Lift-off time for microcomputers

Business Week

September 22, 1975

The semiconductor industry is anxiously awaiting a surge in orders that will signal the end of a disastrous fall-off in its business over the past 12 months. Sales have already started booming with the microcomputer, one of the industry's hottest products ever -- and something that producers hope will lead them out of their slump.

Despite the recession, the microcomputer, or "computer-on-a-chip," will nearly double in sales this year. Thousands of new products, ranging from cash registers to controllers for traffic signals and factory production lines, have been designed with the new device. And production orders are momentarily expected to turn into the flood.

Evidence that the marketing battle is rising in intensity is an agreement just signed by the second and third largest suppliers to share their microcomputer technology. Rockwell International Corp. (No. 2) and National Semiconductor Corp. (No. 3) will exchange technical data and tooling -- everything necessary for each to build the other's complete line of microcomputer circuits. These parts squeeze a computer's logic and memory circuits into one or more tiny silicon chips.

Behind the pact

The reason the two big producers are taking this step now is to insure that each has a second source for its microcomputers, avoiding the chance it might not be able to bid on new business. "Customers are demanding the competitive pricing and continuity of supply that comes from two independent sources," says Floyd Kvamme, National's vice-president.

Such agreements are relatively new for the aggressive industry. Signing up with Rockwell represents a real departure for National. In the past, it and almost every other producer just copied and announced their version of someone else's part.

But the old days of such "reverse engineering" are gone for products as complex as the microcomputer, says Joseph J. McDowell, microcomputer head at American Microsystems, Inc. "If just one little thing is different, the product is unacceptable," he says.

As a matter of fact, Rockwell and National are somewhat late in lining up second sources. AMI and several other makers anxious to get into the microcomputer business realized the need to team up more than a year ago. Competitors also discount the importance of the Rockwell-National deal since both companies still turnout microprocessors with old technology that is rapidly becoming obsolete.

One company that has not yet cooperated with any second source is the market leader, Intel Corp. "We didn't want to give them technology that we'd spent millions of dollars developing without getting something in return," says William Davidow, Intel's microcomputer head.

As a result, at least four companies have resorted to the old methods and are now trying to copy Intel's hottest new model, the 8080 microprocessor. Few have been shipped, so far.

Even without their help, Intel has kept most of the market that it opened up three years ago. It now has 60% of the business, estimates San Francisco analyst James R. Berdell. He figures Rockwell has 20% and National 12%, leaving only 8% for all other producers. The scramble for the market is heating up now because most companies believe a half dozen of them will end up with almost all the business.

To the victors will go a share in a business that will grow incredibly fast over the next decade even though prices will fall rapidly as production soars. Although an average microprocessor will drop from about $100 this year to as low as $6 by 1978, the market is expected to grow during this period from about $70-million or $90-million in 1975 to $250-million or more. By 1980, sales will be as high as $500-million, predicts Charles V. Kovac, who heads Rockwell's Microelectronic Device Div. And by 1983, he says, it will be a billion-dollar business.

GRAPHIC: Picture, Kvamme says customers want the competitive price of independent sources.

Copyright 1975 McGraw-Hill, Inc.