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Suggested Citation:"I. Introduction." National Research Council. 2003. Securing the Future: Regional and National Programs to Support the Semiconductor Industry. Washington, DC: The National Academies Press. doi: 10.17226/10677.
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I
INTRODUCTION

Suggested Citation:"I. Introduction." National Research Council. 2003. Securing the Future: Regional and National Programs to Support the Semiconductor Industry. Washington, DC: The National Academies Press. doi: 10.17226/10677.
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Suggested Citation:"I. Introduction." National Research Council. 2003. Securing the Future: Regional and National Programs to Support the Semiconductor Industry. Washington, DC: The National Academies Press. doi: 10.17226/10677.
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Introduction

The semiconductor industry is one of the major contributors to modern economic growth.1 As one recent National Academies’ study notes2:

“…often called the ‘crude oil of the information age,’ semiconductors are the basic building blocks of many electronics industries. Declines in the price/performance ratio of semiconductor components have propelled their adoption in an ever-expanding array of applications and have supported the rapid diffusion of products utilizing them. Semiconductors have accelerated the development and productivity of industries as diverse as telecommunications, automobiles, and military systems. Semiconductor technology has increased the variety of products offered in industries such as consumer electronics, personal communications, and home appliances.”

This pervasiveness in use establishes semiconductors as the premier general-purpose technology of our post-industrial era.3 In its impact, the semiconductor is in many ways analogous to the steam engine of the first industrial revolution.4

1  

Dale W. Jorgenson. “Information Technology and the U.S. Economy,” The American Economic Review, 91(1): 1-32, 2001.

2  

This excerpt is taken from Jeffrey T. Macher, David C. Mowery, and David A. Hodges, “Semiconductors,” U.S. Industry in 2000: Studies in Competitive Performance, David C. Mowery, ed., Washington, D.C.: National Academy Press, 1999, p. 245.

3  

For a full discussion and definition of general-purpose technologies and their impact on economic growth and development, see Helpman, E. and M. Trajtenberg “Diffusion of General Purpose Technologies,” pp. 85-119 in General Purpose Technologies and Economic Growth, E. Helpman, ed. Cambridge and London: MIT Press, 1998.

4  

Ibid.

Suggested Citation:"I. Introduction." National Research Council. 2003. Securing the Future: Regional and National Programs to Support the Semiconductor Industry. Washington, DC: The National Academies Press. doi: 10.17226/10677.
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The invention of the first transistor in 1947 at Bell Telephone Laboratories heralded the beginning of the modern era in technological advancement. Four years later, in 1951, Bell Labs sponsored a conference in which the capabilities of the transistor were demonstrated to leading scientists and engineers for the first time. Although the attendees from outside Bell Labs did not yet possess the capability of producing a transistor, the conference conveyed the enormous potential of transistors, and many eager scientists returned in the spring of 1952 for the Bell sponsored Transistor Technology Symposium.5 The foundation of the modern day high-tech revolution was established at this symposium as the attendees shared their knowledge and ideas about the capabilities and applications of the transistor. Bell Labs assembled the knowledge shared at the eight-day conference into two volumes, entitled Transistor Technology.6

As a matter of antitrust settlement and corporate policy, in 1955 Bell Labs established an important precedent in creating the merchant semiconductor industry through a decision to share its intellectual property on diffused-base transistor technology.7 This decision allowed other researchers access to the knowledge describing methods for creating this new technology. Four years later, in 1959, the first integrated circuit (IC) was created, and the semiconductor industry began its rapid ascent from the cradle of the research lab to become the largest value-added manufacturing industry in the United States.8

SUSTAINED, PREDICTABLE GROWTH

The scale of this industry’s growth—exceptional both because of its rapidity and its predictability over time—and its contributions to the economy are not always fully appreciated. The U.S. Semiconductor industry is a major generator of high-wage jobs, employing 283,875 in 2000. The industry’s sales reached $102 billion9 in a global market estimated at $204 billion. The value of U.S.

5  

For a more in-depth discussion of the events leading up to the Technology Transistor Symposium, go to: <http://www.pbs.org/transistor/index.html>. See also the Institute of Electrical and Electronics Engineers website, which also gives an excellent account of the transistor’s history. < http://www.ieee.org/organizations/history_center/>.

6  

Ibid. The book also became known as “Mother Bell’s Cookbook.”

7  

For an excellent description of the early evolution of the semiconductor industry see Kenneth Flamm Mismanaged Trade? Strategic Policy and the Semiconductor Industry, Washington, D.C.: Brookings Institution Press, 1996, pp. 30-31. See the paper by Thomas Howell, “Competing Programs: Government Support for Microelectronics,” in this volume.

8  

Source: U.S. Census Bureau, Annual Survey of Manufactures, 1999, Statistics for Industry Groups and Industries, Series M99(AS)-1, in Statistical Abstract of the United States; 2001, 121st edition. U.S. Census Bureau, U.S. Department of Commerce.

9  

Global market sales in 2000 were about $204 billion according to the SIA (Semiconductor Industry Association). For more information on the semiconductor industry, see <http://www.semichips.org/ind_facts.cfm>.

Suggested Citation:"I. Introduction." National Research Council. 2003. Securing the Future: Regional and National Programs to Support the Semiconductor Industry. Washington, DC: The National Academies Press. doi: 10.17226/10677.
×

FIGURE 1 Semiconductor Value Added: Largest Five Value-Added Manufacturing Industries Compared with Other Major Sectors (Value Added as a Percentage of Value Added by Manufacturers—1999).

SOURCE: US Census Bureau, Annual Survey of Manufacturers.

semiconductor sales has averaged 50 percent of total worldwide sales in the past six years.

The semiconductor industry in 1999 was the largest value-added industry in manufacturing—almost five times the size of the Iron and Steel sector in that year (see Figure 1). It is, in fact, larger in terms of valued added than the Iron and Steel and Motor Vehicle industries (excluding Motor Vehicle Parts—a separate industry classification) combined. As noted below, the electronics industry, largely based on semiconductors, is the largest U.S. manufacturing industry.10

While the manufacturing sector’s contribution to GDP has been shrinking (accounting for just under 16 percent of GDP in 2000), U.S. semiconductor industry sales, as a percentage of output in the manufacturing sector, have increased steadily in the past 15 years, climbing from 1.5 percent of manufacturing GDP in 1987 to reach 6.5 percent in 2000 (See Figure 2).11

10  

Bureau of Economic Analysis, Statistical Abstract of the United States: 2001, Department of Commerce, Table 641, Washington, D.C: U.S. Government Printing Office, 1999, p. 418.

11  

National Research Council calculations derived from sales data from the Semiconductor Research Association and GDP data from the Bureau of Economic Analysis.

Suggested Citation:"I. Introduction." National Research Council. 2003. Securing the Future: Regional and National Programs to Support the Semiconductor Industry. Washington, DC: The National Academies Press. doi: 10.17226/10677.
×

FIGURE 2 Semiconductor Sales as a Percent of Manufacturing GDP.

SOURCES: Semiconductor Sales; SIA GDP; Bureau of Economic Analysis.

These positive trends reflect the strong global economic position of the U.S. industry in a technology which is seen as fundamental to the economy. Given the industry’s contribution to economic growth, other countries have taken a proactive approach to encouraging the development of their national semiconductor industries in order to ensure themselves a place in the technologies that underpin the knowledge-based economy.12

The growing impact of information technologies on economic growth, in large part the result of improvements in semiconductors, has attracted increased attention from leading economists. Yet, the underlying technological challenges facing the semiconductor industry pose a complex set of issues for both the industry and national policy. If the U.S. and global economy are to continue to benefit from the vast increases in semiconductor power characterized by Moore’s Law, a series of impending technical challenges must be overcome. How these challenges are addressed will likely affect future national U.S. competitiveness and leadership in this enabling industry. The first firm, or geographically con

12  

See the Proceedings and Howell, op.cit., as well as earlier National Research Council Analysis.

Suggested Citation:"I. Introduction." National Research Council. 2003. Securing the Future: Regional and National Programs to Support the Semiconductor Industry. Washington, DC: The National Academies Press. doi: 10.17226/10677.
×

centrated group of firms, that resolves the technical challenges facing the industry could develop a position of leadership in semiconductor design and production in the years ahead.

To help their companies meet these technical challenges, a number of countries are making substantial public investments in cooperative R&D. In addition, other firms are pursuing strategies that may ultimately challenge the current business models of U.S. firms.

EARLY PUBLIC SUPPORT FOR THE INDUSTRY

The birth and proliferation of the semiconductor was facilitated by substantial public support in transistor research. By 1952, the U.S. Army’s Signal Corps Engineering Laboratory had funded 20 percent of total transistor-based research at Bell Labs.13 The eagerness of the Defense Department to put to use this innovative and radical new technology encouraged the Signal Corps to fund half of the transistor work by 1953.14

Public support for the nascent semiconductor industry became more prevalent after 1955 when R&D funds were allotted to other companies after the U.S. Department of Justice’s ongoing antitrust suit against Bell Labs pressured Bell into sharing its patents on transistor diffusion processes.15 According to one estimate, the government directly or indirectly funded 40 to 45 percent of all industrial R&D in the semiconductor industry between the late 1950s and early 1970s.16 On the demand side, federal consumption dominated the market for integrated circuits (ICs), which found their first major application in the Minuteman II guided missile. In the 1960s, military requirements were complemented by the needs of the Apollo Space Program.17

Public support played a critical and catalyzing role in the development and initial growth of the semiconductor industry. The groundbreaking inventions that launched the industry were made at Bell Labs, which was in part sustained by U.S. communications policy as well as by defense funding.18 As the initial in

13  

Flamm, op.cit., pp. 30-34.

14  

Ibid.

15  

Ibid.

16  

Ibid. Government research contracts were not an unmixed blessing. Their heavy paperwork and rigidities acted as a significant constraint and could slow the redirection of research to more promising avenues. See Gordon Moore’s comments and presentation in the Proceedings of this report.

17  

For an overview of the government’s early role in the semiconductor industry, and its contributions over time, see Flamm, op.cit. pp. 1-38.

18  

See Michael Borrus, Competing for Control: America’s Stake in Microelectronics, Cambridge, MA: Ballinger, 1988.

Suggested Citation:"I. Introduction." National Research Council. 2003. Securing the Future: Regional and National Programs to Support the Semiconductor Industry. Washington, DC: The National Academies Press. doi: 10.17226/10677.
×

FIGURE 3 Worldwide Semiconductor End Use.

SOURCE: World Semiconductor Trade Statistics and SIA, September 2002.

vention revealed its potential, the government first encouraged the dissemination of the technology, then served as a source of sustained procurement for the most advanced products possible. This well-financed demand contributed directly to the early growth of the industry.19 In 1963, federal contracts accounted for 35.5 percent of total U.S. semiconductor shipments.20 Over the following decades, the semiconductor industry has grown enormously, and the government’s share of semiconductor consumption is now only about 1 percent of a much larger industry (see Figure 3).

THE ECONOMIC CONSEQUENCES OF “FASTER AND CHEAPER”

As noted above, the history of the semiconductor industry has been characterized by rapid growth, concurrently decreasing costs, and growing economic importance. For example, the industry is characterized by high growth rates, averaging 17 percent per annum.21 Semiconductors are also an enabling technol

19  

See also Martin Kenney, Understanding Silicon Valley: The Anatomy of an Entrepreneurial Region. Stanford, CA: Stanford University Press, 2000. Government procurement continues to play a role, albeit a much smaller one. See Flamm, Creating the Computer: Government, Industry, and High-technology, Washington, D.C.: Brookings Institution, 1988

20  

See Table 1-8 in Flamm, Mismanaged Trade? Strategic Policy and the Semiconductor Industry, p. 37.

21  

Semiconductor Industry Association, “World Market Shares 1991-2001,” Data for 1991-2000. San Jose, CA: Semiconductor Industry Association, 2002. See website: <http://www.semichips.org>.

Suggested Citation:"I. Introduction." National Research Council. 2003. Securing the Future: Regional and National Programs to Support the Semiconductor Industry. Washington, DC: The National Academies Press. doi: 10.17226/10677.
×

FIGURE 4 Semiconductor and All Manufacturing Producer Prices (Index 1986=1.00).

SOURCE: Producer Price Index, Bureau of Labor Statistics.

ogy with widespread and steadily growing applications (e.g., in medical technologies and research.)22 As semiconductor prices have steadily declined, investment in information technologies has increased.23 In the early 1950s, for example, a transistor was manufactured at a cost of between $5 and $45. Today, transistors on a microchip cost less than a hundred-thousandth of a cent apiece, which makes their marginal cost essentially zero.24 While the manufacturing sector as a whole has experienced an increase in prices since the mid-1980s, the semiconductor industry has exhibited a deflationary trend (Figure 4), which accelerated in the middle 1990s. The significance of this deflationary trend in semiconductor prices has not only made powerful consumer electronics products more

22  

See National Research Council, Capitalizing on New Needs and New Opportunities: Government-Industry Partnerships in Biotechnology and Information Technologies, Washington, D.C.: National Academy Press, 2001.

23  

Semiconductor prices have declined at an annual rate of 30 percent in the past three decades. For an in-depth, technical discussion of semiconductor price evolution and its impact on information technology investment, see Jorgenson, op.cit.

24  

The exponential increase in power of the integrated circuit in the past several decades has been commensurately matched by a decrease in cost of each additional transistor on a chip. For a brief discussion of the decreasing cost of each new generation of integrated circuits, see National Academy of Engineering website; <http://www.greatachievements.org/greatachievements/ga_5_2.html>.

Suggested Citation:"I. Introduction." National Research Council. 2003. Securing the Future: Regional and National Programs to Support the Semiconductor Industry. Washington, DC: The National Academies Press. doi: 10.17226/10677.
×

accessible, but has spurred increased business investment in information technology, which has in turn catalyzed improvements in productivity.

The ability to increase device power and decrease device cost underlies the semiconductor industry’s growth. In 1965, just seven years after the invention of the integrated circuit, Gordon Moore predicted that the number of transistors that would fit on an integrated circuit, or chip, would double every year. He tentatively extended this forecast for “at least 10 years.” 25 At that time, the world’s most complex chip had 64 transistors. Dr. Moore’s extrapolation proved to be highly accurate in describing the evolution of the transistor density of a chip. By 1975, some 65,000 transistors fit on a single chip. More remarkably, Moore’s general prediction has held true to present day, when microcircuits hold hundreds of millions of transistors per chip, connected by astonishingly complex patterns.26

The implications of Moore’s Law have been far-reaching. Since the doubling in chip density was not accompanied by commensurate increases in cost, the expense of each transistor was halved with each doubling. With twice as many transistors, a chip could store twice as much data. Higher levels of integration meant that greater numbers of functional units could be placed onto the chip, and more closely spaced devices—such as the transistors—could interact with less delay. Thus, these advances gave users increased computer processing power at a lower price, consequently spurring chip sales and a demand for yet more power.27 Beginning in the late 1970s, the use of semiconductors became more pervasive, spreading from computers to air traffic control systems, microwave

25  

See Gordon E. Moore, “Cramming More Components onto Integrated Circuits,” Electronics 38(8) April 19, 1965. Here, Dr. Moore notes that “[t]he complexity for minimum component costs has increased at a rate of roughly a factor of two per year. Certainly over the short term, this rate can be expected to continue, if not to increase. Over the longer term, the rate of increase is a bit more uncertain, although there is no reason to believe it will not remain nearly constant for at least 10 years. That means by 1975, the number of components per integrated circuit for minimum cost will be 65,000.” See also, Gordon E. Moore, “The Continuing Silicon Technology Evolution Inside the PC Platform,” Intel Developer Update, Issue 2, October 15, 1997, where he notes that he “first observed the ‘doubling of transistor density on a manufactured die every year’ in 1965, just four years after the first planar integrated circuit was discovered. The press called this ‘Moore’s Law’ and the name has stuck. To be honest, I did not expect this law to still be true some 30 years later, but I am now confident that it will be true for another 20 years.”

