Life for High Tech Without U.S. Memories

Where does the U.S. electronics industry go from here, following the collapse of U.S. Memories, a proposed $350-million joint venture of the nation’s biggest computer and semiconductor companies to produce basic memory chips?

The idea behind U.S. Memories was that joint effort would give American firms a secure, home-based supply of basic memory chips--the common information storage devices that are at the heart of so many products today, from computers and car engines to telephones and television sets. Big companies were listed as potential backers--IBM, AT&T;, Hewlett-Packard, Compaq, NCR, Tandem Computers, along with semiconductor makers Intel, AMD, LSI Logic and National Semiconductor. But after six months of trying to get the venture off the ground, President Sanford Kane admitted defeat on Monday. There will be no joint corporate effort to keep the American flag flying in the memory market.

But does that mean that U.S. industry is condemned to be a loser, a permanent also-ran in the world’s most important industry? No, it does not. U.S. companies may not take easily to big team plays like U.S. Memories, but proceeding alone or in global ventures, they can be formidable.

The fact is, the world’s technological leaders in electronics today are U.S. companies--Intel and Motorola, makers of the complex microprocessors that power desktop computers. Texas Instruments, which makes memory chips in Japan as well as the United States, takes a back seat to no one in technology and manufacturing abilities. And IBM, the computer leader, has a veritable storehouse of technology that it has begun to license to other U.S. firms.

Global competition is fierce and growing--which is only natural given the high stakes. The world electronics and computer industry is growing faster than any other and will total $950 billion in revenues by the mid-1990s, estimates Jerry Junkins, chairman of Texas Instruments. And it will move on from there to be the world’s largest business by the year 2000. It is the industry, broadly speaking, where you or your children will find work.

No wonder nations everywhere want to get into it. “Korea and Taiwan are pouring capital into semiconductor fabrication plants, and Japan is continuing to spend,” says analyst Richard Whittington of the Kidder Peabody brokerage. U.S. companies will have to spend heavily, too.

Victory, however, won’t go simply to the company or nation that spends the most, but to the one that spends most cleverly. For as technology changes and competition heats up, the ante for the game rises. It costs $250 million to build a semiconductor fabrication plant these days and in just a few years more complex circuits will demand a $400-million plant.

With costs like that and technology shifting and spreading, no company or nation can hope to have a hammerlock in this business--or even a secure market position. That’s one reason why some potential backers questioned whether U.S. Memories wasn’t too much of a nationalistic venture in an increasingly global world.

A U.S. company that is both a sharp contrast to the U.S. Memories idea, and an example of the way global industry is working today is Vitelic Corp., a small, San Jose-based firm that makes advanced memory chips. Vitelic is building a fabrication plant in Taiwan, with backing from Oki Electric of Japan, and from Western Digital of Irvine. Founded in 1983 and still private, Vitelic is backed by venture capital from the United States, Japan and France.

And what is the purpose of Vitelic’s joint venture? To produce the kind of memory chips that can keep up with the powerful microprocessors being developed by Intel and Motorola--the Intel 486 and Motorola 68000 series that are revolutionizing the computer business.

But change is not only being led by small, start-up companies. Texas Instruments, one of the founders of the electronics industry, is both leading and benefiting from the globalization of technology.

TI, the company where engineer Jack Kilby invented the integrated circuit in 1958, has manufactured memory chips and other products for decades at a plant in Miho, Japan as well as at its headquarters in Dallas. And all that time, it had an application pending for Japanese recognition of Kilby’s integrated circuit patent. But the Japanese government continually refused--enabling Japanese companies to manufacture integrated circuits without paying royalties to TI.

But in the last year TI has been able to broaden out. It formed a joint venture with Acer, a Taiwanese personal computer maker, last May and announced plans to build a $250-million semiconductor plant in Taiwan. A few months later, the Japanese government granted TI a patent on Kilby’s integrated circuit. It will now receive royalties until the year 2001.

The point? The U.S. firm benefited from keeping up its technology and operating globally. The Japanese government learned that a closed system may no longer be the best way to compete. But change came about because new competition--from Taiwan, in this instance--piled into the market.

A changed, more competitive world won’t be easier for U.S. companies. But they can hold their own.