Semiconductor: The crude oil of 1980s

On a chilly evening in Palo Alto (a city in California), three legends of the American chip industry—Bob Noyce, Jerry Sanders, and Charlie Spork—gathered in the warm atmosphere of Ming's Chinese Restaurant. Although they once worked shoulder to shoulder at Fairchild Semiconductor, they later became rivals as CEOs of their own companies. But that evening, they had a common as well as massive challenge in front of them: the irresistible rise of Japan. So they agreed that they could no longer remain indifferent to the government's stance; this time they had to approach the government.

AMD CEO Jerry Sanders made an important comment that day—"Semiconductors are the crude oil of the 1980s." There was an irrefutable argument behind his statement. At that time, chips were needed to create almost everything in a technology-dependent life. From computers to cars, airplanes, Walkmans, and even ordinary microwaves were immobile without chips. Chips were essential to everyday life as like oil.

America learned the dangers of over-reliance on foreign supplies during the terrible oil crisis of the 1970s. When Arab countries stopped exporting oil to America because they supported Israel, the entire US economy came to a standstill. In response, the government focused on foreign policy to ensure oil security, even using military force if necessary. Sanders did not say that he would send warships to secure the supply of silicon—but he believed that America should take steps to protect its chip industry while it had time.

Previously, Silicon Valley companies had kept a distance from the government. But this time, under pressure from the situation, they wanted to turn to the government. After that historic dinner at Ming's Restaurant, Sanders, Noyce, and Sparks founded the Semiconductor Industry Association (SIA)—the main goal of which was to protect America's important chip industry by lobbying in Washington.

Comparing chips to crude oil seemed quite significant to the Pentagon. Because semiconductor technology was at the core of America's military power. Fighter jets, missiles, artificial satellites—everything depended on semiconductors. Since the 1970s, America's main strategy to counter the military dominance of the Soviet Union had been to achieve technological superiority, and semiconductors were at the center of this.

But in 1986, Japan surpassed America to become the world's leading producer in the chip industry. Not only that, but they were supplying 70 percent of the world's lithography equipment (the main equipment for making chips), where America's share was only 21 percent. Losing control of lithography meant becoming foreign-dependent in the chip industry.

The Pentagon contacted Jack Kilby, Bob Noyce and other industry leaders to deal with this impending danger. Together, they prepared a detailed report.

The report stated:
# America's military strength depends on technological superiority.
# Electronics is the most important technology.
# Semiconductors are the root of superiority in electronics.
# America will soon become foreign-dependent on advanced chips.

Japan was still a close ally of America. After World War II, it was America that added an anti-war clause to the Japanese constitution, so that its military power would be limited. Since then, Japan's military budget has been limited to 1 percent of the GDP. As a result, Japan was able to focus fully on building the economy instead of increasing its military power, while America continued to bear the burden of military spending for many others besides itself.

As a result, Japan's economy continued to grow at a rapid pace. The country that was once known as the ‘transistor seller’ has become the world’s second-largest economy and is now competing with America in high-tech industries. In some crucial areas of military technology, Japanese companies are outpacing their American rivals.

Considering this context, Charlie Spork warned the Pentagon: “If we don’t get smart about chips now, we will lose this industry [to Japan] like we did with television or cameras. And without chips, we will not get anywhere—economically or militarily.”

[Adapted and abridged from Chapter 18 (The Crude Oil of the 1980s) of Chris Miller’s groundbreaking book ‘Chip Wars’]

Author: Mahmud Hossain, a graduate of BUET, has contributed to the development of Bangladesh’s telecommunications and ICT sector for more than three decades. He played a significant role in the early adoption of mobile technology in the country. At present, he serves as a Commissioner of the Bangladesh Telecommunication Regulatory Commission (BTRC). Before assuming this role, he held senior leadership positions in several prominent national and international organizations.