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I. Introduction
Pages 7-62

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From page 9...
... "Information Technology and the U.S. Economy," The American Economic Review, 91(1)
From page 10...
... Four years later, in 1959, the first integrated circuit (IC) was created, and the semiconductor industry began its rapid ascent from the cradle of the research lab to become the largest value-added manufacturing industry in the United States.8 SUSTAINED, PREDICTABLE GROWTH The scale of this industry's growth exceptional both because of its rapidity and its predictability over time and its contributions to the economy are not always fully appreciated.
From page 11...
... 418. iiNational Research Council calculations derived from sales data from the Semiconductor Research Association and GDP data from the Bureau of Economic Analysis.
From page 12...
... If the U.S. and global economy are to continue to benefit from the vast increases in semiconductor power characterized by Moore's Law, a series of impending technical challenges must be overcome.
From page 13...
... i4 Public support for the nascent semiconductor industry became more prevalent after 1955 when R&D funds were allotted to other companies after the U.S. Department of Justice's ongoing antitrust suit against Bell Labs pressured Bell into sharing its patents on transistor diffusion processes.~5 According to one estimate, the government directly or indirectly funded 40 to 45 percent of all industrial R&D in the semiconductor industry between the late 1950s and early 1970s.~6 On the demand side, federal consumption dominated the market for integrated circuits (ICs)
From page 14...
... 37. 2iSemiconductor Industry Association, "World Market Shares 1991-2001," Data for 1991-2000.
From page 15...
... For a brief discussion of the decreasing cost of each new generation of integrated circuits, see National Academy of Engineering website; .
From page 16...
... Moore, "Cramming More Components onto Integrated Circuits," Electronics 38(8) April 19, 1965.
From page 17...
... As of August 2001, the semiconductor industry employed some 284,000 people in the United States alone.28 The industry, in turn, provides enabling technologies for the $425 billion U.S. electronics industry.29 Figure 5 exhibits the employment trends in Semiconductor and Related Device industries dating back to 1972.
From page 19...
... hourly earnings in the semiconductor and related device industries, shown in Figure 6, have risen a remarkable 50 percent in the past 30 years from roughly $14.50 in 1972 to about $21.50 today in 2001 dollars. This sizeable increase in real average hourly earnings for the semiconductor industry stands in stark contrast to the stagnation and then decline in real wages in the manufacturing sector as a whole over the same 30-year period.
From page 20...
... Dunng the middle part of that decade, Alan Greenspan, Chairman of the Federal Reserve Board, suggested that the nation's expenditures on sem~conductor-based products and the gains in productivity expected to accompany these expenditures characterize a far-reaching economic transformation: We are living through one of those rare, perhaps once-in-a-century events....The advent of the transistor and the integrated circuit and, as a consequence, the emergence of modern computer, telecommunication, and satellite technologies have fundamentally changed the structure of the American economy.32 Reflecting this investment, high technology firms also create positive spillovers, which affect society in many ways. Spillovers benefit other commercial sectors by generating new products and processes that can lead to productivity gains.
From page 21...
... industrial weakness was part of a longer period of decline.36 Part of this pessimism was connected to the multi-decade trend of low productivity growth, loss of market share for many U.S. industnes, and rapid growth in the trade deficit.
From page 22...
... See also National Research Council, Measuring and Sustaining the New Economy. 40"Productivity Growth May Be Here to Stay," Wall Street Journal, January 7, 2002.
From page 23...
... SOURCE: Labor Productivity, Bureau of Labor Statistics. ity.44 Leading researchers now believe that Solow's paradox has been resolvedly The information technology revolution is finally visible in productivity statistics.46 As the Council of Economic Advisers noted, "even though economists 44Council of Economic Advisers, Economic Report of the President, Washington, D.C.: U.S.
From page 24...
... . ;" and "Outside the information technology sector, organizational innovations and better ways of applying information technology are boosting the productivity of skilled workers."48 The sustainability of this growth resurgence, however, depends on the rate of current and future technological progress, which itself depends on the level and effectiveness of the nation's R&D investments, both private and public, as well as on the maintenance of supportive macroeconomic policy.49 TECHNICAL CHALLENGES AND SOARING CAPITAL COSTS For more than 30 years the growth of the semiconductor industry has been largely associated with the ability to steadily and quickly shrink the transistor and increase its speed without increasing costs.
From page 25...
... 52Paul A Packan, "Pushing the Limits: Integrated Circuits Run Into Limits Due to Transistors," Science, September 24, 1999.
From page 26...
... A wafer is a thinly sliced (less than 1 millimeter) circular piece of semiconductor material which is used to make semiconductor devices and integrated circuits.
From page 27...
... hold about 65 percent of global market share of foundry-based production, with firms from other Asian nations and the United States (IBM) holding the remainder.60 Tight quality control, 58The global supply chain in the semiconductor industry begins with a $10 billion (in year 2000)
From page 28...