26  

Ibid. See also Michael Polcari’s presentation in the Proceedings, which discusses the progression of Moore’s Law.

27  

For a complete analysis of the impact of the increase in the power of the semiconductor accompanied by its subsequent decline in price, and its positive influence on economic growth, see Jorgenson, op.cit. See also G. Dan Hutcheson and Jerry D. Hutcheson, “Technology and Economics in the Semiconductor Industry,” Scientific American, <http://www.sciam.com/specialissues/1097solidstate/1097hutch.html>.

Suggested Citation:"I. Introduction." National Research Council. 2003. Securing the Future: Regional and National Programs to Support the Semiconductor Industry. Washington, DC: The National Academies Press. doi: 10.17226/10677.
×

FIGURE 5 Employment 1972-2001: Semiconductor and Related Devices Industries.

SOURCE: Bureau of Labor Statistics, Form 790.

ovens, video cameras, watches, grocery checkout machines, automobiles, touch-tone phones, wireless communications, and satellite broadcasts.

A DRIVER OF MODERN INDUSTRY

The semiconductor has become the engine of growth for many fledging industries, as well as a source of revitalization and increased efficiency for more established industries (see Box A). Consequently, semiconductors, as well as related industries, have acquired significant global visibility and have become targets of national economic priority in many countries. As of August 2001, the semiconductor industry employed some 284,000 people in the United States alone.28 The industry, in turn, provides enabling technologies for the $425 billion U.S. electronics industry.29Figure 5 exhibits the employment trends in Semiconductor and Related Device industries dating back to 1972. The cyclicality of the industry is evident, but employment has increased steadily by more than two-and-a-half times since 1972.

Importantly, the semiconductor industry is a substantial source of high-wage jobs. In addition to the increase in overall industry employment, real average

28  

According to the Semiconductor Industry Association, the semiconductor industry employs some 283,875 within the U.S. See <http://semichips.org/ind_facts.cfm>.

29  

This recent estimate is from Cahners Business Information at <http://www.cahners.com/2001>.

Suggested Citation:"I. Introduction." National Research Council. 2003. Securing the Future: Regional and National Programs to Support the Semiconductor Industry. Washington, DC: The National Academies Press. doi: 10.17226/10677.
×

BOX A WHY DO NATIONAL POLICIES FOCUS ON THE SEMICONDUCTOR INDUSTRY?

The semiconductor industry, characterized by yearly increases in performance and concurrent price decreases, has had a distinctive positive impact on the economy. It is—

  • An Enabling Industry. Semiconductors serve as key inputs to a wide variety of intermediate and final products and services, ranging from construction to finance and banking. Semiconductors make positive contributions to the productivity of these sectors.

  • A Key Contributor to Enhanced Economic Growth. Performance increases and price decreases in semiconductor-based products are a boon not only for consumers; they also make lower-priced, higher-powered investment goods available for all sectors of the economy— business large and small. Faster and cheaper information technologies, when brought on line by companies, can increase worker productivity. Semiconductors are a driver of the high-tech revolution.

  • A Source of High-Wage Job Creation. The semiconductor industry is a knowledge-based manufacturing industry which creates high-wage jobs. By contrast, the manufacturing sector as a whole has witnessed a stagnation and slight decline of average pay over the past 30 years (See Figure 6).a

  • A Source of Competitive Advantage. Increases in semiconductor productivity lead to more rapid advances in information technology. Possessing the latest technologies can often translate into a competitive advantage for firms investing in high-tech equipment.

  • A Key Element in National Defense. Semiconductors have played and will continue to play an increasing role in promoting national security. From the original Minuteman II missile to future wireless-network battlefield capabilities such as BARS (Battlefield Augmented Reality System), semiconductor advances will have direct, positive consequences for improving our defense against old and new threats.b

a  

Source: Earnings—Bureau Labor Statistics, Form 790; Consumer Price Index, All Items—Bureau Labor Statistics Statistical Abstract of the United States; 2001, 121st edition. U.S. Census Bureau, U.S. Department of Commerce.

b  

The Office of Naval Research (ONR) is sponsoring research on Battlefield Augmented Reality Systems. The project examines how information can be relayed between a tactical command center and soldiers in an urban battlefield environment.

Suggested Citation:"I. Introduction." National Research Council. 2003. Securing the Future: Regional and National Programs to Support the Semiconductor Industry. Washington, DC: The National Academies Press. doi: 10.17226/10677.
×

FIGURE 6 Average Hourly Earnings 1972-2001: Semiconductor and Related Device Industries and All Manufacturing (2001 Constant Dollars).

SOURCES: Earnings—Bureau of Labor Statistics, Form 790; Consumer Price Index, All Items—Bureau of Labor Statistics.

hourly earnings in the semiconductor and related device industries, shown in Figure 6, have risen a remarkable 50 percent in the past 30 years—from roughly $14.50 in 1972 to about $21.50 today in 2001 dollars. This sizeable increase in real average hourly earnings for the semiconductor industry stands in stark contrast to the stagnation and then decline in real wages in the manufacturing sector as a whole over the same 30-year period. Real wages for the overall manufacturing sector declined by about 6 percent over this period.30

AN ENABLING INDUSTRY

Some believe that the advances in semiconductors and computers are responsible for the increases in productivity throughout the economy. For example, the semiconductor lies at the heart of the computer (desktop computers, workstations, servers, etc.), which is the foundation of increases in firm productivity and provides the platform for the Internet. The Internet subsequently provides the platform for the World Wide Web, which then provides a foundation for e-com

30  

This decline is likely underestimated since the figures used here for overall manufacturing real wages include the semiconductor and related device industries.

Suggested Citation:"I. Introduction." National Research Council. 2003. Securing the Future: Regional and National Programs to Support the Semiconductor Industry. Washington, DC: The National Academies Press. doi: 10.17226/10677.
×

merce. In addition, the semiconductor drives the rapidly evolving world of wireless communication and a vast and growing universe of computer-enabled information digitization.

As was noted in the opening remarks of this symposium, the semiconductor industry carries an importance far beyond the specific trade, employment, and revenue figures of the industry itself. The industry is responsible for “much of the recent productivity gains in computers, communications, and software.”31

The “digital economy” and the corresponding positive synergistic relation to the remarkable period of productivity growth in the 1990s has been acknowledged by the Federal Reserve in its public discourse, as well as reflected in its monetary policy. During the middle part of that decade, Alan Greenspan, Chairman of the Federal Reserve Board, suggested that the nation’s expenditures on semiconductor-based products and the gains in productivity expected to accompany these expenditures characterize a far-reaching economic transformation:

We are living through one of those rare, perhaps once-in-a-century events….The advent of the transistor and the integrated circuit and, as a consequence, the emergence of modern computer, telecommunication, and satellite technologies have fundamentally changed the structure of the American economy.32

Reflecting this investment, high technology firms also create positive spillovers, which affect society in many ways. Spillovers benefit other commercial sectors by generating new products and processes that can lead to productivity gains. A substantial literature in economics underscores the potential for high returns from technological innovation; it shows private innovators obtaining rates of return in the 20 to 30 percent range and spillover (or social return) averaging about 50 percent.33

High-technology products are a major source of growth in the major industrialized countries. Sectors such as aerospace, biotechnology, and information systems contribute to the growing global market for high-technology manufactured goods. While subject to pronounced cyclical swings, high-technology firms are

31  

See Bill Spencer’s comments in the introduction of the proceedings in this volume. The view is supported by recent research. See Dale W. Jorgenson and Kevin J. Stiroh, “Raising the Speed Limit: U.S. Economic Growth in the Information Age,” Brookings Papers on Economic Activity 1, 2000, p. 2. See also National Research Council, Measuring and Sustaining the New Economy, D. Jorgenson and C. Wessner, eds., Washington, D.C.: National Academy Press, 2002.

32  

Testimony of Alan Greenspan before the U.S. House of Representatives’ Committee on Banking and Financial Services, July 23, 1996.

33  

For example, see M. Ishaq Nadiri, Innovations and Technological Spillovers, NBER Working Paper 4423, August 1993. See also, Council of Economic Advisers, Supporting Research and Development to Promote Economic Growth: The Federal Government’s Role, Washington, D.C.: Government Printing Office, 1995.

Suggested Citation:"I. Introduction." National Research Council. 2003. Securing the Future: Regional and National Programs to Support the Semiconductor Industry. Washington, DC: The National Academies Press. doi: 10.17226/10677.
×

also associated with high-value-added manufacturing and with the creation of high-wage employment.34 Together, these contributions provide the productivity gains that underpin recent economic performance.35

SEMICONDUCTORS AND PRODUCTIVITY

In the late 1970s and early 1980s, there was a significant loss in global market share by many U.S. industries to Japanese producers. An extensive literature in the social sciences has focused on the decline in U.S. industry during this period. One influential study reported that U.S. manufacturers in general had lost the ability to compete internationally, especially with Japan, and that the U.S. industrial weakness was part of a longer period of decline.36

Part of this pessimism was connected to the multi-decade trend of low productivity growth, loss of market share for many U.S. industries, and rapid growth in the trade deficit. Despite large investments in purported labor-saving systems—especially information technology—productivity remained low through the first half of the 1990s, just as it had since 1973. As recently as 1997, many economists were convinced of the validity of the so-called productivity paradox— Robert Solow’s casual but oft-repeated remark made in 1987: “We see the computer age everywhere except in the productivity statistics.”37

In the middle 1990s, however, several significant trends became apparent. One was the relatively rapid and widespread adoption of the Internet and other information technology (IT), which allowed not only individuals but also businesses to benefit from previously unavailable low-cost communication. Another was a sudden acceleration in the decline of semiconductor and computer prices. In a recent paper, Dale W. Jorgenson and Kevin J. Stiroh describe this acceleration as a “point of inflection,” where the price decline abruptly rose from 15 percent annually to 28 percent. In response to this rapid price decline, investment in computer technology exploded, and its contribution to growth rose more than

34  

Laura Tyson, Who’s Bashing Whom? Trade Conflict in High Technology Industries, Washington D.C.: Institute for International Economics, 1992. For the impact of the telecommunication industry’s downturn on the semiconductor industry, see Richard Gawel, “Semiconductor Equipment Shipments Plummet 35%” Electronic Design, Aug 20, 2001, Volume: 49, Issue: 17, p. 38; and Bolaji Ojo, “IC Equipment Makers Batten Down—Focusing On Next-Generation Technology As Demand Plummets,” EBN, Jul 23, 2001, Special Volume/Issue: Issue: 1272, p.20.

35  

See Jorgenson and Stiroh, op. cit. For the most recent, as well as historical data on productivity, see Bureau of Labor Statistics website at <http://www.bls.gov/lpc/home.htm>.

36  

Robert M. Solow, Michael Dertouzos, and Richard Lester, Made in America, MIT Press, Cambridge, MA, 1989.

37  

Robert Solow, “We’d Better Watch Out,” New York Times Book Review, July 12, 1987.

Suggested Citation:"I. Introduction." National Research Council. 2003. Securing the Future: Regional and National Programs to Support the Semiconductor Industry. Washington, DC: The National Academies Press. doi: 10.17226/10677.
×

fivefold. Jorgenson and Stiroh find that computers contributed 0.46 percentage points to the 2.4 percent productivity growth in the period from 1995 to 1998.38 Software and communications equipment contributed an additional 0.30 percentage points per year over the same period. Preliminary estimates through 1999 revealed further increases for all three categories (computers, communications equipment, and software).39

Jorgenson and Stiroh’s analysis builds the case for “raising the speed limit,” that is, for revising upward the intermediate-term projections of growth for the U.S. economy. They noted that after a 20-year slowdown, dating from the early 1970s, average labor productivity had grown by 2.4 percent per year during the period 1995-1998, exceeding the rate for 1990-1995 by a full percentage point. Even the most recent downturn in the U.S. economy seems to have left much of this increase in productivity intact.40 In short, Jorgenson and Stiroh’s research supports the notion that the economy is on a higher-productivity path, similar to that experienced from the early 1950s through the early 1970s, as suggested by Figure 7.

In related work, the National Research Council’s Board on Science, Technology, and Economic Policy produced an analysis examining what some see as the resurgence of U.S. industry.41 This analysis finds that over the previous 15 years, many industries in the United States had succeeded in regaining competitive positions relative to their counterparts abroad.42 Importantly, of the industries reviewed, over half had been transformed by the use of information technology, which rests fundamentally on developments in semiconductor technology and software. One sector of focus in this study is the U.S. semiconductor industry, which the research found to have returned to international pre-eminence by the late 1990s.43

In sum, the American economy has benefited from the contributions of the information technology industry, not least through its contributions to productiv

38  

An MGI study is more cautious but finds that the semiconductor industry alone contributed 0.20 percentage points to the 1.33 percent jump in productivity from the 1995-1999 period. For more of MGI’s conclusions concerning the impact of the semiconductor industry on growth, see <http://www.mckinsey.com/knowledge/mgi/feature/index.asp>.

39  

Jorgenson and Stiroh, op.cit. See also National Research Council, Measuring and Sustaining the New Economy.

40  

“Productivity Growth May Be Here to Stay,” Wall Street Journal, January 7, 2002. p. A1.

41  

See National Research Council, U.S. Industry in 2000: Studies in Competitive Performance.

42  

In some cases the perceived decline of U.S. industry was overstated. See Macher, Mowery, and Hodges, op.cit.

43  

Ibid. For a discussion of the factors leading to the resurgence of the U.S. semiconductor industry, see below.

Suggested Citation:"I. Introduction." National Research Council. 2003. Securing the Future: Regional and National Programs to Support the Semiconductor Industry. Washington, DC: The National Academies Press. doi: 10.17226/10677.
×

FIGURE 7 Productivity Growth for Three Periods: 1953–1973; 1974–1994; 1995–2001.

SOURCE: Labor Productivity, Bureau of Labor Statistics.

ity.44 Leading researchers now believe that Solow’s paradox has been resolved.45 The information technology revolution is finally visible in productivity statistics.46 As the Council of Economic Advisers noted, “even though economists

44  

Council of Economic Advisers, Economic Report of the President, Washington, D.C.: U.S. Government Printing Office, 2001, p. 34 and passim.

