The US 'chip' industry: long on marvels, short on people

Representatives of the semiconductor industry -- whose devices can store 60, 000 facts on a square-inch electronic chip, and which is reportedly the fastest-growing industry in the country -- told Congress it desperately needs more technologiests and more capital.

Since Edison invented the electric light bulb, the United States has led the world in electronics, witnesses said, but now Japan and other technically advanced countries are catching up.

"In essence," said Dr. Lewis M. Branscomb, chief scientist of the IBM Corporation, before a Senate subcommittee on industrial growth and productivity, "we do not have enough faculty to provide engineers trained for advanced research and technology activities, nor is there adequate equipment in the universities to give these engineers a modern training."

Capital scarcity is just as serious as technical scarcity, Wolfgang H. Demisch, senior analyst of Morgan Stanley & Co., reported. Japan and other competitors can raise money at about half the cost in America. Inflation in the United States has caused interest rates to rise, he said, just when the electronics industry needs more capital to expand plants and when foreign competition is catching up.

"Overall, I believe the most helpful action the Congress could achieve would be to stabilize the economy and to decimate the inflation rate," Mr. Demisch said."High interest rates and high economic volatility are inimical to long-term planning and investment."

Floyd Kvamme, speaking for the Semiconductor Industry Association, supported Mr. Demisch Mr. Kvamme said bank studies show that "the cost of capital for the typical American semiconductor company averages 17.5 percent, compared with only 9.3 percent for the Japanese competition." In short, he said, American companies must earn a return about equal to the cost of capital, which is now 16.3 percent , while "the Japanese companies meet capital costs with a return of only 7.5 percent."

The semiconductor industry, with so- called "integrated circuits" and wafers and silicon "chips" that store facts, is a mystery to laymen, but is becoming one of the biggest in the world. Eight years ago, experts noted, IBM made a "memory typewriter" that could repeat a business letter but also give the operator an opportunity for revisions. America led the field, but all witnesses here noted the growing competition, particularly from Japan.

As witnesses testified, word came that Japan produced a record 11,042,884 motor vehicles last year, to become the world's No. 1 automaker, surpassing the US.

What the new semiconductor industry is selling is devices with artificial "memories," in which information is stored electronically for instant retrieval. As Mr. Kvamme put it, "Progressive sophistication of semiconductor products and processes has resulted in the packing of more and more elements [memory facts] on a chip. For example, in 1970 the first high-density computer memory circuit, the 1K RAM (for random-access memories), contained 1,000 elements on a chip. At present the 64K RAM, with more than 64,000 elements on a chip, is in prototype production by several companies.

"And by 1990, industry sources speculate that the most advanced chips will contain over 1 million elements."

Consequences are incalculable: A stenoggrapher can hold the files of a company on a single machine, or a library might, in theory, be condensed on a few shelves.

The fast-growing industry has outrun the supply of technologists, witnesses asserted; also, the industry can't afford plants and equipment at present interest rates.

The situation is "bleak," Mr. Kvamme told Sen. Lawton Chiles (D) of Florida, who conducted the hearing. "Many industry leaders believe that the shortage of trained manpower is the greatest threat to American leadership in semiconductors." As an example, he said that US universities graduated 14,000 electrical engineers in 1978 -- down slightly from 1970; at the same time Japan, with half the population of the US, "graduated 20,000 electrical engineers in 1978, up from 12,000 in 1970."

Mr. Demisch put it more strongly. "The US industry is losing ground," he said. "People are the biggest long-term problem." Electronics engineering has been "out of fashion," he said. Research is also curtailed. University research has been hurt by the erosion of funding, he said, as the government economized.

Mr. Branscomb added, "The most short- sighted thing we could possibly do in the effort to balance the federal budget would be to sacrifice the future technological capability of our industry by trimming dollars from our university research activities."

Data processing has staggering growth: Related industries now produce $70 billion in revenue for America's economy, witnesses said; employ 700,000, with 50,000 jobs added a year; and have a long-term growth rate of 13 percent, probably the highest in the country. All it needs is more men and money.