April 22, 2005    Volume 12, No. 8

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Defense Science Board Tells Military
To Develop A Grand Strategy
To Save The U.S. Semiconductor Industry



BY RICHARD McCORMACK


The rapid migration of semiconductor manufacturing plants to locations outside the United States is an "alarming" trend that must be addressed in a forthright, immediate manner, according to a long-anticipated report from the Pentagon's Defense Science Board (DSB).

"Urgent action is recommended, as the industry is likely to continue moving in a deleterious direction, resulting in significant exposure if not remedied," writes William Howard, chairman of the DSB task force looking into the issue. "We urge greater than usual speed in implementing the recommendations of our study. The nation's security and economic well being demands it."

The Task Force on High Performance Microchip Supply says there is plenty to be worried about, and that the U.S. semiconductor industry cannot change the competitive dynamics that have emerged globally to shift the balance of production and markets away from the United States.

"Addressing this problem is a uniquely government function," says the report. "The task force considers DOD the logical steward to lead, cajole and encourage a national solution to this critical problem regardless of which arm of government must act."

DOD must take the lead because it needs a "trusted" supply of chips. "There is no longer a diverse base of U.S. IC fabricators capable of meeting trusted and classified chip needs," says the DSB task force.

The study calls for a broad re-examination of U.S. government industrial policies regarding trade, its approach to the WTO, export controls, foreign investment into U.S. suppliers, protection of intellectual property, direct federal funding of trusted or foundries dedicated solely for defense production, economic development incentives with the states, research and development support and acquisition policies.

It recommends that the secretaries of Defense and Homeland Security develop a special briefing for the National Security Advisor "and encourage him or her to take a key role in implementing measures...to slow the migration of the microelectronics industry."

U.S. national technological leadership "is increasingly being challenged by these trends, which poses long-term national economic security concerns," says the report. "These changes are directly contrary to the best interests of the Department of Defense... The shift from United States to foreign IC manufacture endangers the security of classified information embedded in chip design; additionally, it opens the possibility that 'Trojan horses' and other unauthorized design inclusions may appear in unclassified integrated circuits used in military applications."

The Pentagon and its suppliers face a "major integrated circuit supply dilemma" caused by the "hollowing out" of the chip industry in the country. As production moves offshore, research and development, design capabilities and tooling will go with it, along with skilled scientists and engineers. By the end of this year, only 16 of the 59 most advanced 300-mm fabrication plants operating worldwide will be located in the United States. Only one of these plants can be relied upon to produce trusted microelectronics for the Defense Department.

The task force says the federal government and the DOD have no overall vision of how to assure U.S. leadership in the world's most strategic technology.

It found that the military is losing access to classified devices. In the past, these have been supplied by facilities run by the National Security Agency and Sandia National Laboratories. But the NSA facility has become obsolete and Sandia is not able to supply the diversity or volume of special circuits needed by DOD.

"There is no longer a diverse base of U.S. IC fabricators capable of meeting trusted and classified chip needs," says the report. The recently created "Trusted Foundry Program," which entails a take-or-pay contract with IBM for dedicated defense chip production, is a "good start," but "a more comprehensive program is needed that looks further into the future."

The DSB report says the Defense Department will "expand the number of trusted foundry sources to cover all technology needs." The report marks the first known time the Defense Department has disclosed its trusted foundry program with IBM.

The task force calls on DOD to begin working with other federal agencies to develop strategies to assure U.S. technological superiority in chips. It says the Defense Advanced Research Projects Agency should consider creating a new Sematech type of research consortium. It calls for doubling the budget for the National Science Foundation and for funding the National Institute of Standards and Technology's Office of Microelectronics Programs. The Commerce Department and the United States Trade Representative should develop a response to China's aggressive policies to promote the construction of semiconductor fabs. The U.S. government must counter foreign government income tax incentives and tax holidays that last up to five years after companies start earning a profit on their production. The U.S. should consider changing the 20 percent annual depreciation rate on fabs, given that Japan's rate is 88 percent in the first year alone.

"Although there have been concerns about isolated supply problems, the full integrated supply problem has emerged onto the acquisition agenda and is only now being fully identified," says the report. "DOD lacks a long-term plan for the preservation of U.S. information superiority, which is a cornerstone of U.S. national security. The department must either develop such a plan or be prepared to surrender this advantage."

For a copy of the unclassified report, go to http://www.dsb/reports. Members of the DSB Task Force on High Performance Microchip Supply

Chairman:

  • William Howard, Consultant

Task Force Members:

  • Bill Bandy, Matrics Inc.
  • Steven Betza, Lockheed Martin
  • Christine Fisher, Consultant
  • Jim Gosler, Sandia National Labs
  • Tom Hart, Quicklogic Corp.
  • Thomas Hartwick, Consultant
  • Thomas Howell, Dewey Ballantine
  • Travis Marshall, Consultant
  • David Tennenhouse, Intel Corp.
  • James Van Tassel, Consultant
  • Owen Wormser, C3I

Executive Secetary:

  • Chuck Byvik, ODUSD (S&T)

DSB Representative:

  • LTC Scott Dolgoff

Government Advisors:

  • Gerald Borsuk, NRL
  • Charles Cerny, AFRL/SNDM
  • Anne Clark, USAF, DTRA
  • Dave Emily, NAVSEA, Crane Div.
  • Barry Hannah, Navy Strategic Systems
  • Robert Jones, Space and Sensor Tech.
  • Joe Keogh, U.S. Government
  • John Kosinski, U.S. Army RDECOM
  • Ray Price, NSA
  • Richard Ridgley, NRO
  • Mark Thompson, CIA
  • Steven VanDyk, Navy, Strategic Programs Office
  • Chris Warack, ODUSD (IP)
  • John Zimmerman OSUSD (IP)
  • John Zolper, DARPA

Staff:

  • Joe Maniaci, Strategic Analysis Inc.

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