45  

Ibid. See also Dale W. Jorgenson, “Presidential Address to the American Economic Association, New Orleans, Louisiana, January 2001. See also Joseph H. Haimowitz, “Has the Surge in Computer Spending Fundamentally Changed the Economy?” Economic Review, Federal Reserve Bank of Kansas City, Second Quarter, pp. 27-42, 1998. For a historical perspective on the sources of U.S. economic growth, see Robert J. Gordon, “U.S. Economic Growth Since 1870: What We Know and Still Need to Know,” American Economic Review, Papers and Proceedings, 89(2): 123-128, 1999. See also Martin Bailey and Robert Z. Lawrence, “Do we have an e-conomy?” NBER Working Paper 8243, April 2001, and Alan S. Blinder, “The Internet and the New Economy,” Policy Brief No. 60, Brookings Institution, Washington, D.C., June 2000.

46  

Ibid. See also the discussion by Flamm, “Microprocessors and Computers,” Measuring and Sustaining the New Economy. In recent years Flamm has marshaled economic evidence to demonstrate that the semiconductor industry has been the key force in the revival of industries related to information technology. See also Martin Neil Baily and Robert J. Gordon, “The Productivity Slow-

Suggested Citation:"I. Introduction." National Research Council. 2003. Securing the Future: Regional and National Programs to Support the Semiconductor Industry. Washington, DC: The National Academies Press. doi: 10.17226/10677.
×

differ as to the correct way to adjust for responses to the business cycle, the finding that a structural acceleration has taken place is robust.”47 The council finds that a breakdown of the sources of this accelerated productivity suggests three lessons:

  • “The information technology sector itself has provided a direct boost to productivity growth….;

  • “The spread of information technology throughout the economy has been a major factor in the acceleration of productivity through capital deepening…;” and

  • “Outside the information technology sector, organizational innovations and better ways of applying information technology are boosting the productivity of skilled workers.”48

The sustainability of this growth resurgence, however, depends on the rate of current and future technological progress, which itself depends on the level and effectiveness of the nation’s R&D investments, both private and public, as well as on the maintenance of supportive macroeconomic policy.49

TECHNICAL CHALLENGES AND SOARING CAPITAL COSTS

For more than 30 years the growth of the semiconductor industry has been largely associated with the ability to steadily and quickly shrink the transistor and increase its speed without increasing costs. If the increases in productivity observed since 1995 depend on the increases in semiconductor power characterized

   

down, Measurement Issues and the Explosion of Computer Power,” Brookings Papers on EconomicActivity, 2:347-420, 1988; Alan S. Blinder, “The Speed Limit: Fact and Fantasy in the Growth Debate,” The American Prospect, 34 (September/October): 57-62, 1997; Erik Brynjolfsson and Shinkyu Yang, “Information Technology and Productivity: A Review of the Literature,” Advances inComputers, 43 (February): 179-214, 1996; Council of Economic Advisers, The Annual Report of theCouncil of Economic Advisers, Washington D.C.: U.S. Government Printing Office, 2000; Robert J. Gordon, “Has the New Economy Rendered the Productivity Slowdown Obsolete?” Manuscript, Northwestern University, June 12, 1999; Dale W. Jorgenson, “Information Technology and Growth,” AER, 89(2): 109-115, 1999; Kevin J. Stiroh, “Computers, Productivity, and Input Substitution,” Economic Inquiry, XXXLI(2): 175-191, 1998; Kevin J. Stiroh, “Is there a New Economy?” Chal-lenge, 42(4):82-101, 1999; Jack E. Triplett, “Economic Statistics, the New Economy, and the Pro-ductivity Slowdown,” Business Economics, XXXIV(2):13-17, 1999.

47  

Council of Economic Advisers, Economic Report of the President, 2001 p. 28. The report cautions, however, that it is uncertain whether the structural trend that emerged in 1995-2000 will continue or moderate again.

48  

Ibid, p. 33.

49  

See the analysis of these issues by Jorgenson and Stiroh, op. cit.

Suggested Citation:"I. Introduction." National Research Council. 2003. Securing the Future: Regional and National Programs to Support the Semiconductor Industry. Washington, DC: The National Academies Press. doi: 10.17226/10677.
×

by Moore’s Law, then a continuation of productivity increases will likely depend on the ongoing benefits associated with the process of “scaling” in microelectronics.50

Other challenges facing the industry include the need to substantially improve packaging technology in order to house and interconnect the next generation of chips emerging from the silicon foundries. Further, development and progress are also needed in the area of chip-level CAD (Computer Aided Design) tools as well. Absent dramatic innovation in these two areas, it may prove impossible to exploit the enhanced functionality, gate density, and speed of future semiconductor products, creating a disincentive for new-product adoption and leading to stagnation in semiconductor sales.51

The reduction in semiconductor size, however, may now be approaching important critical limits. In a recent paper, Paul Packan of Intel Corporation described some of these limits, including odd and undesirable quantum effects that appear under extreme miniaturization. For example, the gates that regulate the flow of electrons within semiconductor devices have become so short that electrons can tunnel through them even when they are closed. In addition, dopants, impurities mixed with silicon that increase its ability to hold localized charges, must be added in progressively higher concentrations as device size shrinks in order to enable them to hold the same charges. At a certain concentration, dopant atoms begin to interact with each other to form clusters that no longer hold a charge. Transistor dimensions have shrunk to such an extent that small changes in the exact number and precise distribution of individual dopant atoms can change the behavior of the device. Packan’s conclusion is expressed in sobering words:

“These fundamental issues have not previously limited the scaling of transistors and represent a considerable challenge for the semiconductor industry. There are currently no known solutions to these problems. To continue the performance trends of the past 20 years and maintain Moore’s Law of improvement will be the most difficult challenge the semiconductor industry has ever faced.”52

50  

See Bill Spencer’s discussion of semiconductors in National Research Council, Measuring and Sustaining the New Economy.

51  

For a discussion of the issues involved with chip packaging, see James Malatesta and Ron Bauer, “A Chip-Scale Packaging Primer,” Printed Circuit Design; San Francisco, 17(3): 10-18, 2000. More issues in advanced chip packing are highlighted in Peter Singer, “Consortiums Address Advanced Packaging Requirements,” Semiconductor International; 25(6): 46, 2002.

52  

Paul A. Packan, “Pushing the Limits: Integrated Circuits Run Into Limits Due to Transistors,” Science, September 24, 1999. While scaling has driven the progress of semiconductor power for decades, it is not the only source of competitive advantage among firms. Innovation in both hardware and software presents the high-value-added features of U.S. firms and highlights the importance of establishing market leadership through innovation in product design.

Suggested Citation:"I. Introduction." National Research Council. 2003. Securing the Future: Regional and National Programs to Support the Semiconductor Industry. Washington, DC: The National Academies Press. doi: 10.17226/10677.
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The industry also faces the additional challenge of the soaring cost of manufacturing chips. When Intel was founded in 1968, a single machine used to produce semiconductor chips cost roughly $12,000. Today a chip-fabricating plant costs billions of dollars, and the expense is expected to continue to rise as chips become ever more complex. Adding to this concern is the realization that capital costs are rising far faster than revenue.53 In 2000, for example, average total expenditures for a six-inch-equivalent “wafer” were $3,110, an increase of 117 percent over the average total costs for a six-inch wafer in 1989, and a 390 percent increase since 1978.54

The consensus in the engineering community is that improvements, both large and small, will continue to uphold Moore’s Law for another decade or so, even as scaling brings the industry very close to the theoretical minimum size of silicon-based circuits.55 To the extent that physical constraints or cost pressures limit the continued growth of the industry, however, they will necessarily influence the role of the industry in stimulating productivity growth in the broader economy. As capital costs rise, fabrication capacity increases, and alternative business models (e.g., the foundry system) gain prominence, the competitive position of some U.S. device manufacturers (e.g., the merchant semiconductor producers) may be challenged,56 while other U.S. firms may prosper in the new environment.

Greater Vertical Specialization: The Emergence of the Foundries and Fabless Firms57

Significant shifts are occurring in the semiconductor industry with a strong

53  

Charles C. Mann, “The End of Moore’s Law?” Technology Review, May/June 2000, <http://www.technologyreview.com/magazine/may00/mann.asp>.

54  

These statistics originate from the Semiconductor Industry Association, 2001 Annual Databook: Review of Global and U.S. Semiconductor Competitive Trends, 1978-2000. A wafer is a thinly sliced (less than 1 millimeter) circular piece of semiconductor material which is used to make semiconductor devices and integrated circuits.

55  

See discussion by Bob Doering of Texas Instruments on “Physical Limits of Silicon CMOS and Semiconductor Roadmap Predictions,” at the National Academies Symposium, Productivity and Cyclicality in the Semiconductor Industry, held at Harvard University, September 24, 2001.

56  

See remarks by George Scalise, President of the Semiconductor Industry Association, at the National Academies Symposium; Productivity and Cyclicality in the Semiconductor Industry, held at Harvard University, September 24, 2001.

57  

Much of the information and description in this section is adapted from a presentation by D.A. Hodges and R.C. Leachman, “The New Geography of Innovation in the Semiconductor Industry.” For the full presentation, see <http://web.mit.edu/ipc/www/hodges.pdf>. See also R. C. Leachman and D. A. Hodges, “Benchmarking Semiconductor Manufacturing,” IEEE Transactions on Semiconductor Manufacturing, TSM-9, pp. 158-169 (May 1996). <http://radon.eecs.berkeley.edu/~hodges/BenchmarkingSM.pdf>

Suggested Citation:"I. Introduction." National Research Council. 2003. Securing the Future: Regional and National Programs to Support the Semiconductor Industry. Washington, DC: The National Academies Press. doi: 10.17226/10677.
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trend toward more vertically specialized firms.58 This increased “vertical disintegration” means that more firms are either dedicating their resources to the manufacture of chips designed by others (the foundry model) or are choosing to specialize solely in the design of chips (the “fabless” firm).

Several factors are encouraging greater vertical specialization. For example, the opportunities now available in “system-on-a-chip” design, a focus on specialized markets, new market channels, and the different skill requirements for design and manufacture are all contributing to this trend.59 For design firms, the different time scales and levels of investment necessary for manufacturing have helped to accelerate the trend toward vertical specialization. Further accelerating these structural changes is the reduced attractiveness of niche markets for many Integrated-Device Manufacturers (IDMs). These structural shifts mean that effectively competing in the design and manufacture of chips requires differently skilled firm workforces making it difficult for some IDMs to competitively engage in both design and manufacturing.

Another major driver enabling the separation of design and manufacturing is the maturation and standardization of both electronic design automation and process technologies. These include CMOS (complimentary metal-oxide semiconductor) technology—the microelectronic technology used in almost all microprocessors, memory products, and application-specific integrated circuits (ASICS). More accurate physical process developments, more accurate process characterization for design, better software design tools, and the rise of foundries with state-of-the-art manufacturing technology have all facilitated this structural transformation.

Foundries

The manufacturing segment of the market is increasingly characterized by the foundry, whose focus is on high productivity and rapid turnaround from design to product. Foundries also permit production of smaller batches of specialized chips at commodity-like costs. These fabrication facilities (“fabs”), where firms produce semiconductors under contract with other companies, have expanded rapidly, particularly in East Asia. Taiwan Semiconductor Corporation (TSMC) and United Semiconductor Corporation (UMC) hold about 65 percent of global market share of foundry-based production, with firms from other Asian nations and the United States (IBM) holding the remainder.60 Tight quality control,

58  

The global supply chain in the semiconductor industry begins with a $10 billion (in year 2000) raw material segment, where Japan and Germany dominate in silicon refining. The next step in the chain is manufacturing equipment—an approximately $45 billion per year segment where Japan and the European Union lead in optical design, while the U.S. leads in other equipment with companies like Applied Materials and KLA-Tencor. The next segment of the market, Electronic Design Automation (EDA), is dominated by U.S. firms such as Synopsis, Cadence, and Mentor. Ibid.

59  

Ibid.

60  

Ibid.

Suggested Citation:"I. Introduction." National Research Council. 2003. Securing the Future: Regional and National Programs to Support the Semiconductor Industry. Washington, DC: The National Academies Press. doi: 10.17226/10677.
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rigorous manufacturing discipline, a fast, standardized production process, and short cycle times are typical characteristics of a successful foundry. Such foundries also provide top-of-the-line Internet-based customer service, while also protecting proprietary customer designs. The big gain is that foundries permit firms to bring products to market without raising and investing the capital required for an advanced manufacturing facility. This model of production can offer substantial cost savings in manufacturing new generations of chips. These cost savings may be accentuated by lower capital costs that reflect the impact of preferential tax treatment and more direct government subsidies for industries that are viewed as strategic by government policy makers in countries such as Taiwan.61

Fabless Design Firms

The emergence of design houses or “fabless” firms—firms which specialize in the design of semiconductors only and do not produce them—is yet another sign of vertical specialization in the industry and functions congruently with the foundry model of production. The modest amount of investment necessary for market entry, the short time to market, and the prospect of rapid growth have established design firms as high-risk, high-reward entrepreneurial vehicles. This degree of specialization has also accelerated the pace of product innovation. Success in the design segment of the semiconductor supply chain is determined by providing the right product features at the right market time. The integration of system and circuit designers and the achievement of flawless design discipline are key to a successful design firm. Fabless firms also need access to high-quality manufacturing—through foundries—and for new design firms, a path to market entry.

Over time, the development of new technologies, especially manufacturing technologies, may become more closely associated with the foundries themselves. Significant technical capability and know-how may be transferred, particularly as design houses, such as those in Hsinchu Park in Taiwan, are increasingly involved. The consequences of this phenomenon are not clear, nor are they unidirectional. As noted above, in the near term, the availability of low-cost, high-quality fabrication facilities can work to the benefit of U.S. design firms.62 In periods of surplus manufacturing capacity, design firms can do well by benefiting

61  

Because the foundry concept was considered risky at TSMC’s founding, 44 percent of TSMC’s initial capitalization was provided by the Taiwanese Cabinet’s Development Fund. See the discussion of foundries in Howell, op. cit.

62  

According to IC Insights, Inc. seven of the top fabless firms are U.S. based (e.g., Qualcomm, Nvidia, and Xilinx). See <www.siliconstrategies.com/story/OEG20020329S0036>.

Suggested Citation:"I. Introduction." National Research Council. 2003. Securing the Future: Regional and National Programs to Support the Semiconductor Industry. Washington, DC: The National Academies Press. doi: 10.17226/10677.
×

from the foundries’ rapid production of new products without bearing the burden of the long lead times and high fixed costs of modern fabs. Design firms may do less well in periods of high capacity utilization, particularly if they face competition in the same market from their suppliers. 63

The push toward vertical specialization contrasts with much of the U.S. industry, notably the merchant device manufacturers, which typically house both design and production under one roof. This specialization poses interesting questions for U.S. producers, and ultimately for the trajectory of the U.S. economy. As described below, much of the resurgence in the U.S. industry as a whole is derived from its renewed capability in manufacturing, combined with its strength in design. Improved manufacturing was central to the recovery of the industry, and manufacturing continues to play an essential role in the development of new technology for the industry.64 Manufacturing expertise and the construction of new fabrication facilities drive infrastructure development. The demands of manufacturing advance have conditioned the development of the nation’s semiconductor technology infrastructure (i.e., suppliers of manufacturing equipment, test equipment, and materials). Should the locus of manufacturing continue to shift overseas, it will erode this process of technology and infrastructure development associated with manufacturing.65

In part, the trend toward expanded overseas manufacturing reflects the global scale of the industry and its rising capital costs for fabrication facilities. This trend also reflects the active industrial policies of leading East Asian economies.66 The combination of greater vertical specialization and the impact of national policies to support local growth of the industry are changing the competitive environment. Increasingly, U.S. producers face challenges from the substantial capacity generated by government-supported fabrication facilities abroad.67 The

63  

Leachman and Hodges identify inadequate access to manufacturing capability as one of the causes for failure of design firms. See Leachman and Hodges, op.cit. See also Howell, op.cit.

