Can U.S. Consumer Electronics Firms Stage a Comeback?

U.S. companies have retrenched, sold out, gone bust or plain given up on consumer electronics in the past decade. The names that once were symbolic of American innovation in the field--names such as Philco, Victrola, Sylvania, Emerson Radio and RCA--now mostly adorn headstones for the fallen or signposts to overseas owners, plants and profits.

That makes calling for a comeback in the U.S. consumer electronics industry akin to trying to raise an army from the ranks of a ghost town. Yet that’s just what Ian M. Ross--among others--is doing.

“It’s possible if we set our minds to it as a national objective,” said Ross, president of AT&T; Bell Laboratories. “But we probably will not do it unless there is a national will.”

The National Advisory Committee on Semiconductors, a prestigious group established by Congress and headed by Ross, will throw up a challenge to the national will in the coming weeks when it offers details of a bold proposal to rebuild the consumer electronics industry.

Others have taken up the cause before, warning that the consumer electronics industry is inextricably linked to the country’s economic health. High-volume businesses like consumer electronics drive advances in technology and manufacturing. As the lines between the consumer and commercial segments of electronics begin to blur--with increasing use of TV-like display screens in office, medical, military, automotive and aerospace applications, for instance--the companies possessing those advances will have a definite advantage in the new markets.

The semiconductor committee has a more specific case to make: The consumer electronics industry is using more, and increasingly sophisticated, chips all the time--and fragile American chip makers fear being shut out of such a significant market.

“Consumer electronics is a substantial market today for semiconductors and it is a growing market. We expect it to become even more important,” said Ross.

The initial NACS proposal, sketched out in a November, 1989, report, calls on the federal government to take an active role in the rebuilding of consumer electronics, with nurturing policies and by helping to fund an Electronics Capital Corp., a huge pool of “patient money” that would invest in consumer electronics companies.

In today’s political environment, such suggestions usually are derisively labeled “industrial policy” before they are buried in the budget-cutting trash heap. Only last year, the Bush Administration soundly rejected an ambitious plan, put forward by the U.S. electronics industry, to make high-definition television, or HDTV, the standard bearer of the comeback--with significant government help, of course.

Despite the political realities, government help is a common theme of comeback scenarios. The United States could have a thriving, world-beating consumer electronics industry “overnight. Absolutely. It’s so simple,” said James I. Magid, a longtime electronics industry analyst. “If the government wanted to stimulate development of new consumer electronics . . . the dominant companies in five years would be U.S. companies.”

Most of the scenarios contain some or all of the following imperatives, in varying forms:

Develop a national solution to the problem, putting U.S. laws behind the effort--or reshaping them if necessary--and using our culture to advantage. Included would be timely and effective enforcement of trade and patent laws; tapping America’s pioneering spirit and propensity to root for the underdog; and, Magid even suggested bluntly, the United States may have to close its borders for a while against the kinds of products the U.S. has selected as a comeback goal (prohibitively costly duties could be imposed). After all, the United States still is the largest single market for consumer electronics.

Antitrust laws could be re-jiggered to allow more cooperative agreements. While companies are now allowed cooperative research and development, most advocates of a consumer electronics rebirth believe that companies must be allowed to work even more closely to get products to market. With current technology licensed from other countries and cooperative work, U.S. companies could collectively gear their work toward leap-frogging to the next generation of products.

* Facilitate the ability of U.S. companies to re-enter difficult markets. One need is to license technology they don’t already have. U.S. industry would have to negotiate licensing rights, while the government--in imitation of some Japanese and Korean practices--prohibits foreign-owned companies from selling any product here unless it is also licensed to a U.S. company.

Also, companies want to finance this re-entry without having to go to foreign-owned competitors for money. Recommendations include the NACS’ proposal for an Electronics Capital Corp., more favorable R&D; tax credits and longer depreciation schedules, such as the Japanese already have, that enable companies to spread production costs over a longer period--and thus charge lower prices sooner.

* Carefully select the entry point. Industry experts say this should be products or families of products that represent growth technologies. Stereo turntables wouldn’t fit this bill, but high-definition screens, liquid crystal and other flat-panel display technologies would. One reason HDTV was seen as a critical product is because it will generate related markets for other products such as compatible video recording and broadcast equipment.

