September 11, 1976
RECENT VISIT TO SILICON VALLEY
The best indication of business noted on a recent trip to Silicon Valley was
that both the visitor parking spots and the plant parking lots were full.
The Japanese are making a more serious effort at penetrating the U.S. IC market.
The success of such a move is problematical. The basic difficulty is the length
of time required to negotiate a contract with the Japanese. For prime source
negotiations, contracts and prices must be negotiated rapidly. The Japanese
have a chance only at second sources where the time pressures to reach a
decision are reduced. ICE has worked extensively with the Japanese
manufacturers. The basic Japanese method of decision making doing business is
not compatible with the fast-paced American semiconductor integrated circuit
market, although NEC has demonstrated some aggressiveness in selling
semiconductor RAM and microprocessors.
It can be expected that Norm Miller will completely revamp the marketing
approach of ITT in the United States and he will change their technical image
substantially by bringing MOS and injection logic technology of the ITT European
plants to the U.S. We see a start in this in the ITT announcement in the U.S. of
a European-designed small microprocessor.
One by one, small IC companies are forced to appreciate the resource burden of
vertically-integrating into the system business. Selling boxes involves a lot
more than IC manufacturing prowess.
AMI - GLEN PENISTEN
Penisten is working the troops hard to develop strategic plans. The staff seems
quietly appreciative of the fact there is real direction from the top. Although
there is considerable frustration at the planning wheel-spinning, most of the
staff is working hard. They are relieved now by the clear direction that
Penisten is providing.
Penisten's goal is to take the technical capabilities at AMI, and an
excellent position in customer relationships, to move AMI from average to a
superior position in the marketplace.
Prospects are that Penisten will transform AMI into an excellent
moneymaker. ICE's initial visit to AMI suggested Penisten is doing things just
about right with a little too much paperwork and planning to start with. Wall
Street has less confidence for the long pull, tending to compare AMI with the
standard-product big guys.
NATIONAL - BILL BAKER
Fairchild still has the leading position in the Isoplanar technology. It's very
likely that other companies such as National and AMD will come up with
equivalent alternatives to the Isoplanar technology. Fairchild's patent
position probably will only be clarified after a court battle.
ELECTRONIC GAMES MARKET
The booming electronic games market seems to be surprisingly solid with
Fairchild planning colored games with plug-in modules for variety for the
Christmas market. Delay in FCC approval has delayed the Fairchild game program
so it will not be able to reach full steam by Christmas. Frost and Sullivan are
probably under-estimating the home game entertainment market. A mere doubling
of the combined market in eight years is not fabulous growth, implying a large
stable coin operated base.
ICE is occasionally asked to assist in evaluating people for a job and, as
indicated in Hoefler's Newsletter, it's difficult to make this effective.
However, once the man is in place in his intended position, it's fairly easy for
an outsider to come in and evaluate his future effectiveness in that same role.
In other words, you can tell fairly early in the game who the winners are.
ICE COMMENTS ON BAY AREA VISIT
ICE has recently had an opportunity to again review the effectiveness of
management ideas, particularly Fairchild vs. National. We note the following
The new young people entering the semiconductor business are not enthusiastic
about a 60 or 70 "workaholic" week. The younger engineers particularly
(although they are interested in their jobs), want to divide their time between
job, family, recreation, hobbies and other interests. Thus, the "workaholic"
week is becoming less and less popular. Although almost all employees will put
up with overtime for a short period of time, it wears rather thin if carried to
The difference between Corrigan, Noyce, and Sporck is quite startling.
The cool, calculating personality of Corrigan tends not to make long-term
friends which are probably an essential part of long-term business success.
Noyce tends to have the maximum confidence of his customers, and as a
result gets more information on their future plans and is probably kept more
aware of new markets and new concepts. A friend will call Bob to give him the
word. Corrigan tends not to accept casual information, (regardless of how
important it is), and Noyce does an excellent job of digesting and evaluating it
before putting it to use.
Noyce seemingly is able to enter new technologies such as microprocessor
without being overly enamored with it; that is, he and Gordon Moore both have a
very good recognition of the actual value of the business.
Although ICE previously forecasted a mixture of shortages and surpluses in
the economic readjustment of the semiconductor business, it appears that there
will be a-few more surpluses than shortages. We find that electronic game chips
of various types tend to be in short supply but, 4K RAMS are surplus.
Microprocessor chips of the earlier varieties are rapidly reaching a surplus.
OVERALL BUSINESS PROSPECTS FOR IC PRODUCERS
In spite of the current boom, overall prospects for IC producers should be
nothing more than a return to a normal growth, (about 15% per year without about
half of it due to inflation). The negative factor is substantial increase each
year in the number of circuit functions available on a chip without a
corresponding increase in price. A 16K RAM is not priced at 16 times the 1K or
4 times a 4K RAM.
In new major mainframe computers the number of IC packages required,
(because of MSI and LSI), is comparatively small, so small in fact that it's
been difficult for anyone but IBM to interest the semiconductor industry in
producing the fast circuits for new mainframe computers. Many of the new
mainframes involve special packaging done by a systems house, which will
substantially reduce the contributive value of the semiconductor supplier.
On the positive side, new applications and the growth of older
applications continue to boom. The application of integrated circuits to the
telephone industry is now growing very rapidly with new announcements such as
the ROLM PBX and similar products.
The most successful semiconductor company will either be one which is
based upon a very high order production efficiency and yield in existing markets
or one which is very effective in developing new markets such as
telecommunication citizens band or electronic games.
© 1976 Copyright Integrated Circuit Engineering Corporation