2 Kinds of Chips, 1 Kind of Challenge

Folks here in Silicon Valley were furious when ex-Stanford University economist Michael Boskin--who happened to be chairman of the White House Council of Economic Advisers--reportedly said there was no economic difference between computer chips and potato chips. Didn’t this guy understand anything about technology?

So high-tech honchos from Intel to Hewlett-Packard were thrilled when Bill Clinton was elected and competitiveness champion Laura D’Andrea Tyson, a Berkeley economist, was named to succeed Boskin. Finally, here was an economist who understood that America’s economic future needs silicon far more than snack foods. Finally, here was an Administration that valued DRAMs more than Doritos.

But wait just a second . . . while computer chips are certainly more glamorous and intelligent than their potato namesakes, the latter are also byproducts of high-technology processes.

Potato chip manufacturers face many of the same issues that challenge computer chip makers. Both are in capital-intensive markets that require huge continued investments in new technologies and research. Both face price wars in increasingly global multibillion-dollar markets; indeed, the global potato chip market tops $8 billion annually ($13 billion, if you toss in corn chips). Both struggle to find profitable niches and avoid commoditization.

In fact, Intel, America’s largest computer chip manufacturer, is roughly the same size as Frito-Lay, the largest potato chip maker, with annual revenue of nearly $6 billion.

However, potato chip companies face a welter of government health and labeling regulations that silicon chip manufacturers are happy to avoid.

“There’s quite a bit of technology in modern potato chip manufacturing,” insists Gary L. Laabs, a vice president with Utz Snack Foods, a privately held potato chip producer.

The technology begins with the potato itself: Companies such as Utz and Frito-Lay work with university horticulturists to design potatoes that are specifically bred for “chipping.” Chipping potatoes are bred to be nice and round--not oval.

“The chemical composition of the potatoes is critical or they won’t chip well,” says Laabs. “So we constantly test them for moisture and sugar content.” There are discussions about genetically re-engineering potatoes for shape and content, which is high technology any way you slice it.

The potatoes are moved through a water flue and into a giant peeler. These peelers operate within exceedingly tight time and peeling tolerances, “so we don’t end up taking the meat of the potato,” says Laabs. And, of course, different types of potatoes have different textures and thus require new settings.

After peeling, the potatoes are visually inspected and then moved into the slicers, which feature surgical steel blades set in a huge brass drum. The slices are then carefully washed to minimize breakage. In the interests of profitable recycling, the peel ends up as animal feed and the excess starch from the potatoes is turned into a slurry through a fairly complicated recovery process and sold to paper manufacturing companies.

At this point, the slices are air-dried and plunged into a fryer--a huge vat filled with cottonseed or some other oil. At Utz, the fryers are monitored by Allen-Bradley programmable computer controllers. In fact, most of the capital equipment--the fryers, the peelers and other equipment used to fabricate potato chips--is made in the U.S.A. When you add it up, a potato chip line can cost millions to assemble.

Once out of the fryer, the chips are salted or flavored in other ways and then moved into the packaging line. They’re transported on vibrating conveyors that essentially jiggle them onto the weighing scales and into their packages. “It’s now the standard way in the industry to move chips,” Laabs says. “It minimizes the breakage.”

Of course, a product like Procter & Gamble’s Pringles potato chips--with its uniform stack of identical chips--demands a different and even more technologically intensive manufacturing process.

Delivering the potato chips has become a logistical display of computing and telecommunications that is the envy of many high-tech Silicon Valley firms. Frito-Lay now rivals Federal Express in its ability to manage inventory and customer deliveries through technology.

While it’s true that you don’t need a multibillion-dollar global consortium with the Japanese and Europeans to build the next-generation potato chip, you could argue that the ongoing consolidation of the semiconductor industry hardly bodes well for future employment in the industry.

The essential point is this: The line between high-tech industries and industries perceived to be low-tech has grown increasingly blurred. While it’s undeniably glib for a presidential economist to doubt the vital importance of the semiconductor industry, it’s equally glib to dismiss the technological and market demands of an industry as seemingly mundane as potato chips.

A national economy that wants to succeed globally needs to appreciate the performance and potential of both industries. More than the competitiveness pundits may care to admit, the snack food industries can play as critical a role in boosting the American quality of life as the high-tech glamour industries.

Michael Schrage is a writer, consultant and research associate at the Massachusetts Institute of Technology. He writes this column independently for The Times.