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New Chip Venture Planned To Combat Japanese Dominance

June 21, 1989

SANTA CLARA, Calif. (AP) _ Seven semiconductor companies announced Wednesday they plan to join forces in an unprecedented venture to produce computer memory chips and ease the chokehold Japan has on the vital market.

The firms contributed ″seed money″ for the establishment of U.S. Memories Inc., a corporation that will make the memory chips known as DRAMs which are crucial to the U.S. electronic and defense industries.

″It is clear that the time is right for a collective memory manufacturing venture in the United States to improve America’s market position in what is truly a critical technology,″ said Sanford L. Kane, president and chief executive officer of the newly formed company.

If approved, the venture would break new ground in the federal government’s attitude toward cooperation between competing companies. The government has been getting steadily more permissive toward deals that once would have run afoul of antitrust laws on the theory that concerted action is necessary to meet foreign competition.

″At this point we don’t know enough about the transaction to comment one way or the other,″ Amy Brown, a spokeswoman for the Justice Department’s antitrust division, said Wednesday.

Either the Justice Department or the Federal Trade Commission is likely to look at the deal, although not necessarily conduct a full-scale investigation, she said.

The corporation’s preliminary business plan calls for the completion of a plant in 1990 and high-volume production of the dynamic random access memory chips, or DRAMs, to begin in the first half of 1991.

Kane said the corporation’s first product will be standard 4-megabit DRAMs based on design and manufacturing technology to be licensed from International Business Machines Corp.

The plan also says that U.S. Memories expects to raise roughly $500 million from companies that invest in the corporation and $500 million from borrowings.

Memory chips are a vital link of the electronics ″food chain,″ and many U.S. industry and government officials say it is unacceptable to rely heavily on chips made in Japan for computers, work stations, military gear and other products.

Japanese firms control nearly 80 percent of the worldwide DRAM market, which they were able to dominate by sustaining $4 billion in losses in 1985-86 to knock out their American competition, according to the Semiconductor Industry Association.

The number of U.S. companies producing DRAMs for sale on the open market, an area in which they once were leaders, fell dramatically from 11 in 1980 to three this year. The three are Texas Instruments Inc., Micron Technologies Inc., and Motorola Inc., which recently re-entered the business. Alliance Semiconductor Corp. is also preparing to produce memory chips.

IBM is a huge manufacturer of DRAMs, but only for internal use. Kane, who will be its chief executive, was formerly a vice president of industry operations for IBM’s General Technology Division.

Companies that gave money to plan the corporation include Advanced Micro Devices Inc., Digital Equipment Corp., Hewlett-Packard Co., IBM, Intel Corp., LSI Logic Corp. and National Semiconductor Corp.

″This is not intended to be a one-shot venture,″ said Kane, who emphasized that the project will not work if the venture does not receive more money from both suppliers and users.

He noted that the participation of the seven companies, whose funds will go toward preparing a business plan for the corporation, hinges on assistance by other suppliers and memory-device customers.

They said they are willing to invest in the corporation ″when specific conditions are met in the next several months.″

Kane explained that the conditions include: obtaining enough funds to launch the venture; successfully negotiating a technology transfer agreement with IBM; the creation of a detailed business plan; and getting a favorable antitrust agreement.

″It is absolutely clear that we’ll need more than the seven we have now,″ said Kane, referring to companies investing in the new venture.

Although there is no deadline or timetable for the meeting of the conditions, Kane noted that the venture could be in trouble if they are not met by the end of this year.

″I just don’t have any doubt in my mind that this can succeed and I think that’s good for everyone in this country,″ said Carl Cook, strategic technology manager for Hewlett-Packard.

Kane said U.S. Memories would work closely with Sematech, the Austin, Texas-based industry consortium. Sematech makes small quantities of chips to test manufacturing processes and equipment.

Kane also called on the U.S. government to continue forcing compliance by the Japanese to market-access provisions of the September 1986 U.S.-Japanese semiconductor agreement, whereby Tokyo agreed to open its market to U.S.-made chips.

Wednesday’s announcement received immediate support from the American Electronics Association, the broad umbrella electronics industry group.

Texas Instruments also supports it, spokesman Stan Victor said.

″To an extent they’re a competitor, but that’s OK, it’s more important for the U.S. industry to have a good, viable, DRAM structure, and we’ll do our competition with them on the open market at a later date,″ he said.

Officials in the United States of two of the biggest Japanese memory chip producers, NEC Corp. and Toshiba Corp., said they could not comment immediately on the U.S. plan because they had not received instructions from their home offices in Japan.

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