DID TINY ZYTREX INC. GIVE away the crown jewels?
Zytrex, a four-year-old semiconductor company, was in deep financial trouble earlier this year. Desperately trying to climb out of Chapter 11, the company negotiated an offer from Samsung, a Korean conglomerate, to pay $2.1 million for the rights to use Zytrex's chip technology. "We needed the money," says Esmond Rudolph, the chief financial officer. "We had no choice but to sell."
Zytrex is not alone. Faced with bruising competition from Japan and the most serious industry slump in years, at least 12 American semiconductor companies are licensing their technology or farming out their manufacturing to large Korean concerns that want to move into the chip market. The U.S. companies include Advanced Micro Devices, Micron Technology, and Zilog.
This technology transfer brings in needed cash and may help U.S. companies gain a foothold in the expanding Asian market. But it may also repeat a serious mistake that was made in the 1970s. Many U.S. chip companies licensed technology to the Japanese, who then used it to grab a dominant share of the memory-chip market from the Americans. "It's potentially dangerous, because Americans are giving away their technology and then finding that it will come back to them in cheap imports in two years," says Michael G. Borrus, deputy director of the Berkeley Roundtable on the International Economy, at the University of California at Berkeley.
The Korean giants -- the Lucky Goldstar Group, Hyundai Electronics America, and Samsung -- are already using American technology to compete on the world market. Hyundai is selling a chip that was developed jointly with International CMOS Technology Inc., of Santa Clara, Calif. And Samsung, which bought know-how from Micron Technology Inc., is now contributing to the oversupply and price war in chips -- a situation that has sliced Micron's profits by 59% and caused it to announce layoffs of half of its 1,250 employees.