64  

See Macher, Mowery, and Hodges, op. cit., passim.

65  

This would, in turn, compromise to some extent the contributions of the industry to higher wages and increased productivity. Over time, it could also mean a shift in the technological lead the country has enjoyed, with its attendant implications for national security. These concerns were the topic of a conference, The Global Computer Industry Beyond Moore’s Law: A Technical, Economic, and National Security Perspective,” a Joint Strategic Assessment Group (SAG) and Defense Advanced Research Projects Agency (DARPA) Conference, January 14-15, 2002, Tyson’s Corner, VA.

66  

For example, Singapore and Malaysia have contributed significant public funds and have extended unprecedented tax incentives to companies constructing “fabs,” while Taiwan has approximately 100 “design houses,” also supported through various incentives by the government. See Howell, op. cit.

67  

See “The Great Chip Glut,” The Economist, August 11, 2001.

Suggested Citation:"I. Introduction." National Research Council. 2003. Securing the Future: Regional and National Programs to Support the Semiconductor Industry. Washington, DC: The National Academies Press. doi: 10.17226/10677.
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recovery of the U.S. industry, described below, does not mean that its current competitive strength can be taken for granted.68

A related issue of significant concern is the impact of these trends on the R&D funding that drives the industry. To date, the foundries have tended to be fast followers—rapidly adopting the new manufacturing technologies that drive the industry but making relatively modest R&D investments of their own. As the foundries gain market share, it is not clear whether the R&D investments required to sustain the industry’s exceptional growth will continue to be made.69

CHALLENGES OF MAINTAINING SUFFICIENT HUMAN CAPITAL

The unprecedented technical challenges faced by the industry underscore the need for talented individuals—the so-called “architects” of the future—to devise new solutions to these technical challenges.70 This need is emerging at the same time as the pool of available skilled labor is shrinking. There is widespread concern about the supply of workers and researchers for the semiconductor industry. Almost without exception, top management and researchers from the leading consortia and companies expressed misgivings about the adequacy of the labor force to meet foreseeable demand as the industry begins to recover from its current steep cyclical downturn. The increasing technical challenges faced by the industry are compounding this need and may make competition for skilled labor an integral part of international competition within the industry.

Historically, the U.S. government has supported human resources through its system of funding basic research at universities, whereby the work and training of graduate students and postdoctoral scholars are supported by research grants to principal investigators. However, the rapid growth in demand for skilled engineers, scientists, and technicians is generating challenges for the industry and national policy on several fronts.

In recent years, federal funding for university research has declined steeply in sciences relevant to information technologies—such as mathematics, physics, and engineering (See Figure 8). This falloff in U.S. production of undergraduate

68  

As a recent National Research Council assessment of the resurgence of the industry concluded: “Some foreign producers, notably Taiwanese semiconductor firms, now are entering markets traditionally dominated by U.S. producers, a development that will intensify pressure on U.S. firms and increase the importance of manufacturing performance for competitive leadership.” See Macher, Mowery, and Hodges, op.cit., p. 283-284.

69  

A significant portion of the R&D burden is devolving to the equipment producers.

70  

David Tennenhouse, vice-president and Director of Research and Development at Intel, emphasized this point in his presentation at The Global Computer Industry Beyond Moore’s Law: A Technical, Economic, and National Security Perspective, a Joint Strategic Assessments Group (SAG) and Defense Advanced Research Projects Agency (DARPA) Conference, January 14-15, 2002.

Suggested Citation:"I. Introduction." National Research Council. 2003. Securing the Future: Regional and National Programs to Support the Semiconductor Industry. Washington, DC: The National Academies Press. doi: 10.17226/10677.
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FIGURE 8 Real Changes in Federal Obligations for Research FY 1993–1999 (Real 1999 Dollars).71

engineers and graduate students in disciplines such as chemistry and physics is arguably linked to the decline in federal research support in these fields.

For more than a decade, U.S. graduate schools have depended on large numbers of foreign-born students and faculty to staff their laboratories and teach in their programs. The United States continues to attract foreign students, as well as scientists and engineers, who want to study, live, and work here. Increasingly, this group of highly skilled workers encounters significant inducements to return home.72

Most disconcerting from the U.S. perspective is the fact that the number of individuals graduating from U.S. universities with electrical engineering degrees has exhibited a declining trend since the mid-1980s (see Figure 9).73 Some well-

71  

See M. McGeary and S.A. Merrill, “Recent Trends in Federal Spending on Scientific and Engineering Research: Impacts on Research Fields and Graduate Training,” Appendix A in National Research Council, Securing America’s Industrial Strength. Washington D.C.: National Academy Press, 1999.

72  

See Howell, op. cit.

73  

In 1988 approximately 24,000 people graduated from U.S. universities with bachelor’s degrees in electrical and electronic engineering. By 1997 this total had fallen below 14,000, and it is not forecast to increase significantly in the foreseeable future, whereas current estimates put the production of engineers in China at about 150,000 per year. Engineering Workforce Commission statistics and SRC projections presented by Dr. Michael Polcari of IBM at the Symposium on National Programs to Support the Semiconductor Industry, October 2000.

Suggested Citation:"I. Introduction." National Research Council. 2003. Securing the Future: Regional and National Programs to Support the Semiconductor Industry. Washington, DC: The National Academies Press. doi: 10.17226/10677.
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FIGURE 9 Electrical Engineering Graduates: Bachelor’s Degrees Earned, 1975-2000.

SOURCE: National Science Foundation, Science & Engineering Indicators 2000, 1975-1987 Engineering Workforce Commission 1988-2000.

informed industry representatives see a growing problem. For example, John Kelley of Novellus observes that the problems facing the supplier industry are “fairly simple and straightforward.” The first is the undersupply of talented graduate students. He said that the good news is that many of the students they have hired trained through the Semiconductor Research Corporation (SRC) and were prepared to “hit the ground running.” The bad news is that there are not enough of them, and the situation seems to be worsening. Many graduates have moved away from the semiconductor industry into other areas, such as nanotechnology, he said, and the professors have been going “where the money is.”74

In the sheer production of engineers, the United States lags its current and future competitors in the microelectronics industry (See Figure 10). Japan now produces about 63 percent more engineers per year than the U.S., while China produces more than twice as many—roughly 136 percent more.75 While there may be issues of quality and industry-related experience, in sheer numbers Asia

74  

See Panel V of the proceedings in this volume. Other industry representatives and analysts echo this view. See the presentations of Michael Polcari of IBM, Kalman Kaufman of Applied Materials, and George Scalise of the Semiconductor Research Corporation in the Proceedings of this volume. For an analysis of the high demand in emerging areas such as bioinformatics, see Paula Stephan and Grant Black, “Bioinformatics: Emerging Opportunities and Emerging Gaps” in National Research Council, Capitalizing on New Needs and New Opportunities: Government-Industry Partnerships in Biotechnology and Information Technologies.

75  

National Research Council calculations derived from the National Science Foundation’s, Science and Engineering Indicators 2000. It is important to note that material scientists are increasingly engaged by the semiconductor industry. A recent study (July 2002) by the OECD asserts that “there

Suggested Citation:"I. Introduction." National Research Council. 2003. Securing the Future: Regional and National Programs to Support the Semiconductor Industry. Washington, DC: The National Academies Press. doi: 10.17226/10677.
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FIGURE 10 Number of First University Degrees in Engineering, 1997.

*Long Degree programs

SOURCE: National Science Foundation, Science & Engineering Indicators 2000.

as a region produces more engineers per year than the United States by almost a factor of six. The European Union produces more than double the U.S. output of engineers.76

In terms of the percentage of bachelor’s degrees awarded each year in engineering (out of the total number of bachelor’s degrees in the U.S.) compared to equivalent degrees and 4 to 6-year programs in other nations, the U.S. lags far behind (see Figure 11).77 Almost half—roughly 46 percent—of all bachelor’s

   

is indeed some evidence of tightness in labour markets for particular categories of IT workers,” and further suggests that “the main issue of concern for policy makers and firms should be the gap be-tween the skills of current and future IT workers and those sought by firms.” For the details of this analysis see Vladimir Lopez-Bassols, “ICT Skills and Employment,” STI Working Papers. Director-ate for Science, Technology, and Industry, OECD, DSTI/DOC (2002) 10, July 17, 2002. See also National Science Foundation, Division of Science Resources Statistics, Science and EngineeringDegrees: 1966-2000. NSF 02-327, Author, Susan T. Hill (Arlington, Va 2002) <http://www.nsf.gov/sbe/srs/nsf02327/pdf/nsf02327.pdf>.

76  

For further discussion of the implications of these statistics see comments by Mary L. Good, President of the American Association for the Advancement of Science, in “Scientist’s Call to Action S.F. conference opens with plea for Cabinet position,” San Francisco Chronicle, February 16, 2001

77  

Countries have different time periods for first-degree programs (i.e., first university degrees are not always academically equivalent). In European nations, for example, short degree programs are three years long, while long degree programs are 4 to 6 years long. In the analysis here, we use the long degree programs as our basis of comparison.

Suggested Citation:"I. Introduction." National Research Council. 2003. Securing the Future: Regional and National Programs to Support the Semiconductor Industry. Washington, DC: The National Academies Press. doi: 10.17226/10677.
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FIGURE 11 Percentage of Bachelor’s Degrees in Engineering, 1997.

SOURCE: National Science Foundation, Science & Engineering Indicators 2000.

degrees in China each year are in the field of engineering, while the latest data show that out of all U.S. undergraduates each year, about 5 percent earn degrees in engineering. In terms of relative production of engineers (i.e., taking the ratio of engineering degrees to total degrees in each nation and then comparing it across countries) China outpaces the United States by more than 8.5 times, while countries such as Sweden and Japan outperform the United States by about 5 times and 3.7 times, respectively.78

These calculations are, of course, indicative of broad trends and make no qualitative assessment. They also reflect, at least in some cases, the national priorities of countries eager to master the technical requirements of the modern economy. Still, the disparities in the education of engineers are striking. Perhaps more of a cause for concern is that the declines in training of U.S. students in these fields are not based on estimates of national needs, but rather the result of unplanned reallocations of resources resulting from the post Cold War adjustments to the U.S. innovation system.79 Over time, the results of these reductions

78  

National Research Council calculations derived from the National Science Foundation’s, Science and Engineering Indicators 2000.

79  

As a recent report by this Committee observed, “for the most part, the shifts in federal research spending…have not been the result of a conscious national debate on priorities.” One well-informed observer described some of the shifts in research funding as “random disinvestments,” unintended but nonetheless injurious to national progress in R&D. See National Research Council, Capitalizing on New Needs and New Opportunities: Government-Industry Partnerships in Biotechnology and Infor

Suggested Citation:"I. Introduction." National Research Council. 2003. Securing the Future: Regional and National Programs to Support the Semiconductor Industry. Washington, DC: The National Academies Press. doi: 10.17226/10677.
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may affect the ability of the United States to maintain its leading position in semiconductors, computers, and related industries, with potentially significant consequences for the nation’s level of economic growth and national security.

NATIONAL PROGRAMS TO SUPPORT THE SEMICONDUCTOR INDUSTRY

The conviction that high-technology industries are fundamental to technological competency, national autonomy, economic growth, and high-wage, high-value-added employment is widespread in the global community and not least among the major trading partners of the United States.80 Reflecting this conviction, many countries devote substantial resources to support and sustain high-technology industries within national and regional economies. “Governments believe that the future of their countries depends on the composition of their economies, and for the most part they see their success as nations defined by their relative success in these specific efforts.”81 This belief has stimulated increasingly vigorous international competition, especially in sectors that countries deem to be economically strategic.82 Consequently, many governments have adopted policies to support nationally based firms in the hope of capturing the benefits of this industry, such as higher-wage jobs, increased competitiveness, and future government revenue. Information technology industries are often a target of these national policies. For example, as Laura Tyson noted in her 1992 study:

The semiconductor industry has never been free of the visible hand of government intervention. Competitive advantage in production and trade has been heavily influenced by policy choices, particularly in the United States and Japan. Some of these choices, such as the provision of public support for basic science, R&D, and education in the United States, have had general, not industry-specific objectives. But other choices, such as the provision of secured demand for industry output through military procurement in the United States and through preferential procurement of computers and telecommunications equipment in Japan, have been industry specific in intent and implementation.83

   

mation Technologies, p. 61. See also Michael McGeary, “Recent Trends in Federal Funding of Re-search and Development Related to Health and Information Technology,” in National Research Coun-cil, Capitalizing on New Needs and New Opportunities: Government-Industry Partnerships in Bio-technology and Information Technologies, Washington, D.C., National Academy Press, 2001.

80  

For a discussion of the importance of high-technology industries to national economies and the measures some countries adopt to capture these benefits, see National Research Council, Conflict and Cooperation in National Competition for High-Technology Industry, National Academy Press, Washington, D.C., 1996, especially box on pp. 33-35.

81  

Ibid.

82  

Alan Wm. Wolff, Thomas R. Howell, Brent L. Bartlett, and R. Michael Gadbaw, eds., Conflict Among Nations: Trade Policies in the 1990s, Westview Press, San Francisco, 1992, p. 528.

83  

Tyson, op. cit., p. 85. For a review of government programs designed to develop and support the technologies underpinning the semiconductor industry, see Howell, op. cit.

Suggested Citation:"I. Introduction." National Research Council. 2003. Securing the Future: Regional and National Programs to Support the Semiconductor Industry. Washington, DC: The National Academies Press. doi: 10.17226/10677.
×

As Tyson notes, the U.S. government provided early procurement-based funding to promote the development of semiconductors for both military and space exploration programs.84 The U.S. government’s subsequent role in assisting the commercial semiconductor sector was more controversial and more restrained.85 However, the fall-off in R&D support identified above is not confined to semiconductors. The United States has also reduced the scale of its R&D investment in computers and computer architecture, in both absolute and relative terms.86 The explanation for these reductions is complex, but these U.S. reductions run contrary to global trends. The lag effects of what have been described as “random disinvestments” may compromise the U.S. government’s ability to achieve other societal goals over the long term.

In contrast, governments abroad are active in supporting their respective industries, notably semiconductors, as Box C indicates. It is important to recall that this policy interest and support is not a new development. The Japanese government, for example, recognizing the country’s position as a late entrant in semiconductors, adopted a series of policies to jump-start its industry in the 1970s. Under the guidance of the Ministry of International Trade and Industry (MITI), the country made a sustained effort to promote a vibrant domestic semiconductor industry, notably through the successful VLSI Program.87 In addition, the verti

84  

Government procurement enabled U.S. firms to improve yield and efficiency through volume production and encouraged wider application of integrated circuit technology, first in military and then in commercial technologies. National Bureau of Standards, The Influence of Defense Procurement and Sponsorship of Research and Development on the Development of the Civilian Electronics Industry, June 30, 1977.

