Brian Halla, CEO of National Semiconductor, previously at LSI Logic and Intel, tells how the whole industry's economics used to come down to one thing: how do you keep the fab full, and so defray the enormous cost of building it.
"We had this huge capital expense to build a fab," recalls Halla, "so the corresponding message that goes to the field sales force is that the tiny things that come out of that fab have got to fill it up"."
"So the mantra's: 'Fill the fab'", recounts Halla, "at Intel, there was a period of time where even Intel, which is one of the few companies that can get paid for what they do - their mantra used to be 'Fill the fucking fab' - FTFF - but Gordon Moore changed that to 'Fill the facilitised fab'."
With so voracious a mouth to feed, and customers with a choice of who to buy from, the whole concept of pricing to value went out of the window.
The same principle applied to the Japanese semiconductor industry. In his book 'Only the Paranoid Survive', Andy Grove recalls an early 1980s memo which Intel had got hold of which a Japanese company had sent to its sales force.
It read: "Win with the 10 per cent rule. . . .Find AMD and Intel sockets . . . Quote 10 per cet below their price . . .If they requote go 10 per cent again . . .Don't quit until you win".
In 1985 things got so bad that four leading edge DRAMs sold for $1.
In mid-85, Intel quit commodity memories. Shortly aftwerwards it went sole-source on the 386 and from then on showed the industry what pricing to value really meant.
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