Fairchild Semiconductor has proposed a management buyout of Fairchild from Schlumberger that would involve close ties in research, manufacturing and sales with Fujitsu, Associated Press reports from Palo Alto, California. Fairchild president Donald Brooks, who launched into a tirade against vocal competitors who led the clamour against the Fujitsu deal, said he expected his competitors to try to block that deal as well, although he said there should be no reason for the government to be concerned. Fairchild management would use the company’s assets and get some outside financing to buy the company from Schlumberger. Management planned to take the company public eventually. Brooks said it was too early in the negotiations to give a price for the transaction – $200m to $225m has been mentioned as the value of Fujitsu’s aborted buy of 80% of Fairchild. He said he didn’t anticipate Fujitsu putting up any money for the deal – although clearly it would not be difficult for the Japanese banks that finance local industry to establish swap arrangements with US institutions that resulted in much of the cash coming indirectly from Tokyo. Protectionist attitudes stirred up by competitors created the political flap that ruined the planned merger between Fujitsu and Fairchild Semiconductor, Brooks claimed. He angrily denounced the lobbying efforts against the deal by other Silicon Valley companies, naming Robert Noyce of Intel Corp and Wilf Corrigan of LSI Logic Corp as the most outspoken critics of the merger. The biggest advocates for this deal not going through have been my competitors, Brooks declared, saying that they had continually kindled the fire with suggestions of national defence implications. He also saw the collapse of the merger, blamed by Fujitsu and Fairchild’s Netherlands Antilles-registered, French-owned parent, Schlumberger Ltd, on polilical controversy, as the first stage of what looks likely to be many stages of protectionism for the semiconductor industry. Secretary of Commerce Malcolm Baldrige said last week he would oppose the deal, but Brooks said other administration officials did not agree. He said he understood that despite press reports to the contrary (CI No 640), Secretary of Defense Caspar Weinberger was neutral and the Treasury was behind the merger. The reasons (for blocking the merger) have been anywhere from national security to trade problems, Brooks declared. I don’t see a national security problem, nor have I seen a problem for the supercomputer industry. The biggest criticism came from the Department of Commerce and it suggested that the reason Fujitsu needed access to Fairchild was to sell its supercomputer, Brooks said. I don’t understand that position. There’s much cheaper ways to do that, not the least of which is through Amdahl, of which they own 47%. (This seems to be a misunderstanding of the supercomputer issue, which is that Fairchild is a major supplier of ECL chips to the US manufacturers, principally Cray Research, and members of the administration were worried about US supercomputer makers having to buy their key components from a Japanese-controlled company). Brooks declared he had assurances in writing that the technology flow would be this way, not out of the country to Japan. Fujitsu employs 84,000 workers worldwide but only about 2,700 in the US. Fairchild has a total of 10,000 employees worldwide and 1,700 in Silicon Valley.
Nervousness on Capitol Hill
Despite Brooks’ assertions to the contrary, there may still be concern in Washington over the proposed second-source and manufacturing agreements with Fujitsu. There’s some nervousness on Capitol Hill about these alliances, according to Dataquest analyst Michael Boss in San Jose. I think there’s a perception that US companies are coming to the bargaining table and trading away technological advantages for short-term goals: capital, manufacturing and market access, for example. Motorola and Toshiba, and Texas Instruments and Mitsubishi have already forged alliances similar to the one now proposed by Fairchil
d and Fujitsu. There are two benefits to the management buyout plan, according to senior technology analyst at Hambrecht & Quist in San Francisico, Millard Phelps: One, it gives the government the opportunity to back away, removing a block that was likely to create problems. Two, it opens marketing channels for Fujitsu and Fairchild. If it works, it’s a win-win situation that’s good for employees of both companies. Fairchild is expected to lose about $95m this year.