Cold Feet

A hornet's nest was stirred up in Washington last fall when Fujitsu, the Japanese electronics giant, proposed buying 80% of ailing Fairchild Semiconductor. Key Reagan Administration officials had serious worries about the sale of the California-based chip producer, which was to take place for an estimated $225 million. Earlier this month Commerce Secretary Malcolm Baldrige went public with his opposition, hinting at national-security concerns and stressing the need to protect America's enfeebled semiconductor industry. Last week Fujitsu dropped its controversial merger plan even as U.S.-Japanese friction continued to rise over the issue.

The fuss over Fujitsu's marriage proposal was colored by wider U.S.-Japanese trade concerns. Schlumberger, the French oil-services conglomerate that bought Fairchild in 1979, had spent $1.5 billion to prop up its subsidiary (estimated 1986 sales: $500 million). No national-security alarms were sounded over Schlumberger's control of the semiconductor firm, which, among other things, provides components for U.S. supercomputers and ballistic-missile systems.

The real worry about Fujitsu's bid was economic. U.S. manufacturers feared that the Japanese behemoth (1986 sales: $9.4 billion) would use Fairchild's U.S. distribution network to flood the American market with cheap microchip products. That view was underscored last week by a Commerce Department review that accused Japanese semiconductor producers of selling chips below market prices.

For his part, Fairchild President Donald Brooks now says the company's managers will buy control of the firm. He proposed cooperation with Fujitsu on technology development and manufacturing in the U.S. and Japan, as well as an exchange of rights for new and existing products. Brooks excluded Fairchild's distribution network from any such cooperation.

Having raised the specter of a foreign economic threat to U.S. security, however, Commerce Secretary Baldrige seemed reluctant to let the issue die down. Last week he called for a top-level Government review to decide on exceptions, where the "national interest is at stake," to a stated policy of unfettered foreign investment in U.S. business. The U.S. Senate also kept the microchip issue simmering. In a 93-to-0 vote, members passed a nonbinding resolution that urged U.S. retaliation against alleged Japanese violations of a 1986 agreement with Washington that was supposed to end unfair trade practices in the industry. Immediately after the Senate vote, Japanese officials warned representatives of local companies to avoid selling chips at unfair prices.