... These cost savings may be accentuated by lower capital costs that reflect the impact of preferential tax treatment and more direct government subsidies for industries that are viewed as strategic by government policy makers in countries such as Taiwan.6i Fabless Design Firms The emergence of design houses or "fabless" firms firms which specialize in the design of semiconductors only and do not produce them is yet another sign of vertical specialization in the industry and functions congruently with the foundry model of production. The modest amount of investment necessary for market entry, the short time to market, and the prospect of rapid growth have established design firms as high-risk, high-reward entrepreneurial vehicles.
From page 29...
... This trend also reflects the active industrial policies of leading East Asian economies. The combination of greater vertical specialization and the impact of national policies to support local growth of the industry are changing the competitive environment.
From page 30...
... To date, the foundries have tended to be fast followers rapidly adopting the new manufacturing technologies that drive the industry but making relatively modest R&D investments of their own. As the foundries gain market share, it is not clear whether the R&D investments required to sustain the industry's exceptional growth will continue to be made.69 CHALLENGES OF MAINTAINING SUFFICIENT HUMAN CAPITAL The unprecedented technical challenges faced by the industry underscore the need for talented individuals the so-called "architects" of the future to devise new solutions to these technical challenges.70 This need is emerging at the same time as the pool of available skilled labor is shnnking.
From page 31...
... Engineering Workforce Commission statistics and SRC projections presented by Dr. Michael Polcari of IBM at the Symposium on National Programs to Support the Semiconductor Industry, October 2000.
From page 32...
... Other industry representatives and analysts echo this view. See the presentations of Michael Polcari of IBM, Kalman Kaufman of Applied Materials, and George Scalise of the Semiconductor Research Corporation in the Proceedings of this volume.
From page 33...
... Long Degree programs SOURCE: National Science Foundation, Science & Engineering Indicators 2000. 33 as a region produces more engineers per year than the United States by almost a factor of six.
From page 34...
... students in these fields are not based on estimates of national needs, but rather the result of unplanned reallocations of resources resulting from the post Cold War adjustments to the U.S. innovation system.79 Over time, the results of these reductions 78National Research Council calculations derived from the National Science Foundation's, Science and Engineering Indicators 2000.
From page 35...
... "Governments believe that the future of their countries depends on the composition of their economies, and for the most part they see their success as nations defined by their relative success in these specific efforts." This belief has stimulated increasingly vigorous international competition, especially in sectors that countries deem to be economically strategical Consequently, many governments have adopted policies to support nationally based firms in the hope of capturing the benefits of this industry, such as higher-wage jobs, increased competitiveness, and future government revenue. Information technology industries are often a target of these national policies.
From page 36...
... firms to improve yield and efficiency through volume production and encouraged wider application of integrated circuit technology, first in military and then in commercial technologies. National Bureau of Standards, The Influence of Defense Procurement and Sponsorship of Research and Development on the Development of the Civilian Electronics Industry, June 30, 1977.
From page 37...
... Policy Initiatives As competition from the Japanese producers intensified in the 1980s, the industry launched a series of initiatives, some in cooperation with the government, to strengthen its domestic capabilities (e.g., the Semiconductor Research Corporation) and later to stop what it considered to be unfair trade practices by Japanese producers through a series of bilateral trade agreements.92 The range of these initiatives, as shown in Box B
From page 40...
... Among these, SEMATECH has perhaps been one of the most significant private R&D consortia.93 In 1993, Congress again relaxed restrictions this time on cooperative production activities by passing the National Cooperative Research and Production Act, which enables participants to work together to apply technologies developed by their research joint ventures.94 Trade Agreements Efforts to address issues in U.S. manufacturing quality (see below)
From page 41...
... For additional discussion of the Semiconductor Trade Agreement, see National Research Council, Conflict and Cooperation in National Competition for High-Technology Industry, pp.
From page 42...
... 21-23. Browning and Shetler record that the Treasury and Council of Economic Advisers was adamantly opposed to government funding of a consortium; the Departments of Defense and Commerce were supportive.
From page 43...
... In combination with the Semiconductor Trade Agreements, the U.S. industry was able to increase its market share in Japan to over 20 percent by December 1992.~°7 Perhaps the most appropriate measure of SEMATECH' s contribution is the reaction of the market itself that is, the willingness of industry participants to continue to provide matching funds over a sustained period; and then for these same firms to continue to fund the consortium with private resources and expand it with new members.
From page 44...
... . Some nations are also providing substantial incentives to attract native-born and foreign talent to their national industry, in order to meet what some see as an emerging zero-sum competition for skilled labor.~°8 In doing so, some national programs are altering the terms of global economic competition with policies that differ in important ways from those of the traditional leaders.~09 The levels of investment and promotional activity across many countries attest to the importance governments attach to this industry.
From page 45...