85  

Howell, op. cit.

86  

In a recent report for this study, Kenneth Flamm documents this downturn. He notes that it “would not be a source of concern if we were convinced that computing technology had matured” (i.e., that it was no longer an area with a high social payoff for the U.S. economy). Yet the contrary is the case. Given the potential for high-performance computing as a complement to technical advance in other high-payoff areas like biotechnology, Flamm suggests that it would be prudent for the United States “to plant more seedcorn in this particular field.” Kenneth Flamm, “The Federal Partnership with U.S. Industry in U.S. Computer Research: History and Recent Concerns” in National Research Council, Capitalizing on New Needs and New Opportunities: Government-Industry Partnerships in Biotechnology and Information Technologies, p. 220.

87  

See the partial list of joint research and development projects in microelectronics sponsored by MITI in Tyson, op. cit., p. 96. Tyson considers the VLSI (Very Large-scale Integration) Program to be the most successful of the Japanese programs. VLSI focused on cooperative R&D designed to help Japanese firms reach leading-edge capabilities in the production of both memory devices and logic circuits. Ibid, 97. The table drawn from Howell, op.cit., gives an updated summary of the main national and regional programs. For a review of Japanese consortia, see Lee G. Branstetter and Mariko Sakakibara, “When Do Research Consortia Work Well and Why? Evidence from Japanese Panel Data,” American Economic Review, 92(1): 143-59, 2002.

Suggested Citation:"I. Introduction." National Research Council. 2003. Securing the Future: Regional and National Programs to Support the Semiconductor Industry. Washington, DC: The National Academies Press. doi: 10.17226/10677.
×

cally integrated structure of Japanese industry with its lower-cost capital proved to be a major advantage with respect to the capital-intensive investments required for manufacturing facilities, especially for DRAMs (Dynamic Random Access Memory), the technology driver at the time.88 Competition in semiconductors in the early 1980s was thus characterized—to a considerable extent—by DRAM “capacity races.”89 Aided by lower capital costs and less constrained by capital markets, Japanese firms undertook a massive capacity build-up in the early 1980s, accelerating their gains through highly aggressive price-cutting. The worldwide DRAM market share of U.S. industry sank from roughly 90 percent in the late 1970s to less than 10 percent by 1984-85, with many U.S. firms exiting the DRAM market entirely.90 The drastic effects of the Japanese competition led many informed U.S. observers to question the future viability of the U.S. semiconductor industry.91

U.S. Policy Initiatives

As competition from the Japanese producers intensified in the 1980s, the industry launched a series of initiatives, some in cooperation with the government, to strengthen its domestic capabilities (e.g., the Semiconductor Research Corporation) and later to stop what it considered to be unfair trade practices by Japanese producers through a series of bilateral trade agreements.92 The range of these initiatives, as shown in Box B, was extensive.

88  

See Macher, Mowery, and Hodges, op. cit., p. 264.

89  

Ibid., p. 276.

90  

See Tyson, op. cit. Intel, Advanced Micro Devices, and National Semiconductor all withdrew from the DRAM market. Intel, now among the most profitable semiconductor manufacturers in the world, nearly collapsed in the 1984-1985 recession. Macher, Mowery, and Hodges, op. cit., p. 246. As the MIT Commission on Industrial Productivity noted in 1989, “The technological edge that once enabled innovative American companies to excel despite their lack of financial and market clout has disappeared, and the Japanese have gained the lead.” Ibid. Despite these difficulties, three important American semiconductor companies did remain in the DRAM race: Motorola, Texas Instruments, and then start-up Micron Technology; the last is now the world’s second largest producer of DRAMs.

91  

Laura Tyson provides an excellent analysis of the competition for dominance in the semiconductor industry. See Tyson, op. cit. Chapter 4, “Managing Trade and Competition in the Semiconductor Industry,” pp. 85-113. For a more recent and more comprehensive discussion of the Semiconductor Trade Agreement and its impact, see also Flamm, Mismanaged Trade?: Strategic Policy in the Semiconductor Industry.

92  

For a first-hand discussion of the U.S. concerns and the trade negotiations during this period, see Clyde Prestowitz, Trading Places, New York: Basic Books, 1988. See also Wolff, Howell, Bartlett, and Gadbaw, op. cit.

Suggested Citation:"I. Introduction." National Research Council. 2003. Securing the Future: Regional and National Programs to Support the Semiconductor Industry. Washington, DC: The National Academies Press. doi: 10.17226/10677.
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Box B Industry-Government Cooperation on Semiconductorsa

1982

The Semiconductor Research Corporation (SRC) is founded to provide funding for basic semiconductor research at American universities. The SRC becomes an independent affiliate of the Semiconductor Industry Association (SIA).

1983

The U.S. – Japan Working Group on High Technology, a bilateral government effort to address semiconductor trade conflicts, is created.

1984

The National Cooperative Research Act is signed into law by President Reagan, encouraging joint R&D consortia by reforming U.S. antitrust law.

 

The Trade and Tariff Act of 1984 becomes law, authorizing negotiation of high-tech trade issues and tariff elimination.

 

The Semiconductor Chip Protection Act becomes law, providing a new form of intellectual property protection.

1985

With the support of the industry, the United States and Japanese governments completely eliminate tariffs on imported semiconductors.

 

SIA files a Section 301 Petition with the U.S. government citing unfair Japanese market barriers. The industry argues that U.S. share of the Japanese market at the time is 8.5 percent versus a U.S. worldwide market share outside Japan of more than 70 percent.

1986

The U.S. Department of Commerce finds that Japanese semiconductor firms are selling (or dumping) memory chips in the U.S. market substantially below the cost of production.

 

The U.S. and Japan sign a bilateral Semiconductor Trade Agreement to eliminate dumping and open the Japanese market to foreign semiconductors.b

 

The Defense Science Board (DSB) taskforce report on U.S. semiconductor dependency becomes public; it calls for a semiconductor manufacturing technology institute involving government-industry collaboration.

1987

The industry consortium SEMATECH is founded by fourteen U.S. semiconductor manufacturers. Its mission is to sponsor and conduct research in semiconductor manufacturing technology for the U.S. industry.c

 

Citing Japan’s failure to comply with the terms of the 1986 trade agreement, President Reagan imposes 100 percent duties on $300 million worth of Japanese goods.

Suggested Citation:"I. Introduction." National Research Council. 2003. Securing the Future: Regional and National Programs to Support the Semiconductor Industry. Washington, DC: The National Academies Press. doi: 10.17226/10677.
×

1988

Congress approves formation of the National Advisory Committee on Semiconductors (NACS), made up of top-level officials from government and industry, to report on proposals for a “national semiconductor strategy.”d

1990

The semiconductor industry joins with the computer systems industry to support a new semiconductor trade agreement with Japan to ensure that the commitments made under the 1986 trade accord are fulfilled.

 

Semiconductor Trade Agreement renewed. The United States and Japan sign a new semiconductor trade agreement committing Japan to open its market to foreign semiconductors and providing a strong deterrent to dumping. Two significant improvements over the 1986 trade agreement are Japan’s public recognition of a 20 percent foreign market share commitment and the inclusion of a “fast-track” approach to resolving dumping allegations.

1992

The Semiconductor Roadmap process begins. More than 150 technologists from industry, government, and academia gather in Dallas for a semiconductor industry technology workshop designed to produce a roadmap for the nation’s semiconductor research needs for the next 15 years.

1993

SEMATECH announces achievement of one of its primary technical goals: demonstrating 0.35-micron manufacturing capability on all American-made equipment.

 

As President Clinton comes into office, Japan and the United States announce that foreign semiconductor manufacturers achieved a 20.2 percent share of Japan’s chip market in the fourth quarter of 1992, in accordance with the U.S.-Japan semiconductor trade pact.

a Adapted from Andrew A. Procassini, Competitors in Alliance: Industry Associations, Global Rivalries, and Business-government Relations, Westport, CT: Quorum Books, 1995, pp. 195-196.

b Described below.

c SEMATECH incorporated in 1987 with thirteen members. An additional firm joined in 1988. In 1990, three member firms withdrew from the consortium. In January 1992, government funding was renewed for five additional years.

d The semiconductor industry’s difficulties were also of serious concern to Federal officials interested in maintaining the highest level of U.S. national security. This concern is high-lighted in the creation of the NACS. One of the NACS missions was to focus on the dependency of modern weapons systems on state-of-the-art semiconductor devices. Specifically, under the legislation to create NACS, Congress notes in its findings that “modern weapons systems are highly dependent on leading-edge semiconductor devices, and it is counter to the national security interest to be heavily dependent upon foreign sources for this technology.” The charter further states that this Committee shall “identify new or emerging semiconductor technologies that will impact the national defense or United States competitiveness or both.” For the objectives set forth for NACS, see <http://www4.law.cornell.edu/uscode/15/4632.html>.

Suggested Citation:"I. Introduction." National Research Council. 2003. Securing the Future: Regional and National Programs to Support the Semiconductor Industry. Washington, DC: The National Academies Press. doi: 10.17226/10677.
×
Reducing Legal Constraints on Cooperative Research

In addition to concerns about foreign trade practices, there was a widespread perception in the 1980s that U.S. technological leadership was slipping and that greater cooperation among companies would be required. Existing antitrust laws and penalties were seen as too restrictive and as possibly impeding the ability of U.S. companies to compete in global markets. This perception resulted in the passage of the National Cooperative Research Act (NCRA) in 1984. This act encouraged U.S. firms to collaborate on generic, pre-competitive research. To gain protection from antitrust litigation, NCRA required firms engaging in research joint ventures to register them with the U.S. Department of Justice. By the end of 1996, more than 665 research joint ventures had been registered. Among these, SEMATECH has perhaps been one of the most significant private R&D consortia.93 In 1993, Congress again relaxed restrictions—this time on cooperative production activities—by passing the National Cooperative Research and Production Act, which enables participants to work together to apply technologies developed by their research joint ventures.94

Trade Agreements

Efforts to address issues in U.S. manufacturing quality (see below) proceeded in parallel with efforts to resolve questions about Japan’s trading practices. A series of trade accords between Japan and the United States did not resolve trade frictions between the two countries, nor did the agreements redress the steadily declining U.S. market share. As a result, a near-crisis sentiment spread through the U.S. industry during the mid-1980s.95 At the urging of the industry, the federal government took several policy initiatives designed to support the U.S. industry.

93  

See Macher, Mowery, and Hodges, Chapter 10, op. cit., p 277.

94  

See Kenneth Flamm and Qifei Wang, “SEMATECH Revisited: Assessing Consortium Impacts on Semiconductor Industry R&D”; A. L. Link, “Research Joint Ventures: Patterns From Federal Register Filings”, Review of Industrial Organization 11, No. 5 (October): 617-28, 1996, and N.S. Vonortas, Cooperation in Research and Development, Norwell, MA: Lower Academic Publishers, 1997. See also, National Science Board, Science and Engineering Indicators, 1998, Arlington, VA: National Science Foundation, 1998.

95  

For an industry perspective, see the account by Charles E. Sporck (with Richard L. Molay), Spinoff: A Personal History of the Industry that Changed the World, Saranac Lake, New York: Saranac Lake Publishing, 2001. Sporck recounts that, in this period, when memory products (DRAMs) represented a major percentage of the industry, “the core strategy of the Japanese industry was to add manufacturing capacity at a pace unrelated to market share” and to price products below U.S. producers. p. 244.

Suggested Citation:"I. Introduction." National Research Council. 2003. Securing the Future: Regional and National Programs to Support the Semiconductor Industry. Washington, DC: The National Academies Press. doi: 10.17226/10677.
×

After several unsatisfactory trade accords, there was a significant shift in U.S. policy on trade in semiconductors, notably through the conclusion of the 1986 Semiconductor Trade Agreement (STA) with Japan.96 The agreement sought to improve access to the Japanese market for U.S. producers and to end dumping (selling products below cost) in U.S. and other markets.97 After President Reagan’s decision to impose trade sanctions, the STA brought an end to the dumping in the U.S. and other markets and succeeded in obtaining limited access to the Japanese market for foreign producers, in particular, Korean and, later, Taiwanese DRAM producers.98 In fact, one of the most significant impacts of the accord was that it established a price floor for DRAMs, thus encouraging new entrants and, thereby, making the global DRAM market competitive once again.

As Laura Tyson points out, the trade agreement was a first in many respects. It was the first major U.S. trade agreement focused on a high-technology, strategic industry, and the first one motivated by concerns about the loss of competitiveness rather than the loss of employment.99 It was unusual in that the agreement concentrated on improving market access abroad rather than restricting access to the U.S. market. And unlike other bilateral trade deals, it sought to regulate trade (i.e., end dumping) not only in trade between the United States and Japan but in other global markets as well. It also included, for the first time, the threat of trade sanctions should the agreement not be respected. As such, it signaled a significant shift in U.S. trade policy.100

The Creation of SEMATECH

A second major step in this regard was the industry’s decision to seek a partnership between the government and a coalition of like-minded private firms to form the SEMATECH consortium, whose purpose was to revive a seriously weakened U.S. industry through collaborative research and pooling of manufac

96  

See Prestowitz, op. cit., and Wolff, Howell, Bartlett, and Gadbaw, op.cit. For additional discussion of the Semiconductor Trade Agreement, see National Research Council, Conflict and Cooperation in National Competition for High-Technology Industry, pp. 132-41. For a discussion of dumping/anti-dumping trade-policy debate, see pp. 82-87.

97  

As part of the agreement, dumping suits in the U.S. and the Section 301 case were suspended in return for agreement to improve market access and terminate dumping. A side letter called for a 20 percent market share for foreign firms within five years. Tyson, op. cit., p. 109.

98  

For a discussion of the impact of the agreement, see Flamm, Mismanaged Trade? Strategic Policy and the Semiconductor Industry. For an earlier assessment see Tyson, op. cit., pp. 136-143.

99  

Ibid, p. 109.

100  

Ibid.

Suggested Citation:"I. Introduction." National Research Council. 2003. Securing the Future: Regional and National Programs to Support the Semiconductor Industry. Washington, DC: The National Academies Press. doi: 10.17226/10677.
×

turing knowledge.101 A central element of the challenges facing the U.S. semiconductor industry was manufacturing quality. By the mid-1980s, the leading U.S. semiconductor firms had recognized the strategic importance of quality and begun to initiate quality improvement programs. A key element in this effort was the formation of the consortium, which in part reflected the belief that the Japanese cooperative programs had been instrumental in the success of Japanese producers.102

The decision to form the SEMATECH consortium represented a significant new experiment in government-industry cooperation in technology development. The Silicon Valley CEOs of the U.S. semiconductor companies hesitated about cooperating with each other, and they were even more hesitant about cooperating with the government—an attitude mirrored in some quarters in Washington.103 Despite these hesitations, the consortium was conceived and funded under the Reagan administration. The formation of the consortium represented an unusual collaborative effort, both for the U.S. government and for the fiercely competitive U.S. semiconductor industry.104

101  

As noted, the Semiconductor manufacturers—secretive, often adversarial competitors—faced an early critical challenge to effective cooperation within SEMATECH in the fear that cooperation would reveal proprietary secrets to competitors. As Larry Browning and Judy Shetler note in their comprehensive study of the consortium, this initial reluctance centered around three questions: “What technology could they use for the mission of improving performance?” “What firm would they want to contribute a cutting-edge proprietary process?” and “What would be the use in working on anything else?” See Larry D. Browning and Judy C. Shetler, SEMATECH: Saving the U.S. Semiconductor Industry, College Station: Texas A&M University Press, 2000, p. 22.

