Microelectronics: Semiconductors, Computers, and Copiers

MICROELECTRONICS: SEMICONDUCTORS, COMPUTERS, AND COPIERS

Innovation

The microelectronics industries demonstrate several of the defining characteristics of the American economy during the 1980s. One segment of the economy would prosper while other businesses suffered. Innovation and entrepreneurship marked the origins of industries and fortunes, some of which then proved uncompetitive in the global economy. Americans were behind the scientific advances that created the industry: the transistor, the semiconductor chip, and computers large and small. Microelectronic industries such as IBM, Digital Equipment, Intel, Apple, and Xerox led American business.

Competition

Yet America's share of the microelectronics market fell during the decade. The U.S. share of semiconductor production fell from 60 percent to 40 percent during the 1980s. By the end of the 1980s three Japanese companies, NEC, Toshiba, and Hitachi, were the leading semiconductor companies in the world. Underlying this trend was the American pattern of early innovative technological success followed by a failure to establish the company, secure investment, and continue the innovation that would lead to future growth. Typically, in such companies skilled employees left to pursue their own businesses and proprietary knowledge was sold to the highest bidder, often to a foreign company. In contrast to the premium Americans placed on innovation and early entrepreneurship, Japanese firms stressed vertical integration and stability. Japanese companies often made more chips than they used internally and sold the excess. American companies such as IBM and AT&T relied on the outside suppliers to provide chips since they manufactured fewer chips than they needed. Japanese firms in the past prepared for up cycles in demand by investing in production facilities during down cycles. American firms generally invested during good times. The Department of Defense, which relies heavily on microchips for modern weapons, created Sematech, a research consortium of chip makers to deal with the problem. Related to microprocessors is the story of the photo-copier. Xerox invented the photocopier and for many years dominated the industry. But by 1979 Xerox's manufacturing costs were twice those of Japanese companies, its production-development time was twice as long, and its product-development teams required twice as many people. During the 1980s Xerox lost ground to its competitors, especially to Japanese competitors.

Source:

Michael L. Dertouzos, Richard K. Lester, and Robert M. Solow, Made in America: Regaining the Productive Edge (New York: Harper & Row Perennial Library, 1990).