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SEMATECH, How Much Intervention in the Marketplace?

The U.S. government is usually thought of as the enforcer of statutes aimed at maintaining competition in a given market segment. Even forcing the break-up of individual companies deemed to have an unfair advantage in monopolizing entire markets as in the case of AT&T in the 1980’s.

In 1987, however, the same government was involved in bringing together a consortium of competing American manufacturers in a joint research and development effort on a scale never seen for individual companies in the U.S.
This newly formed organization called SEMATECH or Semiconductor Manufacturing Technology, was created in March of 1987 and was seen both as the object of hope and the cause of extreme controversy as it tried to gain acceptance from industry giants and entrepreneurial start-up companies alike.

A decade previous, U.S. semiconductor manufacturers controlled 90% of the world market for DRAM memory devices. (10)  By 1987 the combined DRAM market share for American manufacturers was 20% and in danger of further decline. (10)  It came as no surprise that the main benefactors of the U.S. manufacturer’s decline were the Japanese.  By 1987 the three largest semiconductor manufacturers in the world were Nippon Electric, Toshiba, and Hitachi. (1,2)

How the U.S. comparative advantage had been lost was the subject of heated debate but whatever the reason, industry insiders such as George Schneer, then vice president for Intel Corporation, a major U.S. chip manufacturer, said the U.S. simply “lacked manufacturing competitiveness.”  American manufacturers were quick to point out that there are a number of factors that impact the competition in the world market that are different than those in markets regulated by a single government.  They cited the role of the Japanese government as a technology broker, limiting internal competition between Japanese high technology companies and subsidizing research and development costs so as to help Japanese companies keep production costs down.

The solution according to some was a similar pooling of research and development resources by American semiconductor manufacturers along with supplemental funding by the government.

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