LSI Logic Quits Chip Consortium : Technology: The payoff for the Milpitas, Calif., firm, a founder of the Sematech organization, fell short of expectations.

The Sematech chip research consortium suffered a significant setback Monday when one of its founding members, LSI Logic of Milpitas, became the first to withdraw from the 5-year-old organization.

Sematech, a novel government-industry venture that receives about $100 million a year in taxpayer funds, is lobbying for another five years of government support. LSI’s defection, which had been widely anticipated in the industry, could give new ammunition to the organization’s critics, although it appears that most of the 12 other Sematech members--and all the larger ones--remain firmly committed to the consortium.

LSI President George Wells said the company was not getting enough direct benefits from Sematech to justify the costs. Sematech dues are pegged at 1% of sales for medium-size companies, putting LSI Logic’s share at $6 million to $7 million a year.

Sematech was founded to help American companies beat back the Japanese challenge in computer chip manufacturing technology, and during the past two years the consortium has increasingly focused on direct financial support for the network of small companies that produce chip-making equipment.

“We were not too enthralled with the idea of LSI money contributing to the equipment industry,” Wells said. He agreed that that was a worthy goal but added that LSI hadn’t joined Sematech “to be a venture capitalist for the chip-equipment industry.”

In addition, he noted, LSI’s business is in producing highly specialized, customer-specific chips, while Sematech is oriented toward developing technology for standardized, high-volume products. LSI has also had tough times financially and now does much of its manufacturing through a joint venture in Japan.

Jerry Sanders, chairman of Advanced Micro Devices and a strong supporter of Sematech, said he viewed LSI’s decision as an indication that the company no longer had a long-term commitment to manufacturing in the United States.

“I’m disappointed,” Sanders said. “They’re abdicating their position as a part of the U.S. manufacturing base.”

Sematech spokesman Buddy Price said LSI’s departure would not affect operations or the effort to get new funding. Member companies must give two years’ notice if they are going to leave Sematech, and Price said one other company was eligible to leave.

Sources who asked not to be identified said Harris Corp. had given notice, although some expect that the company will remain. Harris could not be reached for comment.

A spokesman for Micron Technology, a small chip maker that has been widely rumored to be on its way out of Sematech, said the company was not eligible to leave, although he declined to comment on whether it had given notice that it might do so.

Analysts were not alarmed about LSI’s decision. “I don’t think it says as much about Sematech as it does about LSI,” said Dean McCarron, an analyst with the research firm In-Stat. “In terms of Sematech (technology) and LSI’s products, there’s not a lot of overlap. I’m not expecting anyone else to pull out right now.”

Sematech’s critics have maintained that the consortium is little more than a club of old-guard chip makers that have banded together to feed at the public trough and that it has not succeeded in bolstering the technical competence of the American industry.

But Sematech and most of its members say they are happy with the accomplishments to date. In a thick progress report released late last year, Sematech said it had made important strides in improving chip equipment, developing standards and building cooperation among chip firms and suppliers.

Sematech enjoys strong support in the Defense Department and on Capitol Hill, and most expect the funding to be renewed without much trouble, although there may be efforts to cut the contribution below $100 million a year.

Dan Hutchison, president of the market researcher VLSI Research, said LSI’s departure from Sematech could even help the organization by demonstrating that it’s not an old-boys club supported only for political reasons. By showing that companies can leave Sematech, he said, LSI has indirectly enhanced the organization’s credibility.