George Scalise, SIA President

George M. Scalise is president of the Semiconductor Industry Association (SIA, San Jose), where he directs a staff focused on international trade and government affairs, workforce, technology, environmental safety and health, and communications. Scalise was previously executive vice president of operations at Apple Computer. Prior to that, he held executive management positions at National Semiconductor, Advanced Micro Devices, Fairchild Semiconductor and Motorola Semiconductor. He was a founding member of the Semiconductor Research Corp., an industry-funded organization that provides resources for pre-competitive semiconductor research at U.S. universities. Scalise serves on President Bush's Council of Advisors on Science and Technology, and is chairman of the board of the Federal Reserve Bank of San Francisco. He is also a member of the Council on Foreign Relations Economic Task Force on Japan. Scalise graduated from Purdue University with a B.S. in mechanical engineering.

SI: We're feeling the effects of what is probably our worst downturn. Companies have had to change how they do business and have had to downsize. How has SIA been affected?

George M. Scalise (Source: SIA)

SI: There have been profound changes in the industry: Companies have reduced their in-house expertise focusing their efforts on their core competencies, and the industry's center of gravity is shifting to Asia, particularly China. How do you view this?

Scalise: I see it as the next generation of the outsourcing business model that's been going on for some time, although it's true that it has accelerated over the last couple of years. It's different from the model that has been in force since the 1960s. Then, we began by sending assembly and, later, testing operations overseas. However, for every job we created overseas we created about two jobs here, which also tended to be higher-paying jobs. This was a very synergistic arrangement that benefited everyone. In many instances today, when you send an engineering job overseas, whether it's design or process engineering, it doesn't necessarily create any additional jobs here, and may result in there being one less job here.

SI: According to some engineering organizations, the job crisis started before the downturn, when the industry began bringing in foreign engineers under the H-1B visa program. According to them, it was not because there was a lack here as much as it was because they didn't demand the same salary, benefit levels, or professional advancement possibilities as their American counterparts. Now, during the downturn, both the American and foreign engineers find themselves unemployed, and are left with the feeling that the industry they served so well considers them disposable. How do you see the situation?

Scalise: I don't agree with this at all. It's been proven again and again that the engineers hired in the U.S. are paid the same regardless of national origin. I believe we treat all of our employees equally and equitably. Regarding the layoffs, they have been driven by the downturn in the economy, not by any consideration on the part of their employers that they're disposable.

SI: You said the move to China is an evolutionary result as the industry grows and progresses. But there are concerns, particularly the IP security and value-added tax (VAT) situation in China. What should our position be in this area?

Scalise: Insofar as the IP is concerned, I believe that there's a better chance of getting that resolved sooner than the VAT question. There is a good reason for this: Everyone, irrespective of their background — whether foreign-based suppliers shipping product in or foreign companies manufacturing in the area — needs to protect his IP. It's in everybody's interest in the business to work together to ensure that IP is secure from theft. Consequently, I believe that many of the efforts underway to deal with the issue will help to reduce the problem. Now, again, this is one of those problems where, if there are people who choose to break the law and take advantage of someone other's property (IP in this case), then it's going to remain a problem. There's considerable cooperation at work to get this resolved.

On the VAT, there's a different situation, because the people who are planning to do their manufacturing, or already do their manufacturing in China see an advantage in it. Our view is simple: We want everyone to be treated the same regardless of which side of the boundary they happen to be — inside or out of a given country. We're pursuing this vigorously both with Washington and Beijing with limited progress to date.

SI: In view of this, what do you think about the continued transfer of technology from the West to China?

Scalise: We mustn't look at it so much in the context of technology moving from here to there, but of how much still remains here; how much we're going to have of what we need to maintain our No. 1 mission, which is maintaining technology leadership in the U.S. At this stage, there's ample evidence that we'll continue to have adequate investment in research and manufacturing, which will allow us to continue to be the technology leaders, and maintain our leadership position of roughly 50% of the worldwide semiconductor market with U.S.-based companies.

