Electronics Companies Find Advantages in Alliances
THESE days, even ``Big Blue'' can use some help. International Business Machines Corp. (IBM) said Jan. 24 that it will be working with the West German firm Siemens A.G. to develop a new generation of computer chips. The next day two other electronics giants announced a research partnership to work on high-definition television (HDTV).
Beyond the obvious benefits of pooling expertise and sharing the development costs, their partnerships also promise to help the companies influence the markets and regulatory environment. For instance, the standards government regulators adopt for HDTV will help determine the broadcasting and reception equipment used in the United States in the next century.
Philips Consumer Electronics Company, with its parent based in the Netherlands, joins Thomson Consumer Electronics Inc. of France, National Broadcasting Corporation (NBC), and the David Sarnoff Research Center to work on HDTV and an interim higher-resolution TV picture to be on the market by 1993.
``The pace of technology and the investment needed to get that technology is so great,'' that even IBM wants access to knowledge at other firms - and shared financial risk, explains William Easterbrook, who analyzes the company for Kidder Peabody & Co. Inc.
Strengthening US chip suppliers
``Where the preponderance of [semiconductor] supply is from Asian producers today,'' IBM is trying to strengthen suppliers in the US and Europe, says company spokesman Paul Bergevin. Although IBM is probably the world's largest chip producer, Mr. Easterbrook says the company depends on outside sources for up to 40 percent of the chips used in its products.
Siemens and IBM will focus on an area in which Japanese firms now control about 65 percent of the world market: dynamic random access memory (DRAM) chips. The firms hope to develop by the mid-1990s DRAM chips with 16 times the storage capacity of those now on the market. The venture is for research, not manufacturing. Still, Mr. Bergevin says ``it is expected that we would continue to buy semiconductors from Siemens.''
Speedy development of these chips could be a boon for IBM, which is cutting 10,000 people from its payroll by year end - a reflection of fierce competition in the industry.
Despite financial pressures, the ``efficient size'' for many companies is growing as markets become global, says Heather Hazard, a post-doctoral fellow at Harvard Business School. Though cooperation with erstwhile competitors can be tricky, alliances are one way of gaining efficiency without acquiring or merging with another company.
Alliance blends firms' specialties
The formation of the ``Advanced Television Research Consortium'' is significant because it is the first such alliance that brings together makers of software (NBC), broadcast equipment (Philips), and television receivers (Thomson and Philips), says August Grant, professor of radio, television, and film at the University of Texas. Thomson and NBC had already been cooperating in research at the nonprofit Sarnoff center in Princeton, N.J. The consortium hopes more companies will join, according to NBC spokeswoman Beth Comstock.
By deciding to head in the same direction as the Sarnoff group, Philips is ``narrowing the choices the FCC [Federal Communications Commission] has to make'' when it sets standards in the next few years, Dr. Grant says.
For the European firms, alignment with NBC is ``one way to get an American flag pinned to their lapel'' and influence the development of regulations, Dr. Hazard says. Similarly, Japanese firms formed an agreement late last year to involve American chip makers in their HDTV efforts.
Ironically, the European-owned Philips and Thomson have almost as many employees in the US (10,000 and 9,000, respectively) as the only major US-owned television manufacturer - Zenith Electronics Corp (11,000). Zenith is developing HDTV with American Telephone & Telgraph Company.
Zenith spokesman John Taylor counters that while jobs are significant, ``one of the key issues is clearly who will own the technology for HDTV.'' He asks: Will royalties stay in the US ``or will they flow overseas?''