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The entrance to the headquarters of Sema-tech, the research consortium of chip manufacturers based in Austin, Tex., exudes a remotely military air. Vehicles entering the area must stop at a security gate, and once inside the main structure visitors must attach ID tags to their lapel while awaiting an escort to the building’s inner sanctums. Such precautions reflect the seriousness of an enterprise touted as essential to the nation’s security; it is chips, after all, that power the information economy.  Incorporated in 1987 as a U.S. experiment in industrial policy, the venture was conceived to help stem semiconductor makers’ precipitous loss of market share to the Japanese. The plan was to pool the industry’s resources to refine the complex chip-manufacturing processes-an area of traditional American weakness. A clear bid to save a declining industry, the notion seemed radical partly because it arose amid the free-market rhetoric of the Reagan administration-and especially because it called for matching funds from the federal government. But the idea gained high ground when a report from the Department of Defense outlined an alarming future of relying on foreign sources for the brains of its high-tech weapons. President Reagan signed the bill authorizing $100 million in annual funding for Sematech that year.

Nearly a decade later, many have judged the experiment a success: the U.S. semiconductor industry now holds a slightly larger share than its Japanese rivals and, more importantly, is seen as a long-term world-class player. While even Sematech boosters do not claim the consortium deserves full credit for this turnaround, observers such as Michael Borrus, codirector of the University of California’s Berkeley Roundtable on the International Economy, say it has clearly played a role by “convincing traditional rivals to cooperate.” The industry’s change in fortune recently prompted Sematech members to decline further federal funding.

William J. Spencer has led the organization since 1988, having arrived with the credentials essential to such a high-stakes position. Formerly head of research at Xerox’s Palo Alto Research Center, one of the nation’s premier industrial R&D labs, he began his career at Bell Labs in 1959. Trained as a physicist, he says his career took a decisive turn when he developed a device for the first communications satellite in 1961. Inspired when the satellite actually functioned against great odds, he abandoned pure physics to pursue the practical challenges of engineering, working on microelectronics and systems development at Sandia National Laboratory before moving to Xerox. 

Professing, in typically modest fashion, that he’s “made enough mistakes,” Spencer has announced that he will relinquish responsibility for Sematech’s daily operations as soon as a successor can be named (he will stay on as chairman of the board). In an interview with managing editor Sandra Hackman, he reflects on what Sematech has accomplished and where it has fallen short, and what lessons its experience holds for other cooperative ventures as well as for the overall U.S. research effort.

TR: How did this government-aided consortium  manage to get off the ground? And how did the two vastly different cultures avoid insuperable conflicts?

SPENCER: Several factors were critical. First, the U.S. semiconductor industry was going in the same direction as the U.S. consumer electronics industry-into the tank. The Defense Science Board did a study indicating that by 1995 the United States would have less than 20 percent of the semiconductor market, and that eventually the domestic industry wouldn’t exist. Most people would argue, as the Defense Science Board did, that you should not have to depend on foreign sources for something as crucial as semiconductors. In fact, every nation has said, if we’re going to be a strong industrial player, we’ve got to have a position in this basic industry (which will probably grow from $200 billion now to $2 trillion in 15 years). Europe is spending a lot of money on maintaining a semiconductor industry, and so are other economic regions.

Second, industry leaders came together, realizing that even though they didn’t know what ought to be done they had to do something. Fortunately, Charlie Sporck, then CEO of National Semiconductor, took a year’s leave from his job to convince the country that launching Sematech was critical. The venture gained even more credibility when Bob Noyce, co-inventor of the integrated circuit, eventually agreed to run Sematech for its first two years.

Finally, the government not only matched industry’s funding but did so in a very hands-off way: it sent the funds and put none of the usual restrictions on them. The government sponsor, the Defense Advanced Projects Agency, did work with the consortium to establish annual goals and asked for a relatively brief report at the end of each year. But the agency did not micromanage-it essentially asked industry to manage a federal grant. The General Accounting Office did send representatives here for the first five years, but they left after seeing that the program was well run.

Proof of its success is that in 1995 semiconductor manufacturers told the government that we wanted to end federal support in 1996. Although we couldn’t have made the same progress without it, we felt we could no longer justify that role given the industry’s turnaround, and that we could continue progress on our own. And indeed the government has just concluded its financial investment in Sematech.

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