It was in 1986 that American semiconductor companies, which had once enjoyed a 70 percent share of worldwide sales, watched their market share slip below 40 percent and their number of dynamic RAM manufacturers dwindle from 11 to two. Japan quickly capitalized on the erosion of the U.S. semiconductor industry and vaulted to the top.
“People seriously thought there wasn’t going to be a semiconductor industry in the United States by the end of [the 1980s],” said Dan Hutcheson, president of VLSI Research Inc., a San Jose, Calif., market-research firm. “Now, the semiconductor industry is one of the fastest-growing sectors of the U.S. economy.”
In 1992, American semiconductor companies once again surpassed Japan in worldwide sales by a margin of 43.8 percent to 43.1 percent, according to figures from VLSI Research.
How did the United States turn it around? Observers and analysts cite a series of events — both political and otherwise — that helped revive America’s semiconductor industry, including a U.S.-Japan trade agreement; the formation of the Semiconductor Manufacturing Technology Institute (Sematech), a U.S. semiconductor consortium; and Japan’s current economic hardships.
The turnaround started six years ago when the U.S. semiconductor industry acknowledged that it was second to the Japanese in the worldwide market.
“That was the wake-up call for us,” said Tom Beerman, president of the Semiconductor Industry Association, a trade organization also based in San Jose. “The U.S. industry as a whole realized it had to get its act together in terms of quality, better relationships with its suppliers and a whole variety of other areas.”
At the root of the U.S. decline, according to Beerman, were several “disturbing trends” that needed to be addressed. The first: Japan’s practice of dumping semiconductors into the U.S. market, which contributed to the loss of billions of dollars. Japanese producers were selling some forms of common memory chips at prices below cost in an effort to buy market share.
Trade pact helped
In an effort to halt this practice, the United States and Japan formed a trade agreement in 1986 that prohibited Japanese firms from illegally dumping semiconductors into the U.S. market. But the pact also gave the United States greater access to Japan’s burgeoning semiconductor market, which had essentially been closed to the United States, Beerman said.
“That trade agreement was a significant factor in our ability to come back against Japan,” he said. “Companies once again had the confidence to invest in U.S. semiconductor manufacturers.”
Another galvanizing force in the U.S. comeback, according to observers, has been Sematech. The U.S. government-sponsored consortium was formed in 1987 in an effort to save the nation’s semiconductor industry.
“The real clear intervention by Sematech helped improve the quality of the equipment and develop more learning about higher yields,” said VLSI Research’s Hutcheson. “Eventually, those things tied together and drove the U.S. semiconductor industry.”
Finally, Japan’s struggling economy and its own semiconductor strategy played a role. Japan’s semiconductor strategy revolves around the mainframe computer business, according to Hutcheson, while the United States molded its semiconductor industry around the PC.
“Look where we’d be if we had built ourselves around IBM’s and Digital Equipment Corp.’s [mainframe and minicomputer platforms]. We’d have completely shot ourselves in the foot,” Hutcheson said. “[IBM and DEC] certainly aren’t the pillars of strength that they used to be five to 10 years ago.
“Today, we’re seeing companies like Intel Corp., Advanced Micro Devices Inc. [AMD] and National Semiconductor Corp. feeding from more capital investment in semiconductors,” he said. “We’ve returned to a more competitive manufacturing base and a more focused market.”
Nowhere is the comeback more evident than in the financial success of Intel, which in January reported $429 million in earnings on sales of $1.9 billion for its fourth quarter ended Dec. 26, more than doubling earnings from the year-ago quarter. National Semiconductor, AMD and Cyrix Corp. also posted strong earnings in 1992.
Analysts project continued strong growth for the U.S. semiconductor industry, not only in the microprocessor segment, but also in the complex logic arena, which includes such technologies as digital-signal processing, digital speech compression and digital filtering.
In fact, according to Drew Peck, an analyst with investment bank Donaldson, Lufkin & Jenrette Inc. in New York, the future of the U.S. semiconductor market lies in digital-signal processors. This is an area where companies such as Motorola Inc., Analog Devices Inc. and LSI Logic Corp. are carving out a niche for themselves, said Peck.
“Digital-signal processing components may surpass microprocessors in unit volume and perhaps market size by the end of [the century],” Peck said.
While the U.S. semiconductor industry looks toward the future, it also keeps a wary eye on the not-so-distant past and, in particular, 1986. “It was quite a catastrophe,” said Peck.