Hearing on Emerging Technology Issues and Reauthorization of the Export Administration Act


Prepared Testimony of Mr. Michael C. Maibach
Vice President of Government Affairs
Intel Corporation


10:00 a.m., Thursday, June 17, 1999

I am Michael C. Maibach, Vice President of Government Affairs for Intel Corporation. I am here today representing the Computer Coalition for Responsible Exports (CCRE). I want to thank you for providing me and the CCRE with the opportunity to share our views on the significance of the computer industry to the United States and how U.S export controls can be better formulated to respond to the technological and market realities of this industry.

The CCRE is an alliance of American computer companies and related associations established to inform policy makers and the public about the nature of the computer industry -- its products, market trends, and technological advances. CCRE members include Apple Computer, Inc., Compaq Computer Corporation, Data General Corporation, Dell Computer Corporation, Hewlett-Packard Company, IBM Corporation, Intel Corporation, NCR