Japan not solely to blame for woes of American chip producers. US companies must alter their corporate strategies, analysts say
Santa Clara, Calif. — The giant red, white, and blue ``Buy American'' banner outside a semiconductor distribution firm here seems more the cry of the blue-collar American than of Silicon Valley's whiz-kid technological and managerial executives. After a summer of layoffs, plant shutdowns, and salary cuts, the semiconductor industry has joined the ranks of United States industries calling for trade action against Japan.
But some analysts here say that, in the long run, the problem may be as deeply rooted in the management of American companies and in the cyclical nature of the business as it is in the aggressive and protective character of Japanese industry.
This approach has gained the Japanese a 90 percent market share of the newest generation of dynamic random access memory (DRAM) chip (an advanced memory chip) segment of the semiconductor industry.
Americans may have invented the computer chip, but that is no guarantee of American dominance in the field -- even if Japanese trade tactics are set aside, analysts say.
``Everytime there's a downturn, Japan becomes a scapegoat,'' says Sheridan Tatsuno, a semiconductor industry analyst for Dataquest Inc., a consulting firm in Santa Clara, Calif. Mr. Tatsuno is writing a book on Japan's ``Technopolis'' industrial project, involving the creation of 20 high-technology centers modeled after Silicon Valley.
Rapid development and overnight successes in Silicon Valley have set the tone for a fast-buck and provincial mentality here, says Mr. Tatsuno. The semicon ductor, being the foundation of all modern electronics, deserves treatment as a strategic commodity, he says. That requires long-term research and development (R&D), long-term financial planning, and long-term marketing and sales strategies. Tatsuno and other specialists in the semiconductor industry are recommending:
That companies pool their resources and engage in more joint R&D. This has already been done to some extent at the Semiconductor Research Corporation in North Carolina. More than 30 companies there have teamed up with universities to conduct advanced research on semiconductor products.
That financing be restructured in a way that doesn't reward speculators but encourages long-term, ``patient money.'' The pressure for quick return on investment has pushed the high-tech market to the over-optimistic projections and warehouse stockpiling that has helped to bring about a prolonged chip glut.
That US companies revise sales and marketing strategies as well as improve their commercial intelligence gathering. They must do a better job of understanding the markets and cultures where they do business. ``Every engineer in Japan can read English,'' says Tatsuno.
Though the Japanese, in many instances, have borrowed American technology, they have been able to perfect the mass production of it and capture the market with cheaper products. They were the first, for example, to produce the newest DRAM -- the 256K. Capable of storing 256,000 bytes of information (a byte is roughly equivalent to one average-length word), it has four times the memory capacity of the last generation. Americans have now basically conceded that market to the Japanese and skipped the manuf acture of the 256K.
That US companies need to crack the Japanese market. Several industry giants, such as Texas Instruments, already manufacture products in Japan. They have learned how to deal and negotiate with the Japanese in order to make their presence known in the Japanese market. These companies, however, are few and far between.
The semiconductor industry has accused Japan of cutting memory-chip prices to below cost in order to capture a larger share of the glutted market. This violates the multinational General Agreement on Tariffs and Trade. So far, roughly two-thirds of the US chip inventory is unsold this year.
Of the chips most commonly used now, US manufacturers greatly outsell the Japanese in every market except Japan, the second largest market in the world. This is a major concern for an industry that argues it doesn't have fair access to the Japanese market.
Tatsuno says there is merit to the industry's argument. In the long run, however, he says Americans will have to adopt ``major changes in the way we think . . . Because if you think this is bad you ain't seen nothing yet. This is only the beginning. They're [the Japanese] targeting supercomputers, ceramics, robots . . .''
``The problem is not caused by Japan but by overstimulation of the market by the PC [personal computer] industry,'' explains Ken Taylor, senior consultant with SRI Inc. in Menlo Park, Calif. ``They predicted 100 percent PC growth this year. But it'll be 20 percent, which is fantastic, but not when you're planning for more. So US companies were selling off their inventory [of semiconductors] and the Japanese were as well.''
``US management must focus on long-term goals rather than the short term, where management has had a reluctance to invest in long-term R&D,'' says Gary Arnold, chief financial officer of National Semiconductor in Santa Clara, Calif.
``The bottom line is adaptations to new circumstances -- we're adapting from an environment where we were the pace setter for a quarter century to where we are a lead contender,'' says Warren Davis, the Semiconductor Industry Association's vice-president of public affairs.