INDUSTRY NEWS

Foreign chip industries apply themselves to eclipsing U.S.

Backed by aggressive government support, Asian and European chipmakers are using applied semiconductor research programs to make inroads on their U.S. counterparts, a new report warns. Any significant erosion in research spending and semiconductor market share could harm the U.S. economy, argues the Semiconductor Research Council, which would like Washington to take steps to help industry counter the alleged threat to U.S. hegemony.

SRC, a 38-member consortium of industry companies and government agencies, commissioned the report by the Monterey Institute of International Studies in order to get a clearer picture of the extent that major competitors in Japan, Taiwan, South Korea, and Europe have expanded their applied semiconductor research capabilities. The study, partially funded by the Semiconductor Industry Association (SIA), contains these four main findings:

• Foreign governments work closely with their semiconductor industries. Government assistance includes R&D grants, guaranteed loans, subsidized energy, regulatory relief, land grants, and infrastructure support.

• Funding for applied research has been used to beef up the research infrastructures in the aforementioned regions. Funding is concentrated in government and industrial laboratories rather than in the open university setting that is prevalent in the United States. Citing Japan as an example, the report states that funding of applied research "easily exceeds comparable U.S. funding on an absolute basis."

• Applied research in Asian countries such as Taiwan is highly market oriented. Newly industrialized Asian nations tie R&D to business opportunities as a means of promoting rapid growth. The research can be generated by domestic sources, foreign sources, or both.

• Foreign semiconductor industries are aggressively targeting advanced U.S. applied research. They enjoy access to R&D generated in the United States that is not reciprocated. "The exchange of applied silicon research between the United States and Asia can be aptly characterized as a superhighway to the East with a dirt road back," the report states.

The findings support the contention of chip industry leaders in the United States that the U.S. government could do more to counter the concerted efforts of its foreign competition to knock the domestic semiconductor industry out of the number one spot.

"I guess it's a no-brainer that if your country is the leading entity in this technology, everyone is going to try to whittle away at your market share," acknowledges Jeff Weir, SIA's communications director. "What we had not done was to have a side-by-side comparison of what is going on in Japan, South Korea, and Europe so you could...get a sense of how they're trying to meet, if not overtake, the U.S. challenge in terms of global market share." He says the report's authors "did a good job of collecting data and putting them into one document to get a sense of the enormity of the challenge on a country-by-country basis."

The report shows that the governments of Japan, South Korea, and Taiwan spent $102 million, $72 million, and $65 million, respectively, on applied semiconductor research projects in 1996. The European Union's semiconductor industry received $73 million in governmental funds for projects that year, as well. SIA and SRC point to Sematech as a prime example of the opposite tendency in the United States. Governmental matching funds for the Austin, TX­based R&D consortium ended with the 1996 fiscal year.

George Scalise, SIA's president, asserts that the report "documents one of the major challenges facing U.S. companies. We are competing with a number of companies and countries that have coordinated national strategies to mobilize their entire technology industries."

Larry Sumney, SRC's president and CEO, terms the report's findings "a wake-up call to people who are concerned about the competitiveness of U.S. industry and our ability to maintain technological leadership in semiconductors." Weir says the report's concrete conclusions give the industry some ammunition to argue its case to the government and the American people.

Lest the findings come across as self-serving complaints, both organizations have emphasized that the issue is not narrowly confined to the semiconductor industry. Nor do they advocate copying the industry-government cooperative model used by, say, Taiwan and South Korea. SIA would like Washington to remove unilateral export controls and other so-called "domestic barriers to competitiveness" and reform the tax depreciation rate on semiconductor manufacturing equipment. Trade policies that help to open foreign markets, protect intellectual property, and prevent dumping in all world markets are also on the association's wish list. In November 1996 SEMI, the trade association representing equipment and materials suppliers, issued a position paper recommending, among other things, reforming the tax depreciation schedule for chipmaking equipment from 21Ž2 years to 5. The change would reflect the current life span of tools, spur capital investment, and level the playing field for U.S. equipment suppliers.

Sumney emphasizes that the United States can maintain its technological lead only by keeping alive "a thriving university system." He urges Washington and the National Science Foundation (NSF) to continue investing in university-based R&D. Says Sumney: "Foreign experts consider American universities our prime jewel."

