U.S. semiconductor manufacturers,struggling to stem a river of red ink, are increasingly looking
toward customized designs rather than mass-market chips for
future profits.
    The market for customized chips - semiconductors designed
for a very specific application or product - is expected to
expand by 25 to 30 pct this year, compared with only about six
pct for the entire integrated circuit industry.
     Market researcher Dataquest Inc estimates that sales of
customized chips totaled about 4.5 billion dlrs worldwide last
year, about 12 pct of the total chip market. By 1990, however,
customized chips are expected to represent a 12 billion to 15
billion dlr market, about 25 pct of total chip sales.
    More important for their vendors, because they are not a
standard design customized chips represent a sellers' market,
and prices and profit margins can be set accordingly.
    High volume memory chips have become "a perfect commodity
market," Robert Brodersen, a professor of electrical
engineering at the University of California at Berkeley, told
an industry forum.
    "The product is interchangeable between one manufacturer
and another and customers base their buying decisions almost
entirely on price," Brodersen said. 
    He predicted that, in the next few years, only a handful of
the world's largest chip manufacturers (most of them Japanese)
will produce memory chips, the standard electronic component
found in everything from digital watches to computers. "The
rest of the industry just won't be involved."
    Last week's International Solid State Circuits Conference,
the chip industry's annual forum for new developments, seemed
to support Brodersen's prediction.
     Of the 116 papers presented at the conference, some 40 pct
had Japanese authors, the first time they have outnumberd the
United States. Most of the Japanese chip designs were in the
memory category, including Nippon Telephone and Telegraph Co's
attention-grabbing 16 mln bit dynamic random access memory
(dram) chip, 16 times more powerful than anything now
available.
    The most advanced memory chip described by a U.S. company
was International Business Machine Corp's &lt;IBM> four mln bit
chip, and IBM only manufactures chips for its own internal use,
not for the open market.
    The problem with memory chips is that they are all based on
the same, well known design standards, so they are easy to copy
and inexpensive to manufacture. Because such large Japanese
conglomerates as Sony Corp &lt;SNE>, NEC Corp, &lt;NIPNY> Matushita
and Mitsui have their own enormous consumer and electronics
product lines, they also have a guaranteeed internal market for
their chips, so they can produce huge amounts at a very low
cost per unit.
    Customized chips, however, are designed for a specific
customer, manufactured in small quantities and expensive
relative to standard chips. Computer markets are increasingly
looking to customized chips because they are difficult to copy,
thus making the final product harder to clone as well.
    Intel Corp &lt;INTC>, the leading manufacturer of the
microprocessors that form the brains of most computers, alerted
the industry to its intention to switch to customized chips
last fall.
    The company, which just reported a loss for 1986, said it
will spend 75 mln dlrs over the next three years to turn itself
into a leading manufacturer of custom and semi-custom chips.
    Intel joins some 275 companies already competing for a
piece of the customized chip business but it has an advantage
that the others do not. IBM, which owns a 20 pct stake in
Intel, has agreed to share the designs for many of the 15,000
chips it makes for its own use. Intel will customize those
designs and sell them to others.
    It will also get to use IBM's proprietary computer system
for designing chips, considered by experts to be one of the
most advanced in the world.
    Intel's success is still not guaranteed, however. Industry
analysts noted that it is far different to design a mass market
item than a customized chip that requires a close working
relationship with the customer.
    Intel spent five years and 100 mln dlrs developing its
newest 30386 microprocessor. A much faster turnarouond time,
and much lower development costs, will be required for
customized chips if the firm is to succeed.
 Reuter
