Appendix E:Position of Texas Instruments Company and
TI's Fred Bucy Warns Against Selling Technology Know-How
and Turnkey Semiconductor Plants to Communist Nations
Even as West and East Bloc countries discuss relaxing the trade embargo on high technology, a sharp disagreement has developed between two major semiconductor manufacturers on how far this relaxation should extend. One viewpoint is exemplified in last month's Wescon speech by C. Lester Hogan, president of Fairchild Camera & Instrument Corp., who wants few restrictions made in East-West semiconductor trade.
Hogan stands ready to sell semiconductor products as well as the production equipment, technology, and management know-how to the Communist countries. This would mean the Communists would manufacture high-level semiconductor products themselves. The French company, Sescosem, a division of Thomson-CSF, has already broken the ice with the first turnkey semiconductor plant -- sold to Poland -- and Fairchild, waiting for the trade detente, does not deny having one quote outstanding on an MOS plant for Poland, and another two behind that for Russia.
On the opposite side is Texas Instruments, whose executives take a dim view indeed of trade agreements with the Communist bloc, on the grounds that such agreements are not protected by patent rights and do not offer either open markets or the opportunity to build a decent market share. J. Fred Bucy, vice president of Texas Instruments, points out that "it's one thing to sell high-technology products in the foreign market, but quite another to sell the know-how to make these products." He is adamant against turnkey contracts, and sees an equal risk in selling the Communists such pieces of production equipment as line-and-expose towers, diffusion furnaces, epitaxial reactors, and the like. "It's axiomatic in high-technology industries," says Bucy, "that the only adequate payment for know-how is market share. No lump-sum payment or turnkey-service fee can be great enough to fund the research and development necessary to enable the seller to maintain his advantage. You can be sure," he emphasizes, "that if we give away the know-how without obtaining a market share, they won't buy a dime from us -- devices or equipment. We will be giving away the crown jewels."
In Bucy's eyes, a big question with East-West trade is patent recognition. Because of the longstanding embargo on high-technology trade, few Western semiconductor patents are recognized by the Russians or other Eastern Europeans. "Since we can sell into the Communist community only through their governments," says Bucy, "the only way we can participate in their markets is for them to agree to recognize our patents retroactively, pay us full royalties, and/or give us access to sell directly in their markets on an equal footing against their state-owned factories."
Bucy also feels "that if the free world is footloose with its technology, it may be building a monster that soon will gobble up domestic markets. The Communist countries will build their semiconductor capability with Western-supplied production equipment and know-how, and/or with Western-built turnkey plants protected by high tariff barriers," he says, and when they get their costs down and their own markets saturated, they will be "right out there exporting into ours."
This means that any semiconductor plant set up in Eastern European countries capable of anywhere near the capacity of typical Western manufacturing facilities will quickly saturate the domestic Communist market and be ready to export their overcapacity to the West.
The semiconductor capability of the Comecon has been greatly exaggerated as well, according to Bucy. "The shell game they're playing," says Bucy, "is taking small quantities of laboratory-developed devices, giving them to people who are visiting Russia, and saying 'look at our capability -- now why not sell us the equipment to manufacture this, because we can do it ourselves anyway.' If they can, let them do it. The truth is, they don't have the capability of producing in large quantities at high yields. And that's what they want us for."