Suddenly it's 1984 all over again. We're being attacked abroad and from within.
Suddenly it's 1984 all over again. We're being attacked abroad and from within. Despite huge upside potential, the future of the U.S. semiconductor industry has never seemed murkier. History really does have a way of repeating itself.
The battlefields have different names. From abroad, we're fighting the value-added tax in China, a 17 percent levy on goods imported into that country. Twenty years ago, the issue was trade protectionism but the foe was Japan.
From within, we have the folks at FASB lobbing mortars into the holiest of shrines: stock options. Executives who railed against the mere notion of expensing stock options a year ago now seem resigned to it, but they object to the vague language in the guidelines. Indeed, even FASB doesn't seem to have a grip on how precisely to value the options.
The optimist in me says this, too, shall pass: In the 1980s, after all, Japan was about to rule the world. But the pessimist in me says sometimes there is a fundamental shift in business that's marked by an event or two.
China, at $19 billion in semiconductor consumption, is the world's No. 3 market: By 2010, according to one estimate, it'll be No. 2. Some $2 billion in ICs were imported into China last year; the VAT cost the importers about $344 million that their Chinese counterparts didn't have to pay. The more design and manufacturing you do in China, the lower your rate is-a practice that, in the eyes of the West, violates World Trade Organization rules. U.S. trade officials have filed a complaint with the WTO asking the organization to make China drop the levy.
China will cave at some point. It's hosting the Olympics in a few years; it's a new member of the WTO. It wants to be seen as a member of the world community. The VAT has already served its purpose for the Chinese: It forced desperate Western companies, managers and engineers to set up shop in one form or another in China. That fed the Chinese engineering community the intellectual capital it needed to jump-start domestic design businesses.
As for stock options, there's the risk that emerging countries' gravitation toward more-liberal stock-option policies will hurt entrepreneurialism in the United States.
As long as it's a level playing field. Then again, one man's level playing field is another man's protectionism.