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mm hmm. Yeah, yeah. This is the Silicon Valley, the Heartland of America's thriving semiconductor industry here. Microchips, tiny circuits with tens of thousands of transistors are turned out by the millions each week. They provide the logic power and brains behind something as fun as a computer

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video game or as serious as our national defense. In the 1970s. While heavy industries such as steel and automobiles were on the decline, semiconductors became our best industrial hope. They put the US on the cutting edge of a thriving technology that can be used in everything

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from toasters to robots. But now some industry observers say the US chip industry is seriously threatened by the japanese who not only have been tough competitors in the world market for chips but have recently overtaken us in research and development. Dan Klesken is an analyst for

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dataquest and industry think tank. He says there's been an explosion in the proportion of the world market for chips now controlled by the Japanese at the expense of Silicon Valley. The worldwide semiconductor industry in 1981 was about a $14 billion dollar industry, roughly flat with the

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prior year And the Japanese for the last 10 years, that is through 1980 had 26% worldwide market share. But then in one single year, as we went from 1980 to 1981, they gained about 6% points on worldwide market share. So they went from 26 to 32%

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worldwide market share, which is a significant gain unprecedented in the last decade. That loss has driven the Silicon Valley into a tailspin and has accelerated recent layoffs, pay freezes and gloomy stock predictions. This recent downturn actually began in the 1970s when American companies cut back chip

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production and the Japanese took up the slack, providing large us computer manufacturers with sorely needed parts. In other words, the Japanese Uh, put the money into capital expenditures into their plants in the late 70s, they planned for a long term, five and ten-year future. And so

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they invested for the future, had the capacity on stream. And then when there was a capacity crunch in the late 70s, they came to the rescue. Some experts believe the Japanese achieved their competitive advantage simply because they put out a better product and one american company,

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National Semiconductor actually sent a group of its own employees to Japan to study how industry their works and to find out why the quality of their products exceeds ours. One result was this filmed record of that trip that is now being shown at companies throughout Silicon

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Valley. Do you think Japanese? I see these are better than american? I see. Yes, absolutely. It's strange, you know, because we learned quality from America in the past, american quality was much higher than Japan's. So we determined to catch up with you and we not only

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caught up, we surpassed you. Other experts say the Japanese have also been able to innovate faster than us in what is soon to become the most important part of the industry, the production of high capacity memory chips capable of holding tens of thousands of bits of

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information on a tiny chip smaller than a fingernail. It will be chips like the 64 K ram that will fuel the next revolution in extremely fast small and inexpensive computing and communications equipment. The market for this new generation of chips is small now but already the

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Japanese control 70% of the sales. Richard Foss, a chip analyst and designer for the Canadian research firm. Mossack looks at chips from all over the world and sells information on their design to competing companies who want to copy them or develop their own. His customers include

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all the major U. S. Semiconductor makers in the old days. They all wanted to look at other american ships. Now he says they want to see the Japanese designs a few years ago. The analytical work we did was virtually all on us originated designs, even some

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from europe. Nearly all our work now on advanced chip analysis is of japanese chips. Just looking at a list of reports that we've put out lately on advanced designs Out of nine parts here. Only one of them originated in the United States. Silicon Valley is now

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mobilizing to fight the Japanese chip invasion but says dataquest dan Klesken, it may already be too late to catch up with the big lead and the 70% market share the Japanese already have, you'll find the major mainframe and minicomputer companies looking for a source sources of

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supply from America and if the americans can bring forth a product, they have a chance to Get back into the marketplace. But I think a lot of market share has been lost to the Japanese. I think it's gonna be hard to bring that ratio down below

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60, much below 60 in the Silicon Valley. I'm Bill Skein for Science Notes.