NEWS ANALYSIS : Flap May Cloud Issue of U.S. Slide in Chip Equipment

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At a press conference last week, Sen. Lloyd Bentsen (D-Tex.) and the chip research consortium Sematech went public with an accusation that many in the computer chip business have long advanced in private: Japanese vendors of chip-making gear are withholding their best technology from American companies--and sometimes delivering it late and at a premium price when they do make it available.

These are serious charges. Computer chips are the critical building blocks for an ever-growing array of electronic products, and the most advanced chips can be made only with the most advanced manufacturing gear.

Over the past five years, Japanese companies have taken the lead in many critical chip-production technologies, and the prospect that they might use this lead to gain further advantage in the chip business is the worst nightmare of those who worry about America’s technological competitiveness.


But interviews with people on both sides of the issue indicate that it’s not at all clear that the Bentsen-Sematech allegations are true. Japanese companies vehemently deny withholding technology, and Sematech provided only a few sketchy examples to support the charges.

Several U.S. chip makers contacted last week--including LSI Logic and Advanced Micro Devices--said they had been denied access to advanced Japanese equipment, but they refused to provide details on grounds that they didn’t want to anger Japanese suppliers. Two other chip companies--Intel and Cypress Semiconductor--said they had not encountered such discrimination.

At the behest of Bentsen, the General Accounting Office is conducting a study of the issue, and a report is due this summer. The senator and Sematech say the GAO will vindicate their stance.

Perhaps it will. But by airing complicated and emotionally charged allegations without convincing evidence, Sematech and its senatorial ally risk muddying a genuinely important issue: the continued decline of the American chip-equipment industry.

The official mission of Sematech, a consortium of 14 American chip companies that receives $100 million a year in U.S. government subsidies, is to support the development of domestic chip-manufacturing capabilities. The group apparently believes that it can shore up its political support by calling attention to the dangers posed by dependence on overseas equipment suppliers.

The accusation of withholding technology, indeed, provides an important missing link for all those who argue that the U.S. electronics industry needs government help. Proof that Japanese firms are leveraging control of certain technologies to achieve dominance in others would be a clear riposte to free-marketeers, whose response to growing Japanese control of specific high-tech sectors is, “So what?”


Yet the nature of semiconductor manufacturing is such that it isn’t necessary to show that Japanese firms are engaged in a nefarious conspiracy to withhold technology in order to argue that the United States needs a vital chip-equipment sector.

The various machines used in making chips are extremely complex and often cost more than $1 million apiece. They are, naturally, produced in very small volume, and they are usually customized to the needs of a particular client.

Most important, the development of such machinery involves a close working relationship between the equipment supplier and the chip producer.

Chip makers clearly benefit from a close relationship with cutting-edge chip-equipment vendors. By the time a certain piece of equipment is ready for commercial sale, the chip maker that has been the “beta site,” or development partner, will already have had as much as a year of experience with the technology and thus will have a competitive advantage.

Analysts and industry officials note that it’s neither surprising nor reprehensible that Japanese equipment firms tend to work more closely with Japanese chip makers, especially when the companies are affiliated. Hitachi Ltd., for example, has both equipment and chip-making units. Other equipment suppliers are affiliated with particular chip vendors through the intricate keiretsu structure that governs much of Japanese business.

“Products will get delivered to members of a group before it’s delivered to companies outside the group,” says an American manager at a Japanese equipment firm, who asked not to be identified. “They (the chip-making member of the group) pay a large amount of our design and development costs, so they get first crack at new products.

“Do products sometimes get delivered first in Japan? Yes. Do they totally withhold certain technologies? My feeling is, absolutely never,” he continued. “We’re in this for the money too. We have to sell product and pay the bills.”


The whole point of Sematech, indeed, is to develop close relationships between American equipment companies and American chip producers that are akin to the relationships that exist in Japan. It’s not clear how this goal is advanced by leveling conspiracy charges against Japanese companies.

When it comes to withholding technology, moreover, critics such as chip entrepreneur T. J. Rodgers say Sematech is firmly ensconced in the proverbial glass house. At least some of the Sematech development contracts with chip-equipment firms require the firms to withhold the products from companies that are not Sematech members for one year after they’re ready for market.

Rodgers, president of Cypress Semiconductor and a longstanding critic of Sematech, says that on the occasions when his firm--which has a “buy American” policy--has looked to Japanese vendors for specific equipment needs, they have always been very responsive.

By contrast, when Cypress was trying to buy a polisher from an American company, Rodgers said, he could not get the most advanced model because it was being developed under a Sematech contract.

American Decline in Chip Equipment

Nine of the 10 largest makers of semiconductor equipment in 1980 were American; today, five of the six largest are Japanese.


Rank Company Sales in millions 1. Perkin-Elmer (U.S.) $150.7 2. GCA (U.S.) 116.0 3. Applied Materials (U.S.) 115.2 4. Fairchild Test Systems Group (U.S.) 105.2 5. Varian (U.S.) 89.9 6. Teradyne (U.S.) 82.5 7. Eaton (U.S.) 78.9 8. General Signal (U.S.) 57.0 9. Kullcke & Soffa (U.S.) 46.8 10. Takeda Riken (Japan) 46.0



Rank Company Sales in millions* 1. Tokyo Electron Ltd. (Japan) $706 2. Nikon (Japan) 692 3. Applied Materials (U.S.) 572 4. Advantest (Japan) 423 5. Canon (Japan) 421 6. Hitachi (Japan) 304 7. General Signal (U.S.) 286 8. Varian (U.S.) 285 9. Teradyne (U.S.) 215 10. Silicon Valley Group (U.S.) 204


Source: VSLI Research