102  

Ibid., Chapter 1.

103  

Ibid. pp. 21-23. Browning and Shetler record that the Treasury and Council of Economic Advisers was adamantly opposed to government funding of a consortium; the Departments of Defense and Commerce were supportive. Ibid, p. 24.

104  

As Hedrick Smith noted “the mere formation of SEMATECH required a radically new mind-set at some of America’s leading high-tech corporations.” See Hedrick Smith, Rethinking America, New York: Random House, 1995, p. 385. In particular, Charlie Sporck, then CEO of National Semiconductor, and Bob Noyce, Intel co-founder, played a decisive role in garnering the political and industrial support for the formation of the consortium. There are corporate critics of SEMATECH. T.J. Rodgers of Cypress Semiconductors is a frequent critic. For a comprehensive statement of his views, see T. J. Rodgers, “Silicon Valley Versus Corporate Welfare,” CATO Institute Briefing Papers, Briefing Paper No. 37, April 27, 1998. Rodgers notes that “My battles with SEMATECH started when our engineers were denied access to an advanced piece of wafer-making equipment, a chemical-mechanical polisher (CMP) machine manufactured by an Arizona company [that]…Sematech [had] contracted…to develop….Cypress was denied access to that critical piece of wafer-making equipment, which could have differentiated between winners and losers in the next-generation technology. At that point I became a vocal critic of SEMATECH….” (p. 9). Rodgers also objected to the SEMATECH dues structure, finding the $1 million minimum to be onerous for a relatively small semiconductor-producing firm. He adds “I believe that if Sematech had been formed as a private consortium with a smaller budget, it would have come to its current, more efficient model of operation much more quickly.” (p. 10).

Suggested Citation:"I. Introduction." National Research Council. 2003. Securing the Future: Regional and National Programs to Support the Semiconductor Industry. Washington, DC: The National Academies Press. doi: 10.17226/10677.
×

This unprecedented level of cooperation, and the important corresponding collaborative activity among the semiconductor materials and equipment suppliers, appear to have contributed to a resurgence in the quality of U.S. products and, indirectly, to the resurgence of the industry.105 The collective accomplishments and impact of this cooperative activity appear to have been an essential element contributing to the recovery of the U.S. industry. Still, it should be underscored that the consortium’s contribution and other public policy initiatives were by no means sufficient to ensure the industry’s recovery. Essentially, these public policy initiatives can be understood as having collectively provided positive framework conditions for private action by U.S. semiconductor producers.106

From the government’s perspective, its support for the consortium enabled it to achieve a substantial number of strategic goals. From the industry’s perspective, the consortium contributed substantially to improvements in product quality and strengthened the U.S. equipment and supply industry. In combination with the Semiconductor Trade Agreements, the U.S. industry was able to increase its market share in Japan to over 20 percent by December 1992.107 Perhaps the most appropriate measure of SEMATECH’s contribution is the reaction of the market itself—that is, the willingness of industry participants to continue to provide matching funds over a sustained period; and then for these same firms to continue to fund the consortium with private resources and expand it with new members. The emulation of the consortium model by other nations represents an important development.

105  

As a research consortium, SEMATECH’s contributions were necessarily indirect. As Browning and Shetler observe, “any effects caused by SEMATECH would, of course, be indirect because, as member-firm executives are disposed to point out, it was ultimately the member companies’ factory-production that led to the increased U.S. semiconductor market share. SEMATECH’s role has been to develop new manufacturing technologies and methods and transfer them to its member companies, which in turn manufacture and sell improved chips. SEMATECH’s precise contribution to the market recovery is therefore difficult to directly assess.” See Browning and Shetler, op. cit., p. 208.

106  

Many factors contributed to the recovery of the U.S. industry. It is unlikely that any one factor would have proved sufficient independently. Trade policy, no matter how innovative, could not have met the requirement to improve U.S. product quality. On the other hand, by their long-term nature, even effective industry-government partnerships can be rendered useless in a market unprotected against dumping by foreign rivals. Most important, neither trade nor technology policy can succeed in the absence of adaptable, adequately capitalized, effectively managed, technologically innovative companies. See below.

107  

At the time, Japan was both the largest producer and consumer of semiconductors, hence the importance of access to the Japanese market. See Andrew A. Procassini, Competitors in Alliance: Industry Associations, Global Rivalries, and Business-government Relations, Westport, CT: Quorum Books, 1995, p. 194.

Suggested Citation:"I. Introduction." National Research Council. 2003. Securing the Future: Regional and National Programs to Support the Semiconductor Industry. Washington, DC: The National Academies Press. doi: 10.17226/10677.
×
Expanding National Programs

In spite of the recent, pronounced downturn in the global semiconductor market, many governments remain active in their support of initiatives to promote the development of advanced microelectronics technology. Others steadily provide substantial incentives to add national industry manufacturing capacity (See Box C). Some nations are also providing substantial incentives to attract native-born and foreign talent to their national industry, in order to meet what some see as an emerging zero-sum competition for skilled labor.108 In doing so, some national programs are altering the terms of global economic competition with policies that differ in important ways from those of the traditional leaders.109

The levels of investment and promotional activity across many countries attest to the importance governments attach to this industry. An important development is the emergence of China, which for reasons of scale and skill is likely to pose a major competitive challenge. This is especially true as cooperation increases with the highly competent Taiwanese industry, a trend which has accelerated dramatically as a result of an influx of foreign investment and skilled manpower. At present China represents a small part of the world semiconductor market, but much new capacity is scheduled to come onstream.110 This expansion reflects a new Chinese government promotional effort designed to replicate Taiwan’s success in microelectronics on a much larger scale in China, drawing heavily on Taiwanese and other foreign capital, management, and technology. China’s new policy measures closely resemble those utilized by Taiwan, including the establishment of science-based industrial parks, tax-free treatment of semiconductor enterprises, passive government equity investments in majority pri

108  

Howell, op. cit.

109  

As Thomas Howell documents through his extensive field research, there is now a broad area of well-funded programs to support national and regional semiconductor industries, as well as the international cooperation increasingly required in this global industry. See Howell, op. cit. For example, state-supported producers in Korea, Taiwan, Malaysia, and now China present special challenges in the competition for global markets in high-technology products. The 1996 STEP report identified this trend and predicted that it would accelerate. It has. See National Research Council, Conflict and Cooperation in National Competition for High-Technology Industry, p. 21.

110  

In September 2002, Shanghai-based Semiconductor Manufacturing Corp. (SMIC) had two fabs operational and planned at least two more, and Grace Semiconductor Manufacturing International, also based in Shanghai, had two fabs under construction and two more planned (interviews with senior executives at SMIC and Grace, Shanghai Zhangjiung Science & Technology Park, September 2002). In Suzhou, He Jian Technology Corporation, widely reported to be affiliated with Taiwan’s UMC, had one fab under construction and five more planned (interview with officials of the Suzhou Industrial Park, Suzhou, September 2002). Taiwan’s TSMC had announced plans to build at least one fab in Songjiang. This confirms the earlier view exemplified in “Is China’s Semiconductor Industry Market Worth the Risk for Multinationals? Definitely!” Cahners In-Stat Group (March 29, 1999).

Suggested Citation:"I. Introduction." National Research Council. 2003. Securing the Future: Regional and National Programs to Support the Semiconductor Industry. Washington, DC: The National Academies Press. doi: 10.17226/10677.
×

vately held semiconductor companies, and preferential financing by government banks.111

The sudden emergence of China as a significant site for semiconductor manufacturing is significant, but China is by no means the only player. Malaysia has opened a $1.7 billion wafer fab and has planned to construct two more.112 In Taiwan, planners in mid-2000 envisioned that a total of 21 new 300-mm fabs and 9 new 200-mm fabs would be built by the year 2010.113 These plans have been significantly reduced as Taiwan’s government planners seek to adjust to the growing migration of the island’s semiconductor manufacturing operations to China. Specifically, the government hopes to sustain a high concentration of 12-inch wafer fabs on the island, to enhance Taiwan’s capabilities with respect to systems-on-a-chip, and to improve Taiwan’s position in upstream (materials and semiconductor manufacturing equipment) and downstream (assembly, test, packaging) functions. The government of Singapore has publicly set a goal of 20 fabs by the year 2005. In South Korea, the government pressured commercial banks to finance the move into chip making by the country’s family-controlled conglomerates.114 In the proceedings for this report, speakers from Japan describe that nation’s vigorous attempt to bring about a “national revival” in microelectronics. In addition to the programs described above, Japan has launched a number of government-supported industry-government R&D projects in 2001-2002. For example, the Millennium Research for Advanced Information Technology (MIRAI) was initiated by METI in 2001 to develop next-generation semiconductor materials and process technologies, such as measuring and mask technology

111  

The principal Chinese policies are spelled out in the Tenth Five Year Plan (2001-2005)— Information Industry, <http://www.trp.hku.hk/infofile/china/2002/10-5-yr-plan.pdf>, and Circular 18 of June 24, 2000, Several Policies for Encouraging the Development of Software Industry and Integrated Circuit Industry, published in Beijing Xinhua Domestic Service, 04:49 GMT, July 1, 2000. The municipal governments of Shanghai and Beijing have issued their own circulars articulating promotional policies to be implemented within their jurisdictions to augment the national-level measures. These are, respectively, Shanghai Circular 54 of December 1, 2000, Some Policy Guidelines of This Municipality for Encouraging the Development of the Software Industry and the Integrated Circuit Industry, Shanghai Gazette, January 2001; and Beijing Circular 2001-4, Measures for Implementing ‘Policies for Encouraging the Development of Software and Integrated Circuit Industries’ Issued by the State Council, Jing Zhen Fa No. 2001-4 (February 6, 2001).

112  

“The Great Chip Glut,” The Economist, August 11, 2001. <http://www.economistgroup.com>.

113  

According to the World Fab Watch (WFW) database, which is prepared by Strategic Marketing Associates and contains information on over 1,000 fabs worldwide, these estimates are subject to significant and sudden shifts, which has proved to be the case. Strategic Marketing Associates, World Fab Watch, Santa Cruz, CA, 2002.

114  

See Howell, op. cit. Howell’s figures and many of his conclusions are based primarily on personal interviews with industry officials in Asia. This type of field research on national policies for an industry is exceedingly rare in the U.S.

Suggested Citation:"I. Introduction." National Research Council. 2003. Securing the Future: Regional and National Programs to Support the Semiconductor Industry. Washington, DC: The National Academies Press. doi: 10.17226/10677.
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Box C National Programs to Support the Semiconductor Industry

Many nations are actively and substantially supporting initiatives in their respective national semiconductor industries. Some of these programs are listed below: A more complete list can be found in Thomas Howell’s analysis in this report.a

Country

Project

Period of Project

Level of Funding

Purpose

Japan

Next Generation Semiconductor R&D Center (Super clean room)

2001-08

$300 million ($60 million in 2001)b

Process and device technology for 70-mm generation

Japan

Future Information Society Creation Laboratory

2001-06

$300 million

Create small-scale, very shortterm semiconductor production line

Japan

ASET

1995-

$500 million

Lithography, semiconductor manufacturing technology

Japan

Nanotechnology Programs

1985-

$350 million in FY 2001; METI labs conducting R&D

Basic R&D nanotechnology, includes microelectronics themes

Japan

Seletec

1996-

d

Manufacturing technology for 300-mm wafers

Suggested Citation:"I. Introduction." National Research Council. 2003. Securing the Future: Regional and National Programs to Support the Semiconductor Industry. Washington, DC: The National Academies Press. doi: 10.17226/10677.
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Taiwan

ASTRO

2000-

Government will fund half

Technology induction, upgrading of local industry

European Union

MEDEA

1997-2000

$720 million (est.)

Process technology, design, applications

European Union

MEDEA Plus

2001-09

$1,350 million (est.)

Systems-on-a-chip, UV lithography

Germany

Semiconductor 300

1996-2000

$680 million

300-mm wafer technology

France

Crolles I and II

1998-

$136 million (est.)e

Pilot 300-mm fab

United States

MARCO

1997-

$75 million over 6 years

Basic microelectronics R&D

United States

National Nanotechnology Initiative

2000-

$270 million in 2000

Basic R&D on nano-technology; includes same micro-electronics themes

United States

DARPA

Permanent

$192 million in 2000 for “advanced electronics technology”

Advanced lithography; nano-mechnisms; electronic modules

Suggested Citation:"I. Introduction." National Research Council. 2003. Securing the Future: Regional and National Programs to Support the Semiconductor Industry. Washington, DC: The National Academies Press. doi: 10.17226/10677.
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United States**

SEMATECH

1989-1996

$850 million

Cooperative research facility to benchmark next-generation development of processes, products, and tools; forum for information exchange and coordination of research projects

United States

EUVL (Extreme Ultraviolet Lithography) CRADAf

1997-

$250 million

Advanced lithography

** International SEMATECH, as its name suggests, involves companies from many countries and does not receive direct U.S.-government support.

aSee Table, Examples of Government Supported Microelectronics R&D Initiatives, in the appendix of Howell, op.cit.

bMETI requested $60 million in FY2001 budget for first year of a seven-year project.

cSamsung is also a member of Selete.

dPrivately funded but received NEDO contract to develop technology to cut PFC use.

eCrolles I reportedly received support of FF 900 million to FF 1 billion. Additional funds have been requested for Crolles II.

fThe EUVL CRADA is in fact an international effort.

Suggested Citation:"I. Introduction." National Research Council. 2003. Securing the Future: Regional and National Programs to Support the Semiconductor Industry. Washington, DC: The National Academies Press. doi: 10.17226/10677.
×

for 50-nm generation devices.115 Many of these programs, at least in part, emulate the consortium model as well as other U.S. programs.116

This summary of national programs should not be interpreted as a criticism of them. The collective impact of these programs should help the semiconductor industry as a whole meet its increasingly complex technical challenges. At the same time, underlying these programs are genuine differences in national attitudes concerning a nation’s knowledge and technology base. Some nations believe the development of a nation’s manufacturing capacity in leading industries to be an appropriate national goal worthy of sustained support, a perspective apparent in policies of growing East Asian economies.117 Both European and Japanese industry leaders are identifying what they see as the main semiconductor growth markets of the twenty-first century—wireless, wired telecommunications, and digital home appliances. As one senior European participant observed, Europe in recent years has taken a leading position in several areas: communications, automotive electronics, smart cards, and multimedia. These applications are driven by system innovations on silicon and require embedded technologies. The next big cooperative challenge will be to develop systems-on-a-chip—achieving the same functionality in one-fiftieth the space. To meet this challenge, he

115  

Government funding for this seven-year project was set at 3.8 billion yen for the first year. The project is being operated jointly by ASET and MITI’s new semiconductor R&D organization, Advanced Semiconductor Research Center (“ASRC”) in the Tsukuba Super Clean Room. MIRAI website, <http://unit.asit.go.jp/asrc/mirai/index.htm>; Handotai Kojo Handobukku (December 5, 2001), pp. 4-5.