... —Information Industry, , and Circular 18 of June 24, 2000, Several Policies for Encouraging the Development of Software Industry and Integrated Circuit Industry, published in Beijing Xinhua Domestic Service, 04:49 GMT, July 1, 2000. The municipal governments of Shanghai and Beijing have issued their own circulars articulating promotional policies to be implemented within their jurisdictions to augment the national-level measures.
From page 49...
... This summary of national programs should not be interpreted as a criticism of them. The collective impact of these programs should help the semiconductor industry as a whole meet its increasingly complex technical challenges.
From page 50...
... i23 This irresolution has resulted in a passive federal role in addressing ii8See the presentation by Philips Semiconductor's Peter Draheim in this volume. ii9"From Stagnation to Growth, The Push to Strengthen Design," Nikkei Microdevices (January 2001)
From page 51...
... See Scott Nance, "Broad Federal Research Required to Keep Semiconductors on Track," New Technology Week, October 30, 2000, and Sonny Maynard, Semiconductor Research Corporation, cited in presentation by Dr. Michael Polcari, "Current Challenges; A U.S.
From page 52...
... MARCO has its own management personnel but uses the infrastructure and resources of the SRC. MARCO's supporters include the following: Advanced Micro Devices, Inc., Agere Systems, Agilent Technologies, Analog Devices, Inc., Conexant Systems, Inc., Cypress Semiconductor, IBM Corporation, Intel Corporation, LSI Logic Corporation, MICRON Technology, Inc., Motorola Incorporated, National Semiconductor Corporation, Texas Instruments Incorporated, Xilinx, Inc., Air Products & Chemicals, Inc., Applied Materials, Inc., KLATencor Corporation, Novellus Systems, Inc., SCP Global Technologies, SpeedFam-IPEC, Teradyne, Inc., DARPA, and the Deputy Undersecretary of Defense for Science & Technology.
From page 53...
... International SEMATECH continues to promote collaboration among major firms, which now include non-U.S. members.
From page 54...
... SYMPOSIUM SUMMARY The presentations, discourse, and commissioned papers offered in this symposium may help inform the policy community of the challenges faced by the industry. Taken together, they offer an assessment of the industry's contributions as well as provide information on the technical challenges, research needs, and the range of foreign efforts currently characterizing the microelectronics sector.
From page 55...
... industry." He added that the focus of industrial R&D on short-term, predictable results makes it extremely important for the government to support long-term research "across a very broad base." Kenneth Flamm of the University of Texas at Austin offered an economist's view of SEMATECH. He said that it is generally perceived as a success by industry, but that only a few economic studies have been done.~27 His own review of the economic literature revealed that cooperation can have either positive or negative impacts on R&D.
From page 56...
... Moreover, they note that "the only absolutely certain thing about SEMATECH is that a substantial portion of its member companies must have found it to be of net value having actually run the experiment of ending public subsidy and finding that its consumers continued to buy its output." Current Challenges: A U.S. and Global Perspective Michael Polcari of IBM called the technical challenges facing the computer industry "unprecedented." It will be very difficult to maintain the industry's rapid increases in productivity, which, following Moore's Law, has approximately doubled every 18 to 24 months.
From page 57...
... Japanese Consortia for Semiconductor R&D Yoichi Unno described SIRIJ, the Semiconductor Industry Research Institute of Japan, as a think tank founded in 1994 by 10 Japanese semiconductor companies to promote joint R&D. The objectives of SIRIJ are to promote development of next-generation technologies, study the future of the industry, and implement projects for international cooperation.
From page 58...
... A four-year program that ended in December 2000 has now been extended as MEDEA Plus under the guideline "system innovation on silicon." Government-Industry Partnerships in Europe (1~: Embedded Technologies and Systems-on-a-Chip Peter Draheim of Philips Semiconductor said that Europe in recent years has taken a leading position in several areas: communications, automotive electronics, smart cards, and multimedia. These applications are driven by system innovations on silicon and require embedded technologies.
From page 59...
... Hu of Taiwan Semiconductor Manufacturing Co. said that Taiwan's rise to success had depended on the government's decision in 1974 to focus on semiconductors as a key industry.
From page 60...
... It must be delivered as part of a process, and the process has to be perfect. This requires far more work on long-term "fundamentals, materials, the real basics." i28For a review of science and technology parks, see Michael L Luger, "Science and Technology Parks at the Millennium: Concept, History, and Metrics," in National Research Council, A Review of the New Initiatives at the NASA Ames Research Center, C
From page 61...
... It has created an "integrated, virtual semiconductor research laboratory" by funding projects at about 65 universities across the country. Through two other programs, it supports research in semiconductor design and testing, and in layout.
From page 62...
... The views summarized above reflect the diversity in the national and regional approaches to meeting the needs of the semiconductor industry. They also affirm the common perception of the technical challenges the industry must overcome if it is to continue its extraordinary rate of growth.


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