Feeling the Crunch From Foreign Chips

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Texas Instruments seemed as determined last week as the troops that defended the Alamo. The beleaguered electronics giant took out a two-page advertisement in the Wall Street Journal that was intended to have the impact of a barrage of cannonballs. "Suddenly an era of explosive invention begins," proclaimed the company, as it touted an array of new technologies. This time the heroic struggle is over the manufacture of semiconductors, the tiny silicon chips that form the brains of virtually every advanced product from microwave ovens to mainframe computers. The attacker is Japan, whose aggressive electronics industry is on the verge of toppling the U.S. as the world leader in the $27 billion semiconductor market.

Texas Instruments, which invented the first practical chip in 1958 and remains a major producer, is determined to help lead a U.S. counteroffensive. The company is rolling out devilishly tiny weapons, among them the world's first four-megabit chip, a supersophisticated semiconductor that can store more than 4 million bits of information on a wafer the size of a child's fingernail. Declares Norman Neureiter, a Texas Instruments vice president: "The U.S. semiconductor industry is not rolling over and dying."

Few industrial struggles, even over supremacy in autos or steel, have ever been more important to the U.S. economy. "The semiconductor is at the heart of modern industrial processes," says Bruce Smart, the Commerce Department's Under Secretary for International Trade. A flood of low-priced chips from Japan has squeezed the profits of U.S. chipmakers so severely that many of them could fail, thus leaving the country dependent on foreign supplies for a strategic resource. Says Smart: "If we were to be forced out of business and had to buy our semiconductors from foreigners, they would in effect control one of the vital parts of our industrial and military strength."

The semiconductor industry got a measure of help last July when the Reagan Administration persuaded Japan to sign a five-year agreement to stop "dumping" chips at below-cost prices and to make its semiconductor market more open to foreign manufacturers. But the pact has stirred sharp controversy over its side effects. By forcing chip prices in the U.S. dramatically upward, critics say, the pact could severely harm the competitive ability of other high-tech industries whose products contain semiconductors.

Nonetheless, almost everyone agrees that U.S. chipmakers needed emergency relief. In a slump for two years, the industry has laid off 65,000 workers and is expected to post total operating losses of $800 million this year. Even the most innovative stars have been humbled. Earlier this month Intel startled Wall Street by posting a record quarterly loss of $114.2 million. Advanced Micro Devices said it lost $46.9 million during the comparable quarter and announced its first layoffs in a decade, dismissing 500 of its 13,300 workers. Many smaller companies that have developed highly advanced manufacturing processes, notably GCA of Andover, Mass., and Micron Technology of Boise, Idaho, are now in deep financial trouble. "There's no question that we're in the fight of our lives right now," says Ralph Thomson, senior vice president of the American Electronics Association.