116  

In 2002 METI launched a five-year industry-government R&D project to develop extremeultraviolet (EUV) lithography for 50-nm device manufacturing in conjunction with an association of 10 Japanese device and lithography equipment purchasers. The producers have formed the Extreme Ultraviolet Lithography System Development Association (“EUVA”) to undertake the project. First-year government funding was set at 1.09 billion yen. Japan Patent Office General Affairs Department Technology Research Division, Handotai Rokogijutsu Ni Kansaru Shutsugan Gijutsu Douko Chosa (May 10, 2001), p. 17; METI, Heisei Yonnendo Jisshi Hoshin (March 8, 2002), p. 1; Handotai Sangyo Shimbun (January 16, 2002), p. 3. In July 2000, 11 Japanese semiconductor manufacturers established a new R&D company, Advanced SoC Platform Corporation (“ASPLA”), to standardize design and process technologies for systems-on-a-chip utilizing 90-nm design rules. METI reportedly will provide 31.5 billion yen for this effort, which will feature partnership with STARC and Selete. See also the presentations of Masataka Hirose, Toshiaki Masuhara, and Hideo Setoya in the proceedings of this volume.

117  

Some nations pursue consumer welfare as an implicit, if vaguely defined, goal, while other nations adopt explicit national economic strategies, designed to pursue national economic strength through the acquisition of the capability to manufacture high-technology products. See National Research Council, Conflict and Cooperation in National Competition for High-technology Industry, pp. 12-27 and pp. 51-54. See also Richard Samuel’s Rich Nation, Strong Army: National Security and Technological Transformation of Japan, Ithaca, NY: Cornell University Press, 1994.

Suggested Citation:"I. Introduction." National Research Council. 2003. Securing the Future: Regional and National Programs to Support the Semiconductor Industry. Washington, DC: The National Academies Press. doi: 10.17226/10677.
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said, Philips will cooperate in both MEDEA Plus and ITEA, the Information Technology for European Applications.118 U.S. companies have dominated computer applications of semiconductors, in particular personal computers. Growth prospects in these applications may prove to be more limited in the future.119

CHALLENGES TO U.S. PUBLIC POLICY

While federal funding for SEMATECH ended after 1996 at the industry’s request, the debate has continued within Congress and the Executive branch as to whether and to what extent the U.S. government should continue to invest federal funds in supporting R&D in microelectronics.120 Some observers argue that the role of the government support for R&D should be curtailed, asserting that federal programs in microelectronics represent “corporate welfare.”121 Advocates of R&D cooperation among universities, industry, and government to advance knowledge and the nation’s capacity to produce microelectronics argue that such support is justified, not only by this technology’s relevance to many national missions (not least, defense), but also by its benefits to the national economy and society as a whole.122

In fact, no consensus exists on the appropriate mechanisms or levels of support for research. Discussions of the need for such programs have often been dogged by doctrinaire views as to the appropriateness of government support for industry R&D and by domestic politics (e.g., balancing the federal budget) that have generated uncertainty about this form of cooperation, especially at the federal level.123 This irresolution has resulted in a passive federal role in addressing

118  

See the presentation by Philips Semiconductor’s Peter Draheim in this volume.

119  

“From Stagnation to Growth, The Push to Strengthen Design,” Nikkei Microdevices (January 2001); “Three Major European LSI Makers Show Stable Growth Through Large Investments,” Nikkei Microdevices (January 2001). See also Howell, op. cit.

120  

At a meeting in 1994, the SEMATECH board of directors reasoned that the U.S. semiconductor industry had regained strength in both the device-making and supplier markets, and thus voted to seek an end to matching federal funding after 1996. For a brief timeline and history of SEMATECH, see <http://www.sematech.org/public/corporate/history/history.htm>.

121  

See Rodgers, op. cit.

122  

Policy debates on public-private partnerships have often suffered from sloganeering, with no clear resolution. One side claims that the market is efficient and will therefore sort itself out without the involvement of government. The other side counters that markets are imperfect and that, in any event, government missions cannot depend on markets alone, nor can they wait for the appropriate price signals to emerge. Therefore public policy has a role—and always has. One contribution of this analysis, and of others in the series, is to document current cooperative activity and redirect attention away from this abstract rhetoric and demonstrate that carefully crafted partnerships can help accelerate innovation.

123  

See David M. Hart, Forged Consensus: Science, Technology, and Economic Policy in the United States, 1921-1953, Princeton: Princeton University Press, 1998, p. 230. For a broader review of these differing perspectives, see Richard Bingham, Industrial Policy American Style: From Hamilton to

Suggested Citation:"I. Introduction." National Research Council. 2003. Securing the Future: Regional and National Programs to Support the Semiconductor Industry. Washington, DC: The National Academies Press. doi: 10.17226/10677.
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FIGURE 12 Defense Advanced Researech Projects Agency’s Annual Funding of Microelectornics R&D.

SOURCE: DARPA

the technical uncertainties central to the continued rapid evolution of information technologies. Annual funding of microelectronics R&D through DARPA—the principal channel of direct federal financial support—has declined and is projected to decline further (see Figure 12).124 As noted above, this trend runs counter to those in Europe and East Asia, where governments are providing substantial

   

HDTV, New York: M.E. Sharpe, 1998. See also I. Lebow, Information Highways and Byways: Fromthe Telegraph to the 21st Century, New York: Institute of Electrical and Electronics Engineers, 1995. For a global perspective, see J. Fallows, Looking into the Sun: The Rise of the New East Asian Eco-nomic and Political System, New York: Pantheon Books, 1994; and J. A. Brander and B. J. Spencer, “International R&D Rivalry and Industrial Strategy,” Review of Economic Studies, 50(4):707-722, 1983. There is much less ambivalence at the state level. See Christopher Coburn and Dan Berglund. Partnerships: A Compendium of State and Federal Cooperative Technology Programs. Columbus, OH: Battelle Press, 1995.

124  

This presentation understates the declines. Support for lithography, for example, fell from $54.4 million in FY 2001 to $32.6 in FY 2002 and is projected to stabilize at $25 million in FY 2003. Some reports suggest that overall support for microelectronics research actually fell from about $350 million in the early 1990s to about $55 million in 2000. See Scott Nance, “Broad Federal Research Required to Keep Semiconductors on Track,” New Technology Week, October 30, 2000, and Sonny Maynard, Semiconductor Research Corporation, cited in presentation by Dr. Michael Polcari, “Current Challenges; A U.S. and Global Perspective,” National Research Council, Symposium on National Programs to Support the Semiconductor Industry (October 2000).

Suggested Citation:"I. Introduction." National Research Council. 2003. Securing the Future: Regional and National Programs to Support the Semiconductor Industry. Washington, DC: The National Academies Press. doi: 10.17226/10677.
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direct and indirect funding in this sector. The declines in federal funding for research are of particular concern to U.S. industry.

Cooperative Research Programs

Continuing to advance microelectronics technology is becoming increasingly difficult. As semiconductors become denser, faster, and cheaper, they approach physical limits that will prevent further progress based on current chip-making processes. Significant research breakthroughs will be required to allow historic trends to continue; yet if these occur, in 15 years semiconductor memory costs could be one one-hundredth of today’s costs and microprocessors 15 times faster.

Reflecting this concern, the industry has initiated several new programs aimed at strengthening the research capability of U.S. universities. The largest of these, carried out under MARCO (the Microelectronics Advanced Research Corporation), is the Focus Center Research Program (FCRP). In this program, the U.S. semiconductor industry, the federal government, and universities collaborate on cutting-edge research deemed critical to the continued growth of the industry (see Box D). As an industry-government partnership supporting university research in microelectronics, the FCRP research is long range (typically eight or more years out) and essential for the timely development of a replacement technology for the current chip-making process.125

There are currently four focus centers, addressing design and test; interconnect; materials, structures and devices; and circuits, systems, and software. The four focus centers now involve 21 universities. A brief description of each of the centers is provided in Appendix A. The FCRP plans to eventually include six national focus centers channeling $60 million per year into new research activities. However, the sharp downturn in the industry may jeopardize this commitment, and the federal government’s commitment is also in doubt. The industry funds 75 percent of the program, and the government has funded the remaining 25 percent. The government’s share has been supported through the Government-Industry Co-sponsorship of University Research (GICUR) program within the Office of the Secretary of Defense. When the industry and government embarked on the FCRP, the plan outlined a ramp-up which would now require $10 million in funds for semiconductors in 2003, $12 million in 2004, $13 million in 2005,

125  

The FCRP is part of MARCO, the Microelectronics Advanced Research Corporation, within the SRC. See MARCO website, <http://marco.fcrp.org>. MARCO has its own management personnel but uses the infrastructure and resources of the SRC. MARCO’s supporters include the following: Advanced Micro Devices, Inc., Agere Systems, Agilent Technologies, Analog Devices, Inc., Conexant Systems, Inc., Cypress Semiconductor, IBM Corporation, Intel Corporation, LSI Logic Corporation, MICRON Technology, Inc., Motorola Incorporated, National Semiconductor Corporation, Texas Instruments Incorporated, Xilinx, Inc., Air Products & Chemicals, Inc., Applied Materials, Inc., KLA-Tencor Corporation, Novellus Systems, Inc., SCP Global Technologies, SpeedFam-IPEC, Teradyne, Inc., DARPA, and the Deputy Undersecretary of Defense for Science & Technology.

Suggested Citation:"I. Introduction." National Research Council. 2003. Securing the Future: Regional and National Programs to Support the Semiconductor Industry. Washington, DC: The National Academies Press. doi: 10.17226/10677.
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Box D Characteristics of the MARCO Program

Characteristics of the MARCO program are as follows:

University-driven Management Philosophy. The goal is to identify the best professors in outstanding universities, outline broad areas of interest to the industry, and then delegate decisions about the research agenda to the university researchers.

Substantial Funding. The MARCO program awards are significant, often in the $10 million range, which is substantially larger than many normal academic grants. This enables researchers to focus on a substantial program of work without the need to continually seek supplemental funding.

New Technical Approaches. The substantial autonomy provided to the researchers is designed to encourage “out-of-the box” or non-traditional approaches to the technical problems the industry must address. New technical solutions and new manufacturing methods may be required to sustain the industry’s current high rate of growth.

Student Training. An important component of the program is its ability to attract top students through the engagement of leading professors in major universities with first-class facilities.

Sustained Industry Commitment. The semiconductor industry’s long-term commitment to the Semiconductor Research Corporation, and more recently its sustained investment in the MARCO program, reflect the widespread recognition that research and training are the key to its long-term success.

and $15 million in 2006. These funding targets have not been met, yet the centers seem to be providing valuable research results for the Department of Defense.

International SEMATECH continues to promote collaboration among major firms, which now include non-U.S. members. Among its activities, it is funding the development of new 300-mm tools and has taken a leadership position in pursuing the technology roadmaps in cooperation with industry. It has supported initiatives on mask-making tools, lithography using very-short-wavelength ultraviolet light (157 nm) from a special laser, next-generation lithography consensus, low dielectric-constant materials, and other innovations. It has also continued to benchmark the industry and to help improve manufacturing methods, among other

Suggested Citation:"I. Introduction." National Research Council. 2003. Securing the Future: Regional and National Programs to Support the Semiconductor Industry. Washington, DC: The National Academies Press. doi: 10.17226/10677.
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contributions. The most recent budgets for NSF and DoD include increases in some important semiconductor areas that had been reduced during the 1990s.126

The responsibility of the government to ensure the availability of trained, educated manpower is widely accepted. Further, while immigration policy is admittedly complex—especially now, in light of September 11—it can be administered in a manner that facilitates the attraction of foreign talent to the United States. Top-quality research talent, whether foreign or domestic, will be required to address the technological “brick wall” confronting the industry. In the past, large, complex technical challenges have been surmounted through prolonged federal support of basic science and pre-competitive R&D. The nation that is able to produce, attract, and retain this talent may lead technical progress in the research and development clusters that will condition commercial success in the decades ahead.

The United States was able to muster an appropriate policy mix in the 1980s that helped U.S. firms succeed. Today’s challenges in research and manpower will require similar innovative efforts. The events of September 11, 2001 and the dispersal of semiconductor technologies and expertise make these issues more pressing.

SYMPOSIUM SUMMARY

The presentations, discourse, and commissioned papers offered in this symposium may help inform the policy community of the challenges faced by the industry. Taken together, they offer an assessment of the industry’s contributions as well as provide information on the technical challenges, research needs, and the range of foreign efforts currently characterizing the microelectronics sector. The analysis presented by such insight may raise questions about the scope and scale of public programs to support this unique industry in the United States.

The next section reviews the main points made by the speakers at the symposium. They present expert perspective on challenges in the research and development of new semiconductor technologies. Considerable effort has been made to accurately capture key points from the discourse of the symposium; however, the presentations themselves should be consulted for a fuller, more measured record of the participants’ remarks.

126  

In light of the information and analysis presented in this report, the Committee believes these efforts should be strengthened. The Committee’s recommendations are elaborated in the Findings and Recommendations section of this report.

Suggested Citation:"I. Introduction." National Research Council. 2003. Securing the Future: Regional and National Programs to Support the Semiconductor Industry. Washington, DC: The National Academies Press. doi: 10.17226/10677.
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PANEL I:THE U.S. EXPERIENCE: SEMATECH

Moderator Clark McFadden of Dewey Ballantine reviewed the SEMATECH program—the pioneering government-industry partnership initiated in 1987 to revitalize the U.S. semiconductor industry. He observed that it has been successful in meeting a variety of goals, such as attracting investment from its industrial participants, developing industry roadmaps, and fostering an industry-wide perspective on technology development. At the same time, he recognized that assessing its impact on the semiconductor industry as a whole, and on U.S. technology development, is a more difficult exercise. It is nonetheless true that the informed observations of the participants below suggest that the consortium is effective. Perhaps the most compelling evidence of the value of the consortium is that it still exists. Supported now only by private funds, it has retained most of its membership for over a decade while adding new member companies from other countries.

Gordon Moore, cofounder of Intel Corp., said that the primary early challenge for SEMATECH was to raise the quality and productivity of American industry. Its mission was “unusual” in promoting collective action by industry and cooperation between industry and government, but it succeeded in focusing attention on the fragmented tool-manufacturing industry. He concluded that a government-industry partnership can have “a positive impact on the U.S. industry.” He added that the focus of industrial R&D on short-term, predictable results makes it extremely important for the government to support long-term research “across a very broad base.”

