America's new wave of semiconductor start-ups is receiving a giant boost from some of the nation's largest and most powerful corporate entities. Instead of ignoring, or acquiring, the promising young companies, some major corporations are finding new and-profitable ways to work with the entrepreneurial spirit.

Much like IBM Corp.'s recent buy-ins at Intel Corp. and Rolm Corp., these new liasons involve the exchange of corporate financial muscle for cutting-edge technology from tightly focused new companies. Industry observers see in such arrangements the harbingers of a new age of alliances that will ultimately replace the engulf-and-devour mentality too long dominant in corporate boardrooms.

"If you want a new technology, it doesn't make any sense to go out and buy a start-up," observes Jim Keyes, vice-president and chief financial officer at Milwaukee-based Johnson Controls Inc., a $1.3-billion manufacturer of building controls and energy products. "All that you accomplish is to make the founders rich and to lose their people. And it is the people and the skills that you needed in the first place."

Johnson Controls invested $1 million in LSI Logic Corp.'s second round of venture capital financing. At the same time, Johnson Controls also took warrants for an additional 300,000 shares at $7 a share. So when Johnson Controls needed a customized chip for its new and highly sophisticated JC85 building automation system, it approached Wilf Corrigan's fledgling company. Now, with LSI Logic's stock hovering around S20 a share, Johnson Controls has its technological boost and also a nifty capital-gains bonus.

For its part, LSI Logic received not only needed cash and a long-term corporate customer, but also Johnson Control's guarantee of a crucial $6.5-million equipment lease-line from Bank of America. Without Johnson's guarantee, according to bank and company sources, LSI Logic would have been required to put up as much as 30% to 40% of the lease line -- some $3 million to $4 million -- in certificates of deposit as security for the bank.

"This arrangement freed our capital to do other things at a critical juncture," explains Corrigan. "It was one of the very positive factors that got us where we are today. It was the best of deals -- it worked out for everyone."

But even in cases in which the start-up is not as hugely successful as LSI Logic, giant corporations are reaping key strategic advantages through alliances with entrepreneurial companies. When Rockwell International Corp., an $8-billion aerospace company, needed to develop a new line of sophisticated memories, it gained an important competitive edge by teaming up with Seeq Technology Corp., a three-year-old San Jose, Calif., company specializing in EPROM (erasable programmable read only memory) and EEROM (electrically erasable read only memory) devices.

"The key advantage for us was time," claims Coleman Colla, director for business development at Newport Beach, Calif.-based Rockwell Semiconductor Products Division, where memories using Seeq's proprietary processes are already in production. "We could have developed it ourselves, but it would have taken us several years. The Seeq deal enabled us to become technology leaders and get out in the marketplace with product much faster."

For Seeq Technology, the arrangement with Rockwell provided two things crucial for any semiconductor start-up -- cash and leases for expensive equipment. In exchange for access to its proprietary technology, Seeq received a commitment of $5.5 million in staggered cash payments as well as potential royalties adding up to an additional $4 million. Equally important, Seeq has also been able to lease, directly from the aerospace giant, $5 million of sophisticated semiconductor equipment at favorable terms, a deal that, according to one well-placed source, would have been "difficult at best" to achieve on the open-lease market.

Although other U.S. corporations are following the lead of such giants as Johnson Controls and Rockwell International, the most committed practitioner of the alliance strategy in semiconductors may well be Italy-based Ing. C. Olivetti & Co. Sp.A. Under the leadership of its dynamic chairman, Carlo de Benedetti, Olivetti has scoured California for start-ups as part of its strategy to maintain its technological edge against all international competition.

Early in 1982 for instance, Olivetti invested some $2 million in Linear Technology Corp. a semiconductor start-up founded only a few months earlier by the former top management of National Semiconductor Corp.'s Linear Circuit Division. Linear circuits, a $2-billion market in 1980 expected to grow to some $10-billion worldwide by the early 1990s, are used in such systems as computerized industrial process-control machinery and scientific instrumentation equipment. Although linear circuits make up only 8% to 10% of circuits used in most computers, they constitute a much higher portion of all the integrated circuits used in such products as electronic typewriters, long a mainstay of the Olivetti product line.

"Theirs is not a traditional venture capitalist investment," notes Linear Technology's president, Robert H. Swanson, sitting in his Milpitas, Calif., office across the street from LSI Logic. "It's a strategic position. Olivetti sees itself needing technology and de Benedetti is more than aware that there are a lot of linear circuits in his typewriters. It's simply good synergy."

