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other hold-back contracts. A bonus of the fishing expedition: Sematech had also granted
development contracts to its own members, casting doubt on the fairness of the 50-50
"partnership" between its members and the government.
The behavior of the Sematech members was neither illegal nor unethical.
Sematech asked for and received an antitrust exemption at its formation. It used the
combined resources of its members and the government to create a competitive advantage,
and it kept its secrets from its competitors. Sematech did what rational people do when
the government gives them free money and an exemption from the rules.
A few years ago, Sematech announced that it was not going to accept the last
$200 million of its second $500 million grant. Thanks to my discussions with Sematech
leaders, I know that they desired to be independent of government restrictions and not to
accept government subsidies when their industry was doing better financially. Conse-
quently, Sematech's budget was cut in half, yet its performance remained essentially
unchanged. Bill Spencer changed Sematech from an expensive 800-employee
manufacturing organization to a leaner research center and information clearinghouse that
relies more on the manufacturing resources of its members. I believe that if Sematech had
been formed as a private consortium with a smaller budget, it would have come to its
current, more efficient model of operation much more quickly. But with government
money, an organization can afford to be inefficient.
To be fair to Sematech, I should note that the abuses I have mentioned are more
than five years old and that the new regime at Sematech is doing a good job. Sematech's
initial membership of 14 has now dwindled to 10, but the consortium appears to provide
value to those remaining companies--it simply never should have been funded by the
taxpayer. Sematech falls into the "subsidies for the rich" category because its members
include Intel, Motorola, Digital Equipment Corporation, IBM, AT&T, Texas Instruments,
Advanced Micro Devices, Rockwell, and National Semiconductor. Those companies
make enough profit every month to pay back the government's eight-year, $800 million
investment. At the very least, Sematech should have been funded by a loan, not a gift
from the taxpayer.8
Unfair Competition: The ATP Video Compression Program
Video compression is the technology that makes possible digital TV and small-dish
satellites. Conventional television requires one satellite transponder per channel and a
10-foot dish to receive the weak analog signal. Digital TV signals are clearer, and 10
channels fit on one satellite transponder (think of the billions of dollars saved on the extra
satellites we won't need). The basic concept of video compression is that, frame after
frame, most TV pictures don't change much. When Dan Rather presents the evening
news, he moves, but the set behind him does not, which raises the question, Why not just
transmit the differences from frame to frame rather than retransmitting the entire picture?