Halla: Huge Boom Coming, But Will U.S. Be Left Behind?

By Jessica Davis -- Electronic News, 2/7/2006

National Semiconductor Chairman and CEO Brian Halla sounded his now familiar rallying cry around the need for access to the best and brightest young engineers and funding for basic research and universities during his keynote address at DesignCon in Santa Clara, Calif. Tuesdy.

Calling his address a commentary on the “State of the Industry” Halla drew parallels to historical events including the space race and the building of the transcontinental railroad here in the United States, and painted a picture of an industry and a world on the verge of a huge economic boom.

The big question is whether the United States will participate and lead that boom or whether it will cede that role to emerging nations that recognize the opportunity and are investing in technology and research.

“Exactly what do we have to do to screw this thing up?” he asked.

Back in 1957, Russia’s Sputnick satellite was the call to action that the United States needed to drive the space race, Halla said. President Dwight Eisenhower spent $1 billion on the space program, which drove the mainframe race. And the mainframe race was what drove the first semiconductor boom.  Eisenhower also recognized the need to spark students’ interest in math and science and created the National Defense Education Act to that end.

In 1974, Halla said, mainframes began using DRAM and the semiconductor industry’s revenues climbed to its highest level ever, $5.2 billion. The next boom for the industry came in 1984 at the advent of PCs when the industry’s revenues climbed to a new height of $26.1 billion.  Then in 2000, people began to see the value of connecting devices including PCs and cell phones using networks such as the Internet, a year when the industry’s revenues hit $204.4 billion, Halla said.

But, Halla said, 2000 was not the dot com boom. Rather, that boom was about building the infrastructure. And now we are truly on the verge of a dot com boom as the content becomes available to send over that infrastructure.  The new boom will be driven by content, Halla said, and it promises to be a big one.

Halla compared this time in history to the building of the transcontinental railroad, noting that everyone at the time viewed the effort as a huge opportunity to make money and investments poured in.  But once the railroad line was finished the immigrants who worked on it went home, Halla said, and stopped consuming all the things that had been shipped along the railroad. What followed was the worst recession that the United States had experienced to date.

“There are amazing similarities to the infrastructure boom of 2000,” Halla said. “They had no content. There was a glut of capacity. People lost everything they had.”

But some enterprising individual invented the refrigerated box car, an innovation that spurred the meat packing industry to use the railroad to transport their product from one part of the country to another.  And Montgomery Ward began using the railroad to ship their catalogs out west with the idea that if someone ordered something, they could use the railroad to ship product out too, Halla said.

“That time frame of the 1870s was the most robust cycle in the history of the U.S.,” Halla said. “Economists used the word ‘boom’ for the first time then.”

And that period bears striking similarities to today, Halla said.

“When China opened its market there were 400 million new middle and upper class consumers,” he said. Other markets such as India and Russia will follow. “One of our largest customers that sell cell phones said their fastest growing market is Nigeria,” Halla said.

It’s an international market full of opportunity that the United States should be pursuing.

“But we have a ‘perfect storm’ of technology neglect,” Halla said, from the demise of Bell Labs to the shortened timeline for DARPA funding turnaround to the declining enrollment of foreign students in U.S. universities. H1-B visa concerns are limiting the career paths of foreign PhDs in the United States and there is no Sputnick threat.

Meanwhile “other nations realize the benefit of a technology leadership position,” said Halla.  “Emerging nations are pushing R&D, tax incentives and stock options.”

Further, Halla said, the United States is falling behind in deploying new technology such as broadband. And the K-12 schools are not filling the pipeline with students who want to study math and science at the university level.

In his State of the Nation speech last month, President George Bush responded to the industry’s lobbying efforts, which Halla has helped to drive, promising to double R&D funding at universities, to improve the nation’s immigration policies, and increase the focus on alternative energy.

Whether Bush will deliver on those promises and offer what the nation needs to maintain its technological lead and take advantage of the opportunities of this next boom remains to be seen.

“It’s a very bright future,” Halla said. “I have never seen a more optimal time for the technology industry. But where? In the United States? In China? In Russia?”