Trade laws punish some fabless U.S. companies for SRAM 'dumping.'

Electronic News, March 16, 1998 by Will Wade

Santa Clara, Calif.--Based in Silicon Valley, it may seem hard to understand why Integrated Silicon Solutions has been cited for dumping underpriced SRAM chips on the American market. The fabless company doesn't' even manufacture its own chips, much less sell them for below its manufacturing costs.

At least that's what Gary Fisher, executive VP, office of the president, at ISSI told the International Trade Commission last month during its official hearings.

But ISSI was still hit with an import duty of 7.59 percent, one of about a dozen SRAM firms named in the complaint, but only one of two American companies which found themselves on the wrong side of the import pricing lines. "The trade laws are supposed to protect American companies," said Mr. Fisher. "I was born and raised in California and this company is based here. ISSI is most definitely not just a sales office with a fax machine. It's been pretty difficult to explain to my kids how this company is viewed as a foreign company. I'm being treated like a foreign spy, and it just doesn't make sense."

It may not make sense, but it's the law. According to Dept. of Commerce regulations, in dumping cases it's not where a company is based or where it is incorporated that determines its nationality, but where its chips are manufactured. For ISSI that means Asia, where the fabless firm has foundry relationships with TSMC and UMC in Taiwan, and Chartered Semiconductor in Singapore.

The company will get its first domestic production capacity later this year, when WaferTech is scheduled to open its doors in Camas, Wash. This company is a joint venture between ISSI, Analog Devices, TSMC and Altera, and will be the first time ISSI actually owns any part of its own production site.

Making the Dept. of Commerce definition even more complicated is that only a single step in the production process is considered. ISSI's silicon wafers are currently manufactured overseas, so they are designated imports. Other companies that fab the wafers in this country but then ship them abroad for completion are not considered importers.

Cypress Semiconductor falls into this area, with fabs in this country, and test and packaging operations in Thailand and the Philippines. Integrated Device Technology also has a test facility in Malaysia.

"If there is an airplane flying into San Jose from Asia with three crates of chips, one labeled Cypress, one labeled IDT and one labeled ISSI, only one of those crates is going to get evaluated for dumping," said Mr. Fisher. "I would say the whole intent of the dumping law is being bypassed."

The root of the problem lies in the evolution of the fabless semiconductor company. Microchip dumping first became a major international trade issue back in the 1980s, when Japanese firms were accused of undercutting the American market. Since then trade and business have become increasingly global, and ingenious businesspeople have found a way to create chip companies without actually owning chip-making facilities.

The fabless companies such as ISSI fall into an area that didn't exist when the dumping laws were first defined. "This is really a new business model, but it's stuck under an old statute," said Mr. Fisher. "I'm not trying to take the position that there should not be trade laws, but I am taking the position that those laws should not be turned on an American company."

When the Dept. of Commerce issued its ruling last month (EN, Feb. 23), ISSI's duty of 7.59 percent was one of the lowest in the case, and the lowest rate for chips originating in Taiwan. Winbond Microelectronics was hit with a hefty 102.88 percent duty and United Microelectronics received a rate of 93.87 percent. The Taiwanese in general fared much worse than the Korean firms, with memory giant Samsung Semiconductor being dropped entirely from the case and Hyundai Electronics Industries receiving a rate of only 5.08 percent. LG Semicon was the only Korean company to receive a significant duty, 55.36 percent.

Alliance Semiconductor is another fabless American company with Asian fabs, which received a rate of 50.58 percent, and supports ISSI's position that they should not be targeted by trade laws designed to protect them. Although Mr. Fisher said the import duty will not have a significant negative impact on ISSI's business, he is still angry to have been named in the complaint at all. "This has been a huge distraction," he said. "We believe it is an improper application of the trade laws. Those laws should be applied fairly, and not against U.S. companies."