* Speed up the setting of standards that affect new technologies. This is especially true for HDTV, in which federal agencies such as the Federal Communications Commission could have bolstered U.S. companies by working with them in early development stages to establish an American high-definition broadcast standard. Such a program was begun this year, five years later than programs in other nations. U.S.-owned companies would then be able to compete as a group with foreign-owned companies that would have to adapt their products to American standards.

* Enact local-technology-content laws. Many foreign-owned consumer electronics companies have manufacturing plants here, but the high-technology components are usually imported. Local-content laws would help retain a U.S. market for high-tech components.

There are some bright spots for the United States in consumer electronics. For instance, U.S.-owned companies continue to dominate the high-end of stereophonic equipment, and American car makers still provide a big market for automotive electronics.

But many inside the industry and out doubt the ability of the U.S. to make a rapid comeback on the strength of those companies, even with such government help. Never in the history of industrialized America has there been such a triumphant rebirth, and in the case of consumer electronics, the hurdles seem impossibly high.

Spending billions more to get back into televisions, videocassette recorders, video cameras and mass-market stereo components would pit the newcomers or the reborn against Sumo wrestler-size competitors like the Netherland’s Phillips N.V., French-government owned Thompson and Japan’s Matsushita Electric Industries.

Critics of an attempt to rebuild say the United States should let those huge companies slug it out with their low-priced Asian competitors in what is a predominantly low profit-margin business, and instead enjoy the benefits of low consumer prices and jobs those companies bring or retain here.

“In consumer electronics, the margins are low, the markets not growing that fast. And the markets are dominated by vicious competitors from Japan who occasionally act like a cartel when it’s in their best interest,” said Michael Borrus, an economist at the Berkeley Roundtable on the International Economy at UC Berkeley.

But many insist the United States can no longer afford to let go of such businesses and rely solely on breakthrough discoveries to propel the economy into new technologies and industries. “What’s really important is the steady, regular upgrading and improving of a product, shortening the development time,” that comes from high-volume manufacturing, said Henry E. Kloss, a consumer electronics pioneer and founder of five companies.

Borrus agrees with those points, but doesn’t think consumer electronics is the only way to achieve the benefits.

“When you look at it,” he said, “you see that the recommendation of NACS is . . . really a recommendation to get into a business that meets two criteria: It uses sophisticated technologies, especially semiconductors, and the products are produced in consumer-like volumes.

“The segment (that’s) emerging, high-volume electronics, has a quality and breadth of products. It includes consumer products like TVs, camcorders, VCRs and compact disc players, but it would also add consumer-like products such as portable telephones, the next generation of ‘Dick Tracy’ communications devices, desktop computers, laptop personal computers and electronic date-books. Then it is a segment that while not traditional consumer electronics, has those two important characteristics.”

Indeed, many of the small companies that had been hoping to break into the big consumer electronics market with HDTV technologies have now refocused their efforts on more commercial applications, such as computers, military, avionics.

Once the U.S. government spurned ambitious HDTV proposals, it just seemed too daunting a task to go up against companies such as Thompson (owners of the RCA brands now), Matsushita and Mitsubishi when their governments are pouring huge sums into HDTV development.

According to Jerry K. Pearlman, chairman and president of Zenith Electronics Corp., Japan’s government is spending $1 billion, Korea and Taiwan each are spending $250 million and European governments have put $3 billion into HDTV projects. France alone recently pledged an additional $500 million. By contrast, the U.S. government has agreed to parcel out $30 million over two years.

It’s easy, industry insiders confess, to fall victim to the attitude that it just can’t be done. “To get into something where the competition is so entrenched is a tough, tough thing to do,” said Bell Labs’ Ross. “But the Japanese got there from nowhere, too.”

Perhaps most encouraging to the U.S. electronics industry is that small, entrepreneurial companies are still plugging away at new technologies and products, and they’re tenacious about it too. Several makers of liquid crystal displays have filed dumping complaints against Asian competitors, and Go-Video, a Scottsdale, Ariz., maker of a double VCR, has taken on the giants of the industry with its petition asking U.S. courts to declare Japanese patents unenforceable here.

These are all good signs to Pearlman, whose company, Zenith, is the last remaining major U.S.-owned manufacturer of television sets.

“It’s a position reluctantly thrust upon us,” Pearlman said, “but for now, we are the last of the Mohicans.”