Weir notes an alarming lack of interest in funding basic technological research with the end of the Cold War and a concomitant decline in semiconductor-related defense spending that used to spin off its developments into the private sector. "The university system and long-term research have to be maintained in the United States. We do not want to lose our supremacy in research. As you may know, the tide in recent years has been to reduce long-term spending priorities in favor of short-term spending. Obviously, we think that's a bad trend, but [our position] has not been an easy sell in the climate of the past few years." Weir adds: "We hope that sanity on long-term thinking returns soon."

What will happen if the United States doesn't follow these recommendations? The worst-case scenario is that "we may lose our position as the preeminent country worldwide with respect to having a research establishment at the university level," asserts Peter Verhofstadt, SRC's executive vice president. He maintains that the university-based infrastructure "benefits U.S. industry and society at large."

The Monterey report "clearly exposed two factors," Verhofstadt says. The first is that foreign governments are placing increased emphasis on applied research, and the second is that the U.S. government has backed away from supporting applied research in universities because of a "perceived decrease in need" for defense-related objectives. "The domestic trend is almost in the opposite direction" to that of the foreign momentum, says the SRC veep. "It's almost a double whammy."

Washington continues to look the other way on the issue, Verhofstadt contends. "Some people are starting to speak up, but certainly the decisions in Washington don't indicate a change in thinking." Weir praises the Clinton administration for its help on issues of free trade that are close to the hearts of the industry's leaders. "The administration rhetoric on education and on high-tech has also been very good. [However,] the follow-through at the local and state levels hasn't matched the rhetoric."

From SIA's perspective, failure to address issues such as the need for a vibrant research infrastructure could have an economic impact at both the national and local levels. "If you don't have adequate workers you can't build the new fabs you're planning to build, or you build them in some other country. It's a net loss for the city where you're going to build the next Starship Enterprise known as a chip plant. The other option is that foreign countries do a better job of mobilizing their workforce for coming up with leading-edge chips that match ours dollar for dollar. I would think it's fair to look down the road and expect that there will be some erosion of U.S. market share over the next decade or decade-and-a-half, no matter what." He singles out Taiwan and Singapore as the two areas in particular that will grab market share at the expense of the United States. U.S.-based chipmakers have approximately 52% of the global market for semiconductors of all kinds, "the highest it's ever been," Weir says.

For the U.S. chip industry, the problems highlighted in the report are compounded by a shortage of qualified technicians. SIA, SRC, Sematech, and SEMI have thrown their support behind a variety of training programs to fill the industry's need for some 40,000 skilled workers over the next five years. Sematech, SEMI/Sematech, and NSF are leading the way with a program called the Partnership for Workforce Development in conjunction with more than 30 community colleges across the United States. The program offers technical associate's degrees in semiconductor manufacturing technology. The partnership has established a hotline at 888/ 4CHIPJOBS and a Web site at www.4chipjobs.com and taken out newspaper advertisements to publicize the campaign.

Says Verhofstadt: "Historically, we've operated like we're the technological leader. Other countries may have increased their manufacturing prowess. What we're saying now is that things don't stop there and that there is an increasing level of activity and a number of countries, particularly in the Far East, are enhancing their technological capabilities in a concerted way. In the past we said, 'We're ahead and if manufacturing goes somewhere else we can compete on technology.' That's not a defensible long-range proposition anymore. We don't have the God-given right to be technological leaders."

U.S. semiconductor manufacturers "already spend billions of dollars a year on research and will probably spend more historically," Weir argues. The U.S. industry can take care of its own, spending "about 30 cents on each dollar on research and capital expansion.

"We are straddling a fine line," adds Weir, "between saying there is a need for long-term government research and at the same time saying we're not begging for handouts. If NSF and NIST and some of the other federal entities increase their research at universities around the country in generic R&D, some of it would benefit us, but not automatically."

Interconnect technology and design and test are two areas of research requiring focused attention, Verhofstadt notes. "In interconnect, for most people it doesn't take much of an extrapolation to see some pretty hard barriers and the need for some conceptual and paradigm changes."

The Monterey report "is not specifically addressed at the U.S. government," emphasizes Verhofstadt. He downplays the need to see the study as a "wake-up call," although it does give SRC further impetus to continue funding university research "on an aggressive basis. I think there is an awareness that industry shares the responsibility to maintain a viable and very fruitful [infrastructure] both for research results and from an educational perspective."

As for taking its case to Washington, Verhofstadt says, "SRC has no new plan or program. We will probably devise some additional ways of lobbying the government with respect to the current downward trend in funding for university research. I think that is something that will take some time ....and we have to sort out our priorities. Certainly some of this is a difficult [sell]. Many people look on fundamental research as identical or in some cases complementary to applied research."

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