Commentary: How To Juice Up U.S. Consumer Electronics

Five years ago, Universal Instruments Corp. was in deep trouble. The Binghamton (N.Y.) company once had been a leading maker of assembly equipment for electronic products. Then the technology of attaching chips and components to circuit boards changed radically, and Universal lost out to Japanese rivals. So in 1991, it teamed up with Motorola Inc. and more than a dozen other manufacturers and suppliers to develop a new, highly accurate factory tool for assembling components into circuit boards. Adding the tool to its product lineup helped Universal make a comeback against stiff competition.

Now the U.S. electronics industry is hoping to duplicate Universal's success on a far grander scale. On Mar. 13, more than 45 companies, ranging from giants such as 3M, Texas Instruments, Motorola, and IBM to a host of tiny suppliers, announced a bold new "national electronics manufacturing initiative." The goal, explains Mauro J. Walker, Motorola's director of manufacturing: "To form the world's best supply chain," thus boosting the American electronics industry.

TIGHTLY FOCUSED. It's an intriguing idea that might just work. Developing an array of new factory tools should help the U.S. industry keep its lead over Asian rivals in such products as computers and cellular phones, as increased competition and technological advances drive down prices. "We used to hand off lower-cost products like VCRs and camcorders to Japan," explains Walker. The hope now: that the U.S. can eventually match or beat Japan at high-volume, low-cost manufacturing.

The new initiative resembles an electronics industry version of the semiconductor consortium Sematech. The plan, however, avoids many of the pitfalls of Sematech, which clearly helped the U.S. chip industry but at too great a cost to taxpayers. There's no expensive central research and development facility, for instance, or direct government subsidy.

The initiative has also embraced an imaginative approach that could keep it tightly focused. It started with the idea of building an imaginary product--a handheld $300-to-$600 personal-communications device capable of everything from making wireless phone calls to surfing the Net. In fact, similar products already were being contemplated--or were under way--in the labs of many of the partners. The companies then figured out the necessary advances needed to make such a device--from smaller, cheaper, more powerful batteries and components to the machines that would assemble them. Development efforts representing an investment of $80 million have already begun.

The initiative also offers a lesson in the right ways for government to work with industry--although it didn't start out that way. The tale begins after Bill Clinton's election in 1992, when Lance Glasser, a technocrat at the Pentagon's Defense Advanced Research Projects Agency (DARPA), and other officials began searching for a splashy high-tech Presidential initiative. Glasser already had the idea that Uncle Sam should stimulate development of devices to hook into the Info Highway. But most companies saw that as a misguided attempt at industrial policy.

Then came a breakthrough, partly as a result of the November, 1994, Republican victory in congressional elections. With industrial policy suddenly under heavy assault, Glasser backed the government out of the project, and industry took over. That benefits both sides. With companies--instead of Uncle Sam--paying for the short-term development of new materials and tools, the feds can use their roughly $1 billion electronics R&D budget to fund longer-term research.

Of course, the initiative isn't a guaranteed success. Some critics doubt that U.S. suppliers will be able to leapfrog Asian companies. Universal Instruments may have a better machine now, notes Charles-Henri Mangin, an electronics assembly consultant based in Old Lyme (Conn.), "but the Japanese won't take long to have one just as good." And key companies such as Hewlett-Packard Co. and Intel Corp. are sitting on the sidelines.

But the new effort is getting deservedly high marks in many boardrooms. As Universal Instruments learned, cooperation beats getting battered.

    Before it's here, it's on the Bloomberg Terminal.