June 18, 2004    Volume 11, No. 12-

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Developing A Strategy For Saving High-Tech: Defense Science Board Wrestles A Political Hot Potato


The Pentagon's Defense Science Board (DSB) is tackling the ideologically contentious issue of the future health of the U.S. semiconductor industry. The august group is gathering data in response to growing concern over the shift of semiconductor manufacturing capacity to China. DSB is expected to produce a report with recommendations this fall.

The DSB's Task Force on High Performance Microchip Supply is gathering information from industry experts on the condition of the U.S. industry. Most of what task force members have heard so far is not overly optimistic, according to those associated with the group and others who have made presentations.

There is growing worry in Congress, in the Pentagon and industry over the continued migration of semiconductor manufacturing capacity out of the United States. With the growing complexity of circuitry, most research and design functions are moving with manufacturing.

"The migration of semiconductor manufacturing and design capability to foreign countries imposes significant challenges upon the United States," wrote Michael Wynne, Undersecretary of Defense for Acquisition, Technology and Logistics and director of Defense Research and Engineering, in a memo establishing the task force late last year. "The movement of manufacturing capability may leave the Department of Defense without an assured supply or access to emerging new designs."

The DSB task force, chaired by William Howard, a veteran of the semiconductor industry who worked for Motorola and is a member of the board of Credence Systems, will succeed in its task if it merely acknowledges that there is a problem, said numerous people involved. Until now, top political appointees within the Pentagon have downplayed data that point to a loss of U.S. technology leadership in the face of procurement policies that have stressed the acquisition of "commercial off the shelf technologies" (COTS).

In the semiconductor field, DOD is funding a stopgap measure to assure a continued supply of military specific microprocessors. In a quiet manner, it is providing $60 million a year to a dedicated "trusted foundry" operated by IBM in Vermont. Wynne asks the DSB task force to answer the following question: "Do alternatives to the creation of trusted foundries based on U.S. territory exist?"

Suppliers in the industry believe a far more comprehensive strategy is required for the military to secure state-of-the-art semiconductors from U.S companies. DOD and the federal government have substantially reduced funding for research in advanced semiconductor production techniques, they point out.

Representatives from the printed circuit board (PCB) industry told the DSB task force that it struggles every year to secure funding for a small PCB research center at the Naval Surface Warfare Center in Crane, Indiana. Funding this year ($3.5 million) was provided through a congressional earmark, a process requiring astute lobbying skills. "What we're looking for is miniscule," says one PCB industry representative. "It's dust in the margins to keep us playing. We're shopping for a permanent funding line for this." Funding for the effort next year is at risk.

The U.S. photomask industry is struggling to put together its own consortium to fund a collaborative research endeavor with the Defense Department. It is trying to secure money through the Title III program, which provides funding to strategic industries under competitive attack. It hasn't yet had success.

There are also concerns that the Defense Advanced Research Projects Agency has abandoned advanced semiconductor R&D. Industry executives lament the upcoming retirement of DARPA scientist David Patterson, who helped champion the agency's once vigorous lithography research programs.

"The challenges ahead require very high cost and fundamentally new R&D models in order to address them, with more cost sharing among the various players," says one semiconductor equipment executive involved in the DSB discussions. "People in the industry can't believe the Defense Department is studying this because it's such a done deal. The whole market has moved away from defense and they have been out of it for a long time. Everything is moving so quickly, how are you going to stop these trends?"

Industry executives told the panel that DOD should focus its resources on maintaining strong capability in lithography and mask making. The photomask sector is under siege due to rising complexity and cost of developing the next generation of chips and a relentless push from foreign governments to create their own indigenous industries.

Semiconductor industry executives said DOD needs to start addressing manpower issues and university research requirements. Others pointed out that the traditional solutions of funding more R&D may not work this time around and that a more comprehensive strategy focusing on improving the U.S. business climate for investment is needed.

"We need a plan to keep manufacturing here otherwise the R&D we fund will simply migrate out of the country," says one semiconductor industry executive. "We must convey to the world at large the importance of maintaining the leadership in semiconductors. Making that case is going to be a challenge."

For some in the defense community, the DSB task force is the last best hope for overcoming technical, political and ideological resistance to involving the Bush Pentagon in co-funding industry R&D projects. "We're investing a great deal of hope that this committee will give us the solutions that we need," said one military official concerned about the future supply of high-tech equipment for warfighters. "The trend lines are clear. What isn't so clear is what you do about it."

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