SI: The opinion has been expressed by some industry leaders that so much of the industry's infrastructure here has been devastated by the downturn, that it'll be difficult to rebuild it to the point at which it was before the downturn. How do you see this?

Scalise: I think that you'll find we're very resilient. There is no question that this has been a very harsh environment over the last three years. However, we've been here before and can deal with problems of this magnitude. We'll rebound.

SI: The SIA advocates that carefully applied export controls are a necessity, particularly after 9/11, to protect national security. However, at the same time you believe that the federal government should be more proactive in funding R&D. In view of the massive shift of technology from the United States to Asia, how can this technology be prevented from leaving the country?

Scalise: It's impossible. Any time you have an education system like ours — and I don't believe anyone would like to change it — where you allow students from all over the world to come here and learn at our universities, who then go to live wherever they choose, whether here or abroad, the technology being developed by these students will go wherever they go, and that is good.

SI: There have been a large number of mergers and buyouts taking place during this downturn. What are your thoughts on this?

Scalise: It's a natural process that takes place when we find ourselves in the situation we're in. Some will perceive companies to be undervalued and therefore offer an opportunity for them to buy or merge with them.

SI: Usually it has been the smaller companies that come up with the innovative technology. Do you think the buyouts affect this?

Scalise: Not really. In some cases, smaller companies will have the lead on new technology, while in others it'll be the larger companies because of costs involved in developing it. It depends on the cost and timeframe required to fund a given technology, more than whether a company is large or small.

SI: What are your plans and strategies for SIA? What can the membership expect over the next couple of years?

Scalise: First and foremost, we want to ensure that the federal government increases its basic research funding in our universities — this is crucial. If that happens, the underlying technology necessary for us to move to the next generation of semiconductor technology, beyond CMOS scaling, will unfold over the next 10 years. That will result in the continued implementation of Moore's Law as we've been doing for the last 40 years. With that come price reductions, improved and enhanced functionality, and lower costs for the consumer. The NSF has had an authorization bill passed by Congress that will double its funding over the next few years — this is a major step in the right direction.

SI: Is there anything we can do to reduce the impact of these downturn cycles?

Scalise: Certainly, this has been the worst one ever. However, you must keep in mind that it was accompanied by the end of the dot-com mania. I think it's unlikely that we'll see a scenario like that again. This has been an anomaly.

SI: Is there anything you would like to change in the semiconductor industry?

Scalise: There isn't much that I'd change. We must continue to foster the ecosystem that has allowed this industry to both be successful as well as make a major contribution to the economic growth of our nation. Keep in mind that the information technology industry represents approximately 8% of the GDP, but we've been responsible for 30% of the growth in the GDP over the last 10 years. We've also been the ones who have helped reduce inflation by a percentage point a year and enhance productivity by another percentage point a year. That is what I want us to continue to do. Then, all the related industries, and even those outside of high-tech, will benefit from our successes and the national, as well as global, standard of living will be enhanced.

SI: Are you satisfied with the models used to predict the business cycle?

Scalise: The issue isn't so much models and planning; it's the many independent decisions that implement the forecasts. As we saw in 1999, these decisions drove demand that well exceeded the forecasts for the year.

SI: What advice would you give the industry?

Scalise: (Laughing) I think you have to be very careful about giving advice to anybody. In the SIA's case, as we deal with the CEOs of our member companies, which represent approximately 90% of the worldwide market for these products, I believe that the most important thing is to stick to the fundamentals necessary for us to continue the success that we've had over the last 50 years — basic research, each company must look at its own R&D and capital program and ensure that they're investing at a rate that allows them to continue to be an effective player in the business. We must manufacture at cost and at quality levels that maintain our competitiveness. There's no magic here, and no need for advice. It's just a matter of continuing to do the kinds of things that have made us successful for all these years.