AT&T Semiconductor Exec Cites Risks to Industry Growth.

PEBBLE BEACH, Calif.--(BUSINESS WIRE)--Jan. 9, 1996--The U.S. semiconductor industry risks falling years behind in production volumes if it fails to accelerate delivery of new manufacturing equipment and eliminate other impediments to its growth, the head of AT&T's multibillion-dollar electronic components business said today.

"Semiconductors are expected to be a $330-billion industry by the year 2000," Curtis J. Crawford, President of AT&T Microelectronics, said in a keynote address here at the annual Semiconductor Equipment and Materials Industry Conference. Yet, "there is a scarcity of equipment, materials, and skills in the industry today....Today's manufacturing undercapacity could prevent the semiconductor industry from reaching its $330-billion goal."

Crawford defined three major hurdles that the industry players must overcome if the unprecedented expansion of the global semiconductor industry is to continue: Suppliers must work off the major backlogs in orders for critical semiconductor production equipment while continuing to invest in new technologies that will enable breakthroughs in density and performance of semiconductor components.

The industry must aggressively address "the serious deficit of qualified human resources throughout the semiconductor industry."

With rapid technological change making today's semiconductor manufacturing equipment obsolete in three years or less, government policy makers also must rectify the inequity of current U.S. regulations which set the legal depreciation period at five years -- providing competitors abroad with a major cash flow advantage and lower cost of capital.

Plan for, Invest in a Long-Term Expansion

Crawford said that equipment manufacturers anticipating a downturn in the semiconductor industry are ignoring the long- term nature of the current expansion, which is driven by the proliferation of semiconductor chips in a vast array of consumer and industrial products in dozens of industries. With semiconductors at the heart of the information technology revolution, and with markets for personal computers and other electronic systems still in their infancy in Eastern Europe, the Far East, and other underdeveloped areas of the world, "it is clear that the boom and bust cycles that have characterized our industry may be a thing of the past."

The semiconductor industry's current "fab-building frenzy," with 160 new $1-billion semiconductor fabrication facilities being constructed between now and the year 2000, will not fulfill its promise if the industry fails to speed up deliveries of critical manufacturing equipment currently on short supply, Crawford said. Some of this equipment, such as steppers and deposition and etch equipment used to manufacture semiconductor wafers, currently takes up to 18 months for delivery.

Invest in Human Capital

Crawford also said the industry faces a crucial need to invest in human resources by developing creative methods for hiring and training qualified people. He applauded programs that re-train unemployed aerospace engineers and the partnerships between industry and educational institutions.

"Another solution is to leverage the under-represented potential that exists in our industry. By this I mean increasing the proportions of women and minorities in our business," said Crawford. Crawford went on to say that some 50 percent of the students in graduate schools are not U.S. citizens and U.S. laws say these individuals must return to their own countries upon graduation. "With so many jobs unfilled today, we can no longer afford to do nothing as foreign students are forced to return to their native countries, where they use their U.S. education to compete against U.S. businesses, rather than contributing to them."

Accelerate Depreciation

Crawford also issued a plea to lawmakers to pass tax legislation eliminating current penalties to investing in high- technology manufacturing equipment. The current U.S. depreciation rate of five years provides competitors abroad with a major advantage in terms of superior cash flow and lower cost of capital. Japanese companies, for instance, can write off as much as 88 percent of equipment depreciation in the first year, whereas U.S. companies are allowed only a 20-percent depreciation.

"Because Federal lawmakers had other priorities, they failed to pass the Semiconductor Investment Act of 1995. As an industry we must redouble our efforts to get the bill approved in 1996," continued Crawford. "Three-year depreciation is sound economic policy because shorter depreciation promotes capital investment in the U.S. It boosts domestic jobs and economic growth and would spur U.S. semiconductor spending by more than 10 percent."

AT&T Microelectronics is one of the world's leading providers of high-performance integrated circuits, optoelectronic components and power systems for applications in the telecommunications and computing industries. It will become part of a new systems and technology company that is expected to be spun off from AT&T as a separate company in 1996 as part of a planned corporate restructuring. Bell Laboratories will be the research and development engine for the new company.

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