The considerable attention given to restoring the U.S. semiconductor industry to a competitive position in global markets has focused on such strategies as increasing productivity, quality, product design flexibility, and the use of external sources of technology such as research consortia. In the long run, however, these behavior-oriented strategies, while collectively important, will likely be inadequate. The reason is that the structures of product portfolios in U.S. merchant firms, in particular the degrees of vertical integration, are insufficient to achieve high and stable cash flows that, in turn, are needed to finance R&D at the required breadth and depth over time. Industry data show that compared to Japanese firms, U.S. merchant firms are excessively dependent on component sales and are therefore at a decided disadvantage in attaining economies of scope from production of multiple components and end products. This situation brings into question the potential long-term benefits to be realized by this and similarly structured industries from research consortia such as Sematech.