Kenneth Flamm of the University of Texas at Austin offered an economist’s view of SEMATECH. He said that it is generally perceived as a success by industry, but that only a few economic studies have been done.127 His own review of the economic literature revealed that cooperation can have either positive or negative impacts on R&D. From a public policy perspective, he saw three motives for cooperation: information sharing; cooperation on projects that promise such large spillovers that a company would not do the projects at all in the absence of partners; and the creation of an institutional structure that can increase spillovers. In their empirical contribution to this report, Flamm and his co-author Qifei Wang reexamine the impact of SEMATECH on semiconductor industry R&D by updating and improving on the published work on this issue. Their results suggest that SEMATECH reduced the R&D expenditures of its membership

127  

See the paper presented in this report by Flamm and Wang, op. cit. Flamm and Wang note that there has been a limited amount of empirical attention focusing on the impact of R&D cooperation on industrial R&D outcomes. Further, the authors note that SEMATECH has been the subject of only three more rigorously oriented studies.

Suggested Citation:"I. Introduction." National Research Council. 2003. Securing the Future: Regional and National Programs to Support the Semiconductor Industry. Washington, DC: The National Academies Press. doi: 10.17226/10677.
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somewhat, in part by eliminating duplication. They conclude that the underlying models of R&D cooperation that ultimately must be the basis of a scientific effort to untangle the chains of causality are too simplified to capture the complexity of the real world of R&D consortia. Moreover, they note that “the only absolutely certain thing about SEMATECH is that a substantial portion of its member companies must have found it to be of net value—having actually run the experiment of ending public subsidy and finding that its consumers continued to buy its output.”

Current Challenges: A U.S. and Global Perspective

Michael Polcari of IBM called the technical challenges facing the computer industry “unprecedented.” It will be very difficult to maintain the industry’s rapid increases in productivity, which, following Moore’s Law, has approximately doubled every 18 to 24 months. To date, these increases have come primarily from scaling—the progressive shrinking of component size. The challenge for the near future is to find new solutions when scaling ends. Dr. Polcari listed many areas of anticipated improvement such as the importance of building the nation’s capacity in the basic sciences, continuing to adequately fund high-risk research, and training more engineers.

David Mowery of the University of California at Berkeley listed five observations about SEMATECH:

  1. It proved to be dynamic and adaptable.

  2. The rigid requirements of the Government Performance and Results Act might reduce such flexibility in future collaborations.

  3. Its contribution was important for its “extension” role, in the sense of agricultural extension programs, and its collaborative agenda.

  4. It is difficult to evaluate economically because it is impossible to know what would have happened in its absence.

  5. More needs to be known about the importance of the government’s catalytic role in providing funding for eight years. He suggested additional study on how “this unusual instrument of R&D collaboration” can evolve in response to changes occurring in the structure of this industry.

PANEL II:CURRENT JAPANESE PARTNERSHIPS: SELETE AND ASET

Akihiko Morino described Selete (SEmiconductor Leading Edge TEchnologies) as a joint venture company that performs R&D on behalf of the semiconductor industry. The mission of Selete is to develop semiconductor de

Suggested Citation:"I. Introduction." National Research Council. 2003. Securing the Future: Regional and National Programs to Support the Semiconductor Industry. Washington, DC: The National Academies Press. doi: 10.17226/10677.
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vice and process technologies to the point where they can be produced at reasonable cost. Selete fosters collaboration among academia, industry, equipment and materials suppliers, research institutes, and overseas consortia, including International SEMATECH.

Hideo Setoya said that ASET (the Association of Super-Advanced Electronics Technologies) is a consortium of the electronics device industry that also includes equipment and materials suppliers. Of 14 members, six are non-Japanese companies or subsidiaries. Its mission is to perform pre-competitive research between the basic and applied levels. All research is performed by the staffs of member companies. It is 100 percent financed by the national government and open to the public.

Japanese Consortia for Semiconductor R&D

Yoichi Unno described SIRIJ, the Semiconductor Industry Research Institute of Japan, as a think tank founded in 1994 by 10 Japanese semiconductor companies to promote joint R&D. The objectives of SIRIJ are to promote development of next-generation technologies, study the future of the industry, and implement projects for international cooperation. It has recently added an educational program in LSI (Large Scale Integrated) design for small companies, a roadmap committee, and a team to study the needs of the industry.

University Research Centers for Silicon Technology

Masataka Hirose of Hiroshima University described the structure and missions of three university research centers for silicon technology, all sponsored by Monbusho, the Ministry of Education, Science, and Culture:

  1. The VLSI Design and Education Center, established in May 1996 at the University of Tokyo;

  2. The New Industry Creation Hatchery (“Incubation”) Center, located at the Department of Electrical Engineering of Tohoku University;

  3. The Research Center for Nanodevices and Systems at Hiroshima University, of which he is director.

PANEL III:EUROPEAN PARTNERSHIPS

Michael Borrus of Petkevich and Partners told the audience that the panel’s presentation might prove to be “a bit of a surprise to some of you.” He said that European semiconductor activities have strengthened rapidly in recent years.

Suggested Citation:"I. Introduction." National Research Council. 2003. Securing the Future: Regional and National Programs to Support the Semiconductor Industry. Washington, DC: The National Academies Press. doi: 10.17226/10677.
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The MEDEA Program

Jürgen Knorr of Micro-Electronics Development for European Applications (MEDEA) confessed that it feels “very strange” to lead a program in support of a multinational semiconductor industry. The tradition, he said, has been to support one’s national industry. MEDEA, however, is proof that the semiconductor industry is global, and each company’s objectives must be shaped accordingly. Competition today is not as much between nations as between companies. MEDEA is an industry-initiated, industry-driven program supported by the national governments of 12 participating countries to stimulate trans-border R&D cooperation. A four-year program that ended in December 2000 has now been extended as MEDEA Plus under the guideline “system innovation on silicon.”

Government-Industry Partnerships in Europe (1): Embedded Technologies and Systems-on-a-Chip

Peter Draheim of Philips Semiconductor said that Europe in recent years has taken a leading position in several areas: communications, automotive electronics, smart cards, and multimedia. These applications are driven by system innovations on silicon and require embedded technologies. Philips expects major breakthroughs in “portable infotainment,” third-generation mobile communication, home networks, and enhanced digital TV. The next big cooperative challenge will be to develop systems-on-a-chip—achieving the same functionality in one-fiftieth the space. To meet this challenge, he said, Philips will cooperate in both MEDEA Plus and ITEA, the Information Technology for European Applications.

Government-Industry Partnerships in Europe (2): International Cooperation: SEMATECH and IMEC

Wilhelm Beinvogl of Infineon noted that the three major information technology (IT) players in Europe are all members of International SEMATECH. They are not only financial contributors but also significant technical contributors, especially to 300-mm technology. Another example of collaboration, he said, is that the IMEC institute in Belgium, a world leader in cooperative research, which is closely cooperating with International SEMATECH on a major project. He also described one “full-blown success story,” a joint venture between Infineon and Motorola to move to the leading edge in transition to the next wafer size. He echoed the manpower needs cited by other speakers, calling the decrease in engineers “dramatic.”

PANEL IV:THE TAIWANESE APPROACH

Patrick Windham of Windham Consulting said that the Taiwanese approach

Suggested Citation:"I. Introduction." National Research Council. 2003. Securing the Future: Regional and National Programs to Support the Semiconductor Industry. Washington, DC: The National Academies Press. doi: 10.17226/10677.
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constitutes “a rare success story,” and that Taiwan’s journey to become the fourth-largest semiconductor producer in the world is a “remarkable” one.

Government-Industry Partnerships in Taiwan

Genda J. Hu of Taiwan Semiconductor Manufacturing Co. said that Taiwan’s rise to success had depended on the government’s decision in 1974 to focus on semiconductors as a key industry. The government set up a special agency to develop the industry, and helped establish several companies and secure rights to key technologies. It sought steadily to shift more responsibility to the private sector: In 1990, the government provided some 44 percent of total R&D spending to benefit the private sector; by 1999 the government’s share had fallen to 6.5 percent. Another factor in success was the decision to concentrate on “fabless” designs and the manufacture of custom devices for other companies. TSMC is a member of International SEMATECH; UMC, another leading company, has an alliance with IBM and Infineon.

The Science Park Approach in Taiwan

Chien-Yuan Lin of National Taiwan University said that the government in Taiwan, unlike the U.S. government, has actively promoted economic development. In 1980, the government began Hsinchu Science Park as a government-industry partnership, providing major venture capital, some tax deductions or exemptions, the infrastructure (including the park itself), special public services (such as the “one-stop business service”), and other services, such as R&D and education. At the time of the symposium, the park held 291 units and was considered by some analysts to be a model S&T park. Two other parks have been initiated in Taiwan.

Discussion

Michael Luger of the University of North Carolina at Chapel Hill offered a “continuum” of government-industry parks. At one end are large, national consortia that have abundant basic research, high spillover, and few direct local applications. Next are programs supported directly by federal funds, which also emphasize basic research, including university R&D centers. Beyond them are state-funded R&D centers, which feature more applied research, fewer spillovers, and more concentrated spatial effects. Localization economies lead to clusters of firms and industries that are related through input-output linkages and other growth-stimulating relationships. Dr. Luger, building on the discussion of high-technology clusters initiated by Chien-Yuan Lin, shared insights on technology

Suggested Citation:"I. Introduction." National Research Council. 2003. Securing the Future: Regional and National Programs to Support the Semiconductor Industry. Washington, DC: The National Academies Press. doi: 10.17226/10677.
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parks by highlighting a brief history of the Research Triangle Park in North Carolina.128

PANEL V:CHALLENGES FACING THE EQUIPMENT INDUSTRY

Kalman Kaufman of Applied Materials said that the semiconductor and electronics industry represents an increasingly significant force in the economy, and that equipment suppliers play an increasingly important role in the industry. He listed several “imperatives” for sustained success:

  1. Equipment suppliers must continue to invest heavily in technology de velopment and commercialization.

  2. Governments in every country must ensure fair access to markets and technologies.

  3. Universities must teach and motivate more researchers and engineers.

  4. Semiconductor producers must reduce risk and improve the efficiency of the industry.

  5. National labs must bridge the widening gap between academic research and the “next-generation” industry requirements for generic, pre-competitive research.

The most important functions of a consortium, he said, are to foster cooperation and provide valuable information to the industry so it can change its roadmaps and learn how better to serve customers. He recommended that a national lab with close ties to universities be dedicated to pre-competitive generic research problems.

John Kelly of Novellus Systems said that problems facing the supplier industry are “fairly simple and straightforward.” The first is the undersupply of talented graduate students, a “situation that seemed to be worsening.” Many graduate students have moved away from semiconductors to other areas, such as nanotechnology, and professors have been going “where the money is.” Another, more complex issue, he said, is the problem of shrinking resources for long-term research. The technological “brick wall,” he said, could be very real “if we don’t work on the right problems fast enough.” A current challenge to the equipment industry is that it is no longer acceptable simply to deliver a tool to the customer. It must be delivered as part of a process, and the process has to be perfect. This requires far more work on long-term “fundamentals, materials, the real basics.”

128  

For a review of science and technology parks, see Michael I. Luger, “Science and Technology Parks at the Millennium: Concept, History, and Metrics,” in National Research Council, A Review of the New Initiatives at the NASA Ames Research Center, C. Wessner, ed.,Washington, D.C.: National Academy Press, 2001.

Suggested Citation:"I. Introduction." National Research Council. 2003. Securing the Future: Regional and National Programs to Support the Semiconductor Industry. Washington, DC: The National Academies Press. doi: 10.17226/10677.
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Papken Der Torossian of Silicon Valley Group (SVG) said that the technical challenges of moving from a three-year cycle to a two-year cycle require huge investments by the industry. Research spending will have to increase by almost 30 percent to accelerate the equipment cycle. Because these investments are huge and often long term, they cannot be borne by a single company. A consortium is one simple way of working with competitors, which is “the only way we’re going to advance the science in the next few years.” He praised SEMATECH for having created an environment for buyers and sellers to work together.

PANEL VI:THE INTERNATIONALIZATION OF COOPERATION

A U.S. Perspective

George Scalise of the Semiconductor Industry Association said that the SRC is a “structure that works well.” It was founded in 1982 to address a lack of engineers coming out of college and a shortage of engineers trained in the then-new solid-state technology. It has created an “integrated, virtual semiconductor research laboratory” by funding projects at about 65 universities across the country. Through two other programs, it supports research in semiconductor design and testing, and in layout. SEMATECH, he suggested, could help promote international research programs on materials structures and devices, circuits systems, and software that will begin to fill a part of the research gap. A “consortium of consortia,” he said, is needed to make more efficient use of the R&D dollar.

A Japanese Perspective

Toshiaki Masuhara of Hitachi said that university-industry consortia in both process and design R&D will be very important in the future and will require a great deal of funding. He offered five criteria for organizing a successful R&D consortium:

  1. Business merit: Is the technology applicable to industry and can the market accept the new technology?

  2. Technical merit: Are there pitfalls in application, technology matching, suitability, or reliability?

  3. Participants’ merit: Does the consortium provide good opportunities for participants and a good career path?

  4. Academic merit: Can the work lead to research papers, advanced degrees, and faculty success?

  5. Industry manager’s merit: Are managers willing to send the best R&D people from industry?

Suggested Citation:"I. Introduction." National Research Council. 2003. Securing the Future: Regional and National Programs to Support the Semiconductor Industry. Washington, DC: The National Academies Press. doi: 10.17226/10677.
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He added that inter-consortium collaboration will be needed if the industry is to avoid hitting the “red brick wall” of technical challenges.

A Taiwanese Perspective

Genda Hu discussed a planned Taiwanese consortium called ASTRO, which had been placed “on hold” due to issues beyond the control of the industry. The attempt to form that organization, he said, had been a clear demonstration that Taiwan intends to participate in R&D consortia. One objective of ASTRO is to facilitate participation in international R&D activities. Absent ASTRO, the best strategy for individual companies is to join international collaborations on their own, which almost every semiconductor company in Taiwan has done.

A European Perspective

Erik Kamerbeek of the European Semiconductor Equipment and Materials Association said that collaboration is common in Europe, which has a greater need for joint efforts than a single, large country like the United States. Among international consortia, the Information Society Technologies Programme is planned and organized by the European Commission with the support of industry. Programs are approved by the national representatives of the 15 EU countries. Another major IT program is MEDEA, in which each project is accepted by the ministers’ conference of participating countries. All projects are initiated and guided by industry.

The views summarized above reflect the diversity in the national and regional approaches to meeting the needs of the semiconductor industry. They also affirm the common perception of the technical challenges the industry must overcome if it is to continue its extraordinary rate of growth.

Suggested Citation:"I. Introduction." National Research Council. 2003. Securing the Future: Regional and National Programs to Support the Semiconductor Industry. Washington, DC: The National Academies Press. doi: 10.17226/10677.
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Based on the deliberations of a high-level international conference, this report summarizes the presentations of an exceptional group of experts, convened by Intel’s Chairman Emeritus Gordon Moore and SEMATECH’s Chairman Emeritus William Spencer. The report documents the critical technological challenges facing this key industry and the rapid growth in government-industry partnerships overseas to support centers of semiconductor research and production in national economies. Importantly, the report provides a series of recommendations designed to strengthen U.S. research in disciplines supporting the continued growth of semiconductor industry, an industry which has made major contributions to the remarkable increases in productivity in the U.S. economy.

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