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By all appearances, the U.S. semiconductor industry was on the ropes in the mid-1980s. After a multiyear effort to become a force in semiconductor memory chips, Japan now led the industry—both in market share and in the quality of its products. That raised fears the U.S. could lose not only a highly innovative industry but the components crucial for everything from computers to weapons systems. Yet by the early 1990s, that decline had reversed and U.S. chip makers regained the lead.

What happened? Among other things, a 1986 trade agreement that gradually reduced Japanese competition, a recession in Japan, a shift by U.S. companies to making more lucrative kinds of chips—and Sematech. Short for Semiconductor Manufacturing Technology, the consortium of 14 American chip makers such as Intel and Texas Instruments began operations in 1988 with an ambitious goal: to revitalize the U.S. semiconductor industry by finding ways to reduce manufacturing costs and product defects.

No one believes Sematech accomplished that all by itself. But before Sematech, it used to take 30 percent more research and development dollars to bring about each new generation of chip miniaturization, says G. Dan Hutcheson, CEO of market researcher VLSI Research. That increase dropped to 12.5 percent shortly after the advent of Sematech and has since fallen to the low single digits. Perhaps just as important, Sematech set a goal in the early 1990s of compressing miniaturization cycles from three years to two. The industry has done just that since the mid-1990s, speeding innovation throughout the electronics industry and, consequently, the entire economy.

Sematech has become a model for how industry and government can work together to restore manufacturing industries—or help jump-start new ones. The National Alliance for Advanced Transportation Battery Cell Manufacture, formed in 2008, was designed on the model of Sematech, for instance. So is the Department of Energy’s new SunShot Initiative, which aims to reduce the cost of solar energy by 75 percent by 2020. “That model is viable for many industries,” says Robert D. Atkinson, CEO of the Information Technology and Innovation Foundation, a Washington think tank.

Like any consortium, Sematech struggled with its members’ competing interests and with wrenching changes in its industry. And not everyone in the industry supported it. Cypress Semiconductor CEO T.J. Rodgers complained that Sematech was an “exclusive country club” of large chip makers that for too long didn’t share technologies with smaller companies. But a number of academics say it nonetheless succeeded because of the way it was conceived and managed, providing lessons for future consortia.

For one, U.S. chip makers took to heart the adage that crisis breeds opportunity. The leaders of the semiconductor industry, who had created it in the 1960s and thus had a personal stake in restoring it, knocked on countless doors in Washington to get support for Sematech. National Semiconductor CEO Charles Sporck, known as the father of Sematech, spent so much time on that effort he nearly let his company go under, says former Sematech CEO William Spencer. Eventually the group won a five-year commitment of $100 million in annual funding from the U.S. Defense Department’s Defense Advanced Research Projects Agency, matched by Sematech’s members.

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Credit: National Semiconductor

Tagged: Business

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