SEATTLE — IN recent years, American semiconductor companies have regained world market share from the Japanese by dominating high-value products such as the microprocessors that control computers.
Micron Technology Inc. has taken a less-traveled route to success. The Boise, Idaho, firm has become a highly profitable manufacturer of low-cost memory chips, a commodity business that many experts believed would inevitably become dominated by suppliers in Japan and other Asian nations.
Though much smaller than rivals like South Korea's Samsung or Japan's Hitachi and Toshiba, Micron has a solid 5 percent share of the world market and a track record of keeping costs down through production efficiencies. For the quarter ending Dec. 2, profits were a robust 21 percent of sales.
``We've been counting them [Micron] out for dead for many generations [of memory chips],'' says Lane Mason, an analyst at the market-research firm Dataquest in San Jose, Calif. ``They're always a little bit behind,'' but they have managed to stay competitive with production-process innovations. Micron, however, can hardly afford to rest on its laurels, Mr. Mason says.
New generations of memory chips are constantly rolling off the production line, each much more powerful than the last and more costly to develop. While Micron was cost-leader in the last two generations of chips, Samsung is currently the low-cost producer, Mason says. Micron is still ``in the top tier,'' but he questions whether the company is able to salt away enough capital to feed new product development and buy production equipment.
As a commodity business, memory chips have historically gone through sharp swings in profitability, depending on demand for computers and supply of chips - as new ``fabs'' (fabrication plants) are built. For now, the strong personal-computer market is boosting profits and cash flows for suppliers of DRAMs (dynamic random-access memory chips). Demand in 1994 promises to remain strong, with even larger profits than 1993, Mason says. But some analysts say growing production capacity in the industry could begin to hurt earnings in 1995.
Ultimately, Micron may need an alliance to remain a strong player in the DRAM business, Mason says. The company's small size may already be inhibiting its move into production of the next-generation chip, which will hold 16 megabits (16 million bits) of information. (The current standard is a four-megabit chip.) Production equipment is becoming more sophisticated as companies try to squeeze millions of transistors onto fingertip-wide slivers of silicon.
Other American producers of memory chips, Texas Instruments Inc. and IBM, are much larger corporations than the 5,000-employee Micron. They also have developed ties with other companies. Unlike Micron, both these competitors have plants worldwide and make many products other than memory chips.
IBM is working in alliance with Toshiba and Siemens of Germany to develop 64- and 256-megabit DRAMs. Texas Instruments, meanwhile, recently forged a deal with Acer, the Taiwanese computermaker. The agreement involves a jointly owned ``fab,'' an assured supply of chips for Acer, and assured demand for Texas Instruments.
Mason says Micron, viewing the Acer deal as a model, might link up with a United States computer manufacturer such as Compaq or even IBM. IBM may want to ease out of the DRAM business, he says.
Micron spokesman Kipp Bedard says the company is keeping a watchful eye on the trend toward industry alliances while doing its own initial development work on the 256-megabit chips, which should come on line by the year 2000.
Ties cut with Sematech
Micron withdrew from one big alliance in 1992, abandoning its membership in Sematech because of strategy differences on how to help the government-industry consortium achieve its goal of keeping the US chip industry competitive.
Micron is focusing on its core strength of being an efficient producer. It makes four-megabit chips using fewer steps than competitors do - 12 etched layers of circuitry per chip versus an industry average of 18. Low power costs in the hydropower-rich Northwest have also helped keep Micron's costs down.
The company has undertaken diversification efforts, such as making personal computers and developing flat-panel screen technologies. But its business is weighted in memory chips: not just DRAMs but also VRAMs, which help computers process video signals, and SRAMs (static RAMs), which help them process information at higher speeds.