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A Subsidy to the Rich: Sematech

By 1986 the Japanese were starting to take over the semiconductor industry, once

dominated by American companies. The Semiconductor Industry Association lobbied for

a $500 million federal subsidy for a technical consortium called Sematech.7 They used the

classic arguments to justify Sematech: "critical industry," "Japan has subsidies so we need

subsidies," and "jobs will be lost." Sematech was funded, and my company inquired about

joining, but the 14 Sematech charter members (12 of the 14 were billion-dollar-plus

corporations) effectively excluded us and America's other 100-plus small semiconductor

companies by charging a $1 million yearly minimum membership fee. Although Sematech

was sold to Congress as a consortium open to all companies willing to pay dues of 1

percent of sales, the $1 million minimum meant that a $20 million semiconductor company

actually had to pay 5 percent of sales. Big companies got a break, paying maximum yearly

dues of $15 million. For a $3 billion semiconductor company, the dues amounted to 0.5

percent of sales--10 times lower than the dues paid by the small companies. That is why

so few companies joined Sematech, even though it had $500 million to spread around.

My battles with Sematech started when our engineers were denied access to an

advanced piece of wafer-making equipment, a chemical-mechanical polisher (CMP) ma-

chine manufactured by an Arizona company then named Westech. Sematech contracted

with Westech to develop the CMP machine and asked that the machine be held off the

market and offered to Sematech members only for one year. The president of Westech

assured me that the equipment would be on the open market and that there was no deal

between his company and Sematech, but Cypress was denied access to that critical piece

of wafer-making equipment, which could have differentiated between winners and losers

in the next-generation technology. At that point I became a vocal critic of Sematech, the

"government-industry partnership" that attacked all competitors, including American

corporations like mine. There were rumors about other Sematech deals with equipment

manufacturers, but Sematech assured me that there were no "hold-back" equipment

contracts. It turns out that there really were contracts to hold back new equipment.

Sematech's new president, Bill Spencer, finally ended that practice voluntarily.

Several years later, I agreed to become an expert witness in a trial in Austin,

Texas, in which Travis County sued Sematech for failure to pay local road and school

taxes. Sematech had claimed on its tax exemption form that it was a "charity." I used my

position as a witness to subpoena documentation from them, requesting any contracts

between Sematech and the manufacturers of wafer-making equipment, including Westech

and others, as well as any contracts between Sematech and its own members. Sematech's

lawyers were fast asleep and provided me with a six-inch stack of contracts, including the

contract between Sematech and Westech Corporation to develop and manufacture a

"chemical-mechanical polisher," which was to be sold exclusively to Sematech members

"for a period of one year after the point of normal product introduction." There were also