U.S. computer makers by the mid-1990s, a level that Kane said would have significantly reduced the reliance of U.S. companies on their current Japanese suppliers and made a noticeable impact on the current supply imbalance.
In fact, some industry leaders blamed the Japanese for helping to undercut the venture. Although no firm evidence of sabotage--the “smoking gun” in one official’s parlance--has been offered, leaders said Japanese chip makers went out of their way to demonstrate the continuing and growing surplus of memory chips. Some companies prominently cut prices.
“There was no smoking gun, because they’re more subtle than that. But the Japanese absolutely put pressure on their U.S. customers not to join by announcing DRAM price cuts, oversupply conditions and plant expansions for the future,” said Wilfred Corrigan, chairman of LSI Logic and of U.S. Memories.
But after seven months of crisscrossing the country trying to drum up support for the plan, Kane was unable to sign a single new investor beyond the original seven backers that included International Business Machines, Digital Equipment, Intel and Hewlett-Packard.
Noting the proposal’s huge initial price tag, detractors claimed the money could be better spent expanding existing sources of DRAMs. Others argued that the collective nature of the venture would threaten the life of smaller chip companies that have traditionally been the source of much of the U.S. semiconductor industry’s innovation in recent years.
Among the companies that declined to join the cooperative were Unisys, Apple Computer and Sun Microsystems. Scott McNealy, Sun’s chairman, likened the venture to “pouring water on a desert in the hopes of regenerating a forest,” and argued that the money would be better used to bolster existing semiconductor companies.
But chip industry officials labeled such comments “shortsighted” and predicted that the folly of those views would become apparent within two years, when supplies of memory chips are predicted to become as scarce and as expensive as they were just 18 months ago.
But despite the failure of the U.S. Memories initiative, industry leaders said efforts to bolster U.S. production of memory chips--which has fallen in the last decade from 60% of the worldwide market to less than 20%--would not be abandoned.
Still, the leaders said they had no idea what form a new effort would take, or when it would come.
“Maybe we need another crisis,” said J. Richard Iverson, president and chief executive of the American Electronics Assn. “We seem to respond best to a crisis. We can’t seem to respond when prices are falling and supplies are plentiful.”
U.S. Memories Chairman Corrigan said the effort’s demise demonstrates the unwillingness of U.S. businesses to band together to make full use of their collective clout in the market. The Japanese, who produce nearly 80% of the world’s supply of memory chips, have no such reluctance, Corrigan said.
Kane said the effort’s failure also underscores the “go-it-alone” mentality of U.S. business leaders. Likening U.S. corporate titans to “all star” athletes, Kane observed that all but the worst athletic teams can beat a collection of “superstars who can’t work together.”
But critics of the plan said its demise was well justified. “It died because it was a lousy investment, a sucker’s deal,” thundered T. J. Rodgers, president of Cypress Semiconductor and an outspoken opponent of the proposal.
Rodgers said the failure demonstrates what the industry should have known all along: That there are no “quick fix” solutions to declining U.S. competitiveness in worldwide semiconductor markets. Rodgers said the solution now is for all electronics companies “to make it happen, but individually, not collectively.”
