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Synergy of Contrasting Personalities Behind Chip Merger

May 04, 1987|DONNA K. H. WALTERS | Times Staff Writer

It was April 7, and W. J. "Jerry" Sanders and Irwin Federman, two of Silicon Valley's most easily recognized executives, were doing a deal at the Chantilly, a Palo Alto restaurant where the hushed buzz of serious high-tech conversation is mellowed by $250 bottles of ruby red wine and blush pink decor.

When dinner was over and their deal nearly done, Sanders paid the bill. "When I'm with Jerry, he picks up the tab," Federman recounted. "I figure, the guy who goes around in a Rolls-Royce and carries on his person, in clothes, jewelry and accouterments, more than my house is worth, well, he pays the bills."

Sanders returned to the Chantilly for dinner last Thursday, the day the $422-million merger of his company, Advanced Micro Devices, and Federman's Monolithic Memories Inc. was announced.

This time, the buzz was all about Sanders and Federman, AMD and MMI.

Who in the Valley, the technophiles' mecca, could resist the subject? The merger of two like-minded companies, each headed by a character of grand proportions: Sanders, whose picture ought to be in the dictionary as a definition for "flamboyant"--the guy about whom every techie has a favorite outrageous story. And Federman, the self-described bean-counter who ranks as a major force in the complex technological world of semiconductors--and, some say, as the best storyteller in the Valley.

But the AMD-MMI story is more than just fodder for glib gossip. In the past, such deal making has spawned new technologies and new companies that changed the way the world does business. And those who listen closely to the Valley grapevine are measuring the Sanders-Federman deal in just those terms.

The marriage of AMD and MMI is a portent of change in the U.S. semiconductor industry. Change that, industry experts believe, could help ensure the survival of the domestic industry--deemed vital to national security and technological leadership--in the face of further Japanese penetration of the $30-billion worldwide market.

The American chip industry has looked for government aid and resolution of the trade dispute with Japan to help it regain worldwide competitiveness. But progress there has been slow; during their summit last week, President Reagan and Japanese Prime Minister Yasuhiro Nakasone couldn't reach agreement on major trade issues, including U.S. tariffs stemming from an unfulfilled chip-trade agreement.

Federman, chairman of the industry's trade group, and Sanders have been active in the call for help from Washington, but they have also looked inward.

"This is a concentration of force that will make us stronger in the worldwide market," said Sanders. "We're the first, but we won't be the last to merge. . . . There's going to be an oligopoly of big players, with perhaps a scattering of small companies. But this concept of a panoply of players is impossible."

Sanders is given to using superlatives, especially in the context of his own accomplishments. But this time, he isn't alone in his assessment of the situation. Many industry executives and analysts believe the AMD-MMI merger signals a major consolidation in the U.S. chip industry, even as signs of a cyclical upturn grow stronger.

(The consolidation may reach out to the global market: The day before the Silicon Valley deal was announced, two European companies, Thomson of France and Italy's telecommunications company, STET, said they would merge their semiconductor operations.)

On Friday, speaking from the mobile phone in his white Rolls-Royce, Sanders recounted the events that led to the merger.

At the end of last year, he said, AMD's steering committee met to evaluate the company's options, including acquisitions.

"We decided certain companies would make a good fit with AMD, and MMI was at the very top of the list," Sanders said. "I approached Irwin (Federman) and said 'wouldn't we be stronger together?' "

The fit, analysts believe, is better than good. AMD has plenty of manufacturing capacity but has relied heavily on other companies' technologies. MMI has top-rated products that hold almost 50% of a roughly $500 million market niche that continues to grow, but is running out of room at its plants.

Combined sales of the companies could total $1 billion this year--a mark Sanders long ago set his heart on.

He nearly achieved it alone. In March, 1985, AMD closed its fiscal year fat from the boom in chip-laden personal computers. The company had invested nearly $500 million in plants and equipment during a 36-month period, rivaling the massive Japanese semiconductor industry investment. AMD was nearly a "giga-buck" company--Sanders' term for $1 billion in sales.

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