Chipmaker forecasts an end to doldrums in the US industry
Boston — Although the American semiconductor industry is in the middle of the worst period in its history, six months from now it will be headed for better times, according to Raymond Stata, president of Analog Devices, an American semiconductor producer. ``It's desperate in the short term,'' Mr. Stata says of the industry's current predicament. But he says he expects a turnaround within a three- to six-month period.
A reduction in capital spending among American semiconductor users has reduced demand for semiconductors, leading their manufacturers to lower prices, cut back production, and lay off workers.
Frederic G. Withington, a senior analyst at Arthur D. Little Inc. of Cambridge, Mass., seconded Stata's assessment: ``Everyone [semiconductor users] is working off inventory. Six months from now, there will be shortages,'' he said.
At his Norwood, Mass.-based Analog Devices, Stata looks for an increase in orders within three months. Consequently, the company has gone ahead with capital investments that anticipate a rebound within that time, he said. Analog has been able to weather the semiconductor doldrums better than many chip producers because of proprietary designs, according to Stata.
Analog semiconductors are used in acquiring precise data from analog signals coming from sensors measuring the intensity of temperature, pressure, flow, or light. Analog's integrated circuits translate these signals into a form that can be acted upon by digital computers. In 1984, Analog had sales of $313 million.
A student of government policies and their effect on industry, Mr. Stata is co-author of two books with James Botkin and Dan Dimanescu. ``Global Stakes'' was published in 1982, and ``The Innovators'' appeared in 1984. Both deal with the future of American high technology in the face of worldwide competiton. Stata was also a founder of the Massachusetts High Technology Council, which has been effective in promoting statewide tax-limitation measures.
Looking at the causes of the decline in the semiconductor industry, Stata points to the exaggerated economic recovery of 1983 and '84. ``It well overshot the mark in terms of end-user demand,'' he said. While a cooling adjustment to that overheating would have been expected, the strong dollar has exacerbated the correction, turning it into a severe downturn by inhibiting exports and making imports cheaper.
He said a tendency toward an exaggerated business cycle was evident both in the boom of 1983 and '84 and the decline of '85. Consistent with this trend, he said he expects the ``increasing frequency and intensity of cyclicality'' to make the coming rebound occur sooner and stronger than would otherwise be expected.
The Semiconductor Industry Association (SIA), headquartered in San Jose, Calif., seeks to improve the industry's lot through several initiatives, including redressing what it calls unfair Japanese trade practices.
``What's mine is mine, and what's yours we'll compete over,'' is how Daryl Hatano describes Japanese attitudes. Mr. Hatano is manager of government affairs with the industry association. He said the Japanese effectively keep their home market closed while pursuing predatory trade practices abroad.
Domestically, the SIA seeks an accelerated depreciation scale for foundry equipment for producing the chips and a permanent research-and-development tax credit.
Although he concedes the Japanese ``are participating in an economic war'' and that American chipmakers ``have every right to be angered'' by unfair trade practices, Stata voiced stern caution for those who would place the blame for the industry's hard times solely at the door of the Japanese.
``The strong dollar is the No. 1 consideration,'' he stresses, adding that nothing the Japanese do approaches this factor in importance. ``We have control of our destiny,'' he said, asserting that Americans can lessen the strength of the dollar by changing national tax policies, reducing the federal budget deficit, and saving money rather than spending on consumer goods.
Although the dollar's recent weakness has helped business at Analog Devices, Stata says he would like to see further erosion in the dollar's price. ``It's still too high by historic standards.''
Stata was part of a group from the American Business Conference which met with President Reagan earlier this year during deliberations over the federal budget. In the course of these discussions, he said he spoke personally with the President regarding the needs of his industry.
``A very strong message was not heeded either by the President or by Congress,'' Stata observed of his own efforts and those of other industry spokesmen.
If Japan should be be blamed, and if relief resulting from government action is not in the offing, what should the industry do?
``Business people need to believe we are the greatest and not let excuses be made,'' blaming the government and the strong dollar for the industry's problems, Stata said. ``If you try hard and work hard enough, you can overcome some enormous barriers.''