With tones of frustration and bitterness, Robert Noyce accuses Japan of cheating its way to dominance in the semiconductor industry that he helped to create:
"There is no doubt in my mind that dumping has occurred," he said. "The prices that have been quoted are far below production costs. Clearly, there is a case of predatory pricing."
Noyce, co-inventor of the integrated circuit -- the silicon chips that have spearheaded technological revolution in the information age -- has an ominous view of Japan's trade practices:
"We have to recognize that this is a crisis situation . . . the Japanese problem is far bigger than even OPEC the Organization of Petroleum Exporting Countries was. The dimensions of this thing are simply horrendous. I don't think people realize how big the dimensions are, and it's getting worse.
"Do you realize that our electronics deficit with Japan is larger than the one for automobiles?" asked Noyce, who is also vice chairman of Intel Co., one of America's pioneering, but ailing, semiconductor firms.
Noyce's screed against the Japanese highlights the new and harsh anti-Japan stance that U.S. semiconductor companies have taken as they've sunk deep into the industry's worst depression. Semiconductor executives in California's Silicon Valley privately wonder if their industry's survival is at stake.
Even though the industry's history is one of cyclical booms and busts, this time U.S. chip manufacturers have suffered the most dramatic drop in demand in two decades.
Last month, the Semiconductor Industry Association slashed its 1985 U.S. chip market revenue estimate to $8.7 billion -- fully 25 percent lower than last year's sales level of $11.6 billion. The previous estimate was a 20 percent cut.
Capacity utilization plummeted below 70 percent -- the lowest rate every measured by the SIA. Semiconductor orders for June through August fell 55 percent to $466.2 million from about $1 billion a year earlier.
What's worse, as the SIA and industry analysts have pointed out, is that semiconductor demand has plummeted even though the general economy is relatively healthy -- a major deviation from historic industry patterns.
The problem is not just Japanese competition but an array of underlying forces that threaten the industry. The strength of the dollar, too, has played a role in the drop in demand for U.S.-made semiconductors. Likewise, the collapse in the once-skyrocketing growth rate of personal computers has choked off new chip orders.
To the industry's dismay, there are no new high-volume products -- like video games or digital television -- on the immediate horizon that could spark a new wave of massive demand for computer logic and memory chips.
Consequently, America's semiconductor companies have borne the brunt of a recession that has plunged many of them deeply into red ink and forced the layoff of thousands of workers. Intel, National Semiconductor, Advanced Micro Devices (AMD), Seeq and other U.S. firms have been racked with losses.
Japanese semiconductor companies such as Hitachi Ltd., NEC Corp. and Toshiba -- are vertically integrated electronics companies that manufacture both industrial and consumer electronic devices. Their "captive" semiconductor groups produce chips for internal use and for outside sales. Consequently, when chip demand shrivels, the shock of the drop is borne by the entire company, but the company's other lines of business help carry it through.
In contrast, most American chip companies such as Intel and AMD, are independent companies whose sole business is semiconductors. Thus, when the market collapses, the company absorbs the loss without any offset.
This raises the troubling question whether independent semiconductor companies can survive as competitors in this capital-intensive, brutally cyclical industry. The Japanese, who always have declined to comment on that possibility in the past, now contend that U.S. companies may inherently be at a competitive disadvantage.
"The industry has been changing fundamentally to vertical integration," said Tomohiro Matsumura, senior vice president of NEC. "More and more, semiconductors are becoming a high-technology-commodity industry, which makes it more and more difficult for the independent merchant to survive. I think we cannot help it if, in a commodity-oriented business, it falls in the hands of large enterprises."
Indeed, Matsamura sees independent companies "going to play their part as a niche company," though he declined to specify how big the niches may be.
"As long as there are no predatory practices that cause serious dislocations in markets, we believe the independent mechant supplier, using an innovative product strategy, can generate the revenues and margins that will allow them to be an important factor in the semiconductor industry," retorted George Scalise, a vice president with AMD.
However, Scalise conceded that it may take the semiconductor industry a long time to match the heady profit margins that it enjoyed in 1983 and much of 1984. Indeed, the industry growth rate may drop from its historic 20-percent-a-year clip to 14 or 15 percent. Lower earnings and slower growth make it harder for companies -- either U.S. or Japanese -- to enjoy robust returns on their heavy investments in capital.
Indeed, in the face of this fundamental industry change, Japan's MITI reports that Japanese semiconductor companies have slashed their capital equipment expenditures for next year by more than 20 percent -- a sharp contrast with that industry's historic pattern of countercyclical spending.
Despite the broader problems facing the industry, most of the search for a solution to the industry's ills recently has focused on controlling inroads by Japanese manufacturers. Some of the most respected leaders of America's electronics companies -- AMD Chairman Jerry Sanders and Hewlett-Packard Co. Chairman David Packard -- have aggressively called for trade sanctions against Japan's semiconductor companies in a bid to ease the competitive pressures.
In the past, the U.S. semiconductor industry has charged Japanese semiconductor companies with "targeting" and other unfair trade practices, but the industry's overall growth tended to dull whatever pain resulted from the alleged offenses, and little was done. Now, with the industry's back against the wall, U.S. semiconductor companies are retaliating.
Armed with legal briefs and statistics, the U.S. Semiconductor Industry Association has filed a Section 301 unfair-trade-practices complaint, charging that Japan has created protectionist barriers making it impossible for U.S. companies to compete effectively.
On another front, the U.S. International Trade Commission has upheld a preliminary complaint filed by Micron Technology Inc. that some Japanese companies may have been dumping their chips on the U.S. market.
"Japan is simply not playing the game according to the rules that we play," Noyce said. "We steadfastly hold on to this ideal of free trade. Well, the open Japanese market is a total myth. We just need to come to our senses. America has got to do the same thing."
Noyce calls for a "dollar equivalency" tariff to be placed on all Japanese products -- not just chips. A dollar equivalency tariff, paid by the Japanese, would make up for the price advantage conferred on Japanese products by the strength of the dollar. Like the SIA, he also demands reciprocity of access to Japanese markets for U.S. chips. Reciprocity is the avowed goal of the U.S. semiconductor industry in this trade battle with Japan.
The Japanese, responding to the escalation in trade warfare, have hired some of the most influential lobbyists and public relations firms in Washington. With great fanfare, Hitachi Ltd. and other Japanese companies have kicked off major "Buy American" campaigns.
Braced with statistics and lawyers of their own, Japanese semiconductor companies have sent their top executives to the United States in a media blitz to counter the SIA and portray Japan as a victim of America's protectionist tendencies. Without hesitation or embarrassment, the Japanese insist that the problem with America's semiconductor industry has nothing to do with Japan. They dismiss all accusations of protectionism.
The Japanese reject charges of protectionism as a "red herring" designed to obscure the U.S. industry's problems. Japan's Electronic Industries Association presented statistics purporting to show that Japan's semiconductor market is more open than the U.S. market.
Some Japanese and semiconductor industry analysts believe that a new boom in demand would ease trade tensions. Other observers are uncertain whether American independent semiconductor companies can remain independent and profitable much longer.
The Japanese, sensitive to the politics and power of their largest customer, are uttering soothing words: "I think, in the long term, imports from the U.S. will increase," Matsumura said. "The Japanese government is trying to nurture the environment to foster that trend . . . "
U.S. companies want action, not words. "Japan has to decide that it's in their best interest to implement a trading program. They need to be making the decision that it's in their best interest to buy reasonable quantiites of chips from U.S. suppliers," said AMD's George Scalise. And what is reasonable?
"Double what we have today would be reasonable," he insisted. "I don't think that would be so hard to do."