Six months ago, Semi-Gas Systems Inc. was just another obscure technology company in Silicon Valley, a maker of equipment used in the exacting process of mass-producing computer chips. Then came a purchase offer from Japan's Nippon Sanso KK, and the firm found itself transformed overnight into a political cause.
Earlier this month, federal officials were summoned to a Capitol Hill hearing room to explain why they had notblocked the proposed $23 million purchase on national security grounds. "No other government in the world allows its national technological treasures to be sold so easily," said Sen. Al Gore (D-Tenn.) during three hours of sometimes contentious talk.
Whether Semi-Gas is in fact a treasure is open to question. But on Capitol Hill, and in parts of the Bush administration and semiconductor industry, the sale became a focal point for people who believe the United States should regulate foreign investment more closely or risk declining into a second-rate power.
Critics like Gore, who chairs the Senate's subcommittee on science, technology and space, contend that foreign ownership of strategic technologies in the long run will erode the nation's economic standing and with that its military security.
Still to be disclosed are the results of an inquiry by the Justice Department into whether the sale would violate antitrust laws by giving the Japanese buyer too much market power. Critics hope the deal will be blocked there.
Employing about 120 people, the 10-year-old San Jose firm is essentially a supplier of plumbing systems for toxic and corrosive gases used in chip manufacture. Its sales this year are expected to total about $20 million. It is the largest supplier in the United States and worldwide of this type of equipment but by no means the only one.
The sale's critics say Semi-Gas is well ahead of its Japanese competitors in technology. Other experts disagree. Computer software developed by Semi-Gas for controlling the flow of gases is comparatively advanced, said Mark FitzGerald, an analyst at research firm Dataquest Inc. in San Jose. As for the company's technology in general, he said, "we're not talking rocket science."
In April, the U.S. government was informed that an American affiliate of Nippon Sanso, a Semi-Gas competitor, had signed a deal to buy the company. Semi-Gas's owner, aerospace contractor Hercules Inc. of Wilmington, Del., agreed to the $23 million offer in favor of one valued at about $18 million that had been put together by Semi-Gas's own managers.
The deal triggered a federal review by the interagency Committee on Foreign Investment in the U.S. under provisions of Exon-Florio, a 1988 law that bolstered the president's authority to block sales deemed to threaten national security. But this summer, President Bush ruled that there was no security threat.
To date, the White House has blocked only one takeover of about 460 it has considered. In general, it argues that the world economy is becoming integrated and that market forces must be allowed free rein. Even if it wanted to stop deals on grounds of long-term economic interest, administration officials say, Exon-Florio does not provide the power for that.
Many buyouts, administration officials contend, actually bolster U.S. interests by keeping ailing companies alive and giving them new capital and technology. "Are we better off letting these companies go belly up?" asked Stephen J. Canner, director of the Treasury Department's Office of International Investment. "... Or are we better off having them on our soil, under our control" but under foreign ownership?
Industry sources say that Japanese companies have purchased as many as 18 U.S. makers of semiconductor manufacturing equipment and materials since 1987 and the Semi-Gas deal might have been added to that list with little notice, except that Semi-Gas had been working with Sematech, the Texas consortium that with federal aid is trying to develop new semiconductorproduction systems to help U.S. companies compete against Japanese companies.
Sematech cried foul. It had nurtured Semi-Gas precisely for the purpose of facing up to Japanese companies like Nippon Sanso, its executives said, and now Nippon Sanso was being allowed to come in and buy it. The sale would be a "serious threat to Sematech," said Peter H. Mills, the Austin-based consortium's chief administrative officer.
Sematech said it would have to sever its relations with Semi-Gas, which had sent five employees to work with the consortium, and spend extra money to restart its gas program with a U.S. firm, it said.
Murmurings of dissent to the official stance have come here and there in the Bush administration. In August, presidential science adviser D. Allan Bromley wrote to Donald Atwood, deputy secretary of defense, criticizing the interagency investment committee's approach and asking for his help in changing it. "Our technology base can be nibbled from under us through a coherent plan of purchasing entrepreneurial companies," many of which have enjoyed federal aid, Bromley said.
A subgroup of the Defense Science Board, a private sector group that advises the Pentagon, has also criticized the pattern of sales. It argued in a report that the government should "actively intervene" to shore up ailing technology companies and help arrange financing to keep them in U.S. hands.
Semi-Gas's management is rumored to be planning another offer. But if that fails and it is sold to Nippon Sanso, the deal's critics are likely to have chances to press their case in the near future. One possible place: a Washington state plant of National Semiconductor, in which Matsushita Electric Industrial Co. of Japan is rumored to be interested.