Olivetti's search for synergy also accounts for its increasingly closer relationship with VLSI Technology Inc. (VTI), another San Jose-area start-up. In a wide-ranging series of agreements made over the past two years, Olivetti has secured access for VTI's computer-aided circuit design tools and highly advanced fabrication facilities. VTI technicians also have helped the Italian giant set up its own design center back in Ivrea, Italy. In exchange, Olivetti has paid VTI $3 million for research and development funding and has purchased $2 million of VTI stock.

For VTI, which has consistently lost money since it started business in 1980, cash infusions such as Olivetti's seem to have become a way of life. Over the past few years, VTI has established strong equity links with two other large corporations -- Evans & Sutherland Computer Corp., a Salt Lake City manufacturer of interactive computer graphics systems, and Lowell, Mass.-based Wang Laboratories Inc. Together with Olivetti, VTI's "alliance" partners now control more than 25% of the company's total stock.

For each of these partners, part ownership in VTI short-circuits the necessity of spending tens of millions of dollars on development of their own semiconductor design and fabrication facilities. And in periods of short supply, a chunk of VTI stock assures these companies of ready access to VTI's production and design capacity. "We get the money we need, and they get priority access to our software tools and processing technology," explains Ken Goldman, VTI's energetic 34-year-old chief financial officer. "They are assured a piece of our capacity and expertise. It works out for both sides."

It is not surprising that even the equipment used at VTI's "silicon foundry" has been largely financed through corporate alliances. In August 1981, the peripatetic Goldman negotiated a long-term deal with The Bendix Corp., the Southfield, Mich.-based conglomerate acquired last year by Allied Corp. Bendix committed $15 million in equipment lease guarantees and over $2 million in research funds in exchange for warrants for up to one million shares of VTI stock and access to the new company's state-of-the-art chip design and production technology, as well as a right to a certain proportion of VTI's production.

Operating deeply in the red and without the connections of a Wilf Corrigan, VTI couldn't have gotten a large equipment lease without Bendix's offer. "Back then, no one was going to lend us $15 million on our good word that we'd pay it back," Goldman admits. "This is precisely the sort of arrangement that makes it possible to have a semiconductor start-up these days."

Although his company has yet to exercise its warrants for VTI stock, Don Proechel, Bendix vice-president for finance, believes such liaisons with start-up companies will play an increasingly important role as major U.S. corporations strive to recover their technological edge.

"You don't have to do everything yourself," stresses Proechel, whose company uses semiconductors in its vast array of aerospace and automotive products. "You can find the emerging technologies in small entrepreneurial companies more readily than on the large staffs of $11-billion companies. Six people in a room are more productive than a lot of people in a big corporate lab."

Equally important, Bendix's financial muscle makes it possible for such start-ups as VTI to tap the even more massive financial resources of leading banks like San Francisco's Bank of America (BOA). Once considered among the most conservative of the largest financial institutions, BOA has used corporate guarantees to assure loans up to-$15 million to several semiconductor start-ups including, VTI, LSI Logic, and Cypress Semiconductor.

"We wanted to be a leader for these young technology companies, but we had to find a way to cover our exposure," explains Don Cvietusa, vice-president and regional corporate banking manager located in San Jose, whose banking group has spearheaded BOA's thrust into the high-technology leasing field. "When there is a Johnson Controls or a Bendix behind the company, we can reduce our exposure and give it terms that don't require the company to give up that security deposit."

Although other lenders, such as Bank of Boston, Bank of the West, and Greyhound Computer Corp., also competed aggressively for California's high-tech lease business, Bank of America now controls an estimated 70% to 80% of Silicon Valley's booming equipment-lease market. This dominant position is an outgrowth of the bank's conscious policy of establishing its own "alliances" with fast-growing entrepreneurial companies. Like its legendary founder, Amadeo Giannini, who built the bank on loans to farmers, movie-makers, and other entrepreneurs, BOA's new president, Sam Armacost, stakes much of his growth to the start-up companies traditionally ignored by major financial institutions. To demonstrate his commitment, Armacost recently held five private dinners with the heads of over 30 small and medium-size Silicon Valley entrepreneurial companies.

"We're resurrecting the ghost of Giannini, the ghost that got us where we are," notes Cvietusa. "It's not conventional banking. Like the other players, we're really just betting on these companies having a product and a niche."