Silicon Valley Is Still On Top Of The World

Not long ago, Japan's giant electronics companies seemed to have everything they needed to carve off a mikado-size chunk of the U.S. computer market. They dominated the production of key components, including memory chips and the flat-panel displays now used in laptops. They had low-cost capital and rich conglomerates behind them to fund an effort to do unto computers what they had already done to autos, chips, and consumer electronics.

But this time, a funny thing happened on the way to Japan's domination: competition. Despite its world-leading position, the U.S. computer industry never slowed to the elephantine pace that made autos, home electronics, and other industries such easy targets when first confronted by serious Japanese competition. Selling computers has become a tougher business, but U.S.-based computer makers have become far tougher competitors.

The rate of technical innovation has accelerated, challenging even such giants as ibm to maintain the pace. And U.S. computer makers are keeping up--slashing overhead, speeding up product cycles, and making sure they're tuned in to their customers. Meanwhile, Japan's computer makers, managing their campaign by remote control from 4,500 miles away, have so far failed to follow all the twists and turns--even in laptops, a market they owned until recently.

But Silicon Valley can't relax. The manufacturing skills and dominance in key component technologies that made the Japanese threat in computers so real a few years ago remain largely intact. And as personal computers mutate into tiny handheld devices powered by a few chips, Japan's underlying strengths may give it an even greater potential advantage. Long-term, the Japanese challenge in computers has not been repulsed. But the competition-driven U.S. industry has shown that it has a solid chance to stay healthy.

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