Technology Transfer and the British Microelectronics Industry, 1950-75: Confused Signals
John F WILSON
By the 1990s, the global microelectronics industry was composed of a myriad range of syndicates, alliances, partnerships, exchange agreements (technical and market-related) and joint ventures. It was an industry in which technological interdependence had become established practice, with the flow of ideas and knowledge becoming multi-directional, taking in the USA, Western Europe and Japan. At the same time, it is noticeable that British-owned firms had been marginalized in this system, having been eclipsed by the much more powerful American and Japanese multinationals that came to dominate microelectronics. This much abbreviated version of my paper on the subject will attempt to explain why in spite of a plethora of government-funded schemes stretching back to the early-1950s, not to mention the considerable amount of money invested by British firms in microelectronics, it was plain by the late-1960s that Britain was losing what contemporaries referred to as the'Electronics War'. The exercise will be performed by focusing solely on Ferranti, Europe's leading player in the microelectronics industry, linking a discussion of technology transfer issues with the pattern of both government funding and corporate strategies. Porter's work will provide the analytical framework required, focusing especially on whether firms should have pursued strategies linked to either technology leadership or technology followership.
Key Words: microelectronics, Ferranti, technology transfer, government policy
The Leading European player: Ferranti
As one of Britain's most innovative electronics firms, its engineers' attendance at the first Bell Lab's semiconductor symposium in 1952 was funded by CVD, the Ministry of Supply's agency responsible for stimulating research into electronic components. Ferranti were also at that time involved in the development of what would eventually become Britain' s most successful guided missile of that era, Bloodhound, a project initiated by the Ministry of Supply. This prompted CVD to fund the acquisition of a licence from Bell Lab's, at a cost of £9,000, as well as the formation in 1953 of a semiconductor development team, providing Ferranti with a significant fillip. Although the team overspent on the budget allocated, by 1955 the Ferranti team had developed Europe's first silicon diode, establishing a prominent position in the industry at an early stage.
The development of this silicon diode provides a fascinating insight into the technology transfer process in action, because apart from securing a licence from Bell Lab's Ferranti also sent several of its semiconductor development team to work at the US pioneer's facilities. It is also important to note that at an early stage the Ferranti had chosen to use silicon, rather than the material that almost all the early semiconductors used, germanium. The reasons behind this move were linked to the perceived need to establish a competitive niche in a market that US firms already dominated. At the same time, as silicon was more reliable and worked at temperatures of up to 150oC, twice that of germanium, the resulting devices would be more suitable to the exacting requirements of a guided weapon. On the other hand, as semiconductor engineers were more accustomed at that time to working with germanium, the Ferranti team was faced with a considerable learning curve. It was consequently necessary to work closely with Bell Lab's engineers in perfecting the crystal-drawing process. Bell Lab's even sent its leading authority on silicon to the Ferranti laboratory, indicating how the first-mover and imitator worked intimately in producing a solution. Returning to an earlier point, though, one should also stress how this support focused on fundamental research, rather than product development, indicating how Britain's leading semiconductor firm was committed to a strategy of technological leadership that would become increasingly difficult to sustain.
The difficulties associated with this strategy can be amply illustrated by looking at how in the 1960s Ferranti was obliged to commit ever-larger resources to a division that was commercially unsuccessful. By 1961, Ferranti had produced its own IC, marketed as Micronor I. This programme had been funded by the Royal Navy, given its need to miniaturise on-board computing. It also provided the firm's automation systems department with the opportunity to build on this success by developing Micronor II, a DTL IC that was much faster and more reliable than anything being produced in Europe at that time. While as we shall see later Micronor II was later superseded by Texas Instruments' much cheaper and faster 54/74 TTL IC, it again demonstrated the firm's ability to innovate in a technology that was advancing rapidly. As Golding notes: 'Measured by its ability to develop new products based on external innovations, Ferranti must surely rank as the foremost British semiconductor company. On a number of occasions . Ferranti has demonstrated a rapid and flexible response to new technology resulting in a short lead time to commercial production'.
Leaping forward to the late-1960s, one must also consider the Advanced Computer Techniques Project (ACTP) launched by the Ministry of Technology (MinTech) in 1966. Although this was principally aimed at boosting the technical proficiency of ICT, IC firms were able to apply for funds. However, these funds were only provided in the form of loans, rather than grants. Furthermore, as these loans had to be repaid from a levy on sales, rather than on profits, it was apparent that the government was hardly acting as a partner in this venture. At the same time, Dr. Shepherd was grateful for this support, because up to 1970 Ferranti received almost £ 1.4 million, or 37% of Gem Mill's negative cash-flow. It is also important to stress that these funds were used in the successful development of a production process, collector diffusion isolation (CDI), that not even the US giants like Fairchild had been able to master. Even though Fairchild had patented the CDI process, Ferranti were the world's first microelectronics producer to apply this highly sophisticated technology to the efficient manufacture of VLSI IC's. This reflected yet again the firm's ability to compete technologically with the best microelectronics talent. It was also a peculiar form of technology transfer, because while Ferranti paid Fairchild £ 150,000 for the use of its CDI patents, the licensee utilised the technology much more effectively than the licensor.
Just as work on the CDI process was nearing completion, however, there was a change of government, from interventionist Labour to free-market Conservative. This new government was so keen to reduce the role of the state in business matters that initiatives and schemes like MinTech and ACTP were closed down almost immediately. Of course, this ignored what was happening in virtually every other developed and developing economy, where the state performed vital roles in stimulating the development of new technologies. One need only read what we have said earlier about the support for microelectronics provided by NASA and the USAF, not to mention how the Japanese government funded and nurtured indigenous efforts in this sector. At Ferranti, deprived of ACTP funding, yet with losses mounting on IC sales and the chairman continuing to insist that his firm would always remain in this vital sector, it was clear that a radical solution was required. Dr. Shepherd was especially aware that Ferranti would never be able to compete in price with his US rivals in the market for standard IC's, even if his team was capable of applying highly advanced technologies like CDI. At the same time, by utilising CDI for the manufacture of non-standard IC's, there was a possible niche to be exploited in serving equipment manufacturers that required custom-designed components. It was this realisation that spawned the birth of the ULA (uncommitted logic array), a customised bipolar IC capable of being adapted to each individual customer's requirements. Out of the adversity created by a sudden change in governmental attitudes, Ferranti had produced a remarkable innovation that over the following decade was to become a great commercial success.
While Sciberras has argued that in leaving the mass IC market Ferranti had adopted a highly defensive strategy, in the circumstances it is difficult to see how the firm could have competed head-on against the likes of Texas Instruments. As we saw earlier, even Britain's largest electrical-electronics firm, GEC, was withdrawing from microelectronics, given the chief executive's rational aversion to risking money on technologies that were already dominated by rival suppliers. While Ferranti could compete technologically with the US firms, acquiring their licences and introducing a constant stream of innovative products, in commercial terms it was incapable of producing at the same price or marketing goods as aggressively. With Ferranti and GEC consigned to relatively minor roles in microelectronics, it is consequently no surprise to read that by 1977 85% of all UK semiconductor sales emanated from multinational subsidiaries. In the Ferranti case, it was a rational response to the hiatus on government support that prompted the highly realistic strategy of searching for a niche market that could be exploited by the successful application of US technology. With losses mounting throughout the late-1960s and early-1970s, other than dispose of the factory there was very little else that management could have done.
Having stressed the role played by government policy in fashioning the Ferranti ULA strategy, it is also important to report that in 1973, as part of a much broader U-turn prompted by rising unemployment, the Department of Trade & Industry (DTI) was provided with funds to reintroduce interventionist policies. With specific reference to the industry covered in this paper, in 1973 the DTI launched the Micro-Electronics Support Scheme (MESS). Apart from bolstering the late-1960s ACTP scheme, another crucial dimension of MESS was the repayment schedule: all loan repayments were based on the profits generated by supported firms, making the state a partner in the relationship, rather than a banker. MESS was also more generous than previous schemes, in that firms were able to claim 50% of all R&D costs, boosting significantly the range and depth of work that firms like Ferranti could undertake. This proved decisive, because Ferranti were able to secure sufficient support from MESS to perfect the CDI process even further and radically improve the reliability of production. While one can only hazard a guess at whether Ferranti would have clung to the standardised IC market had MESS been introduced in 1973, it is clear that after 1973 the DTI scheme ensured that the ULA strategy would eventually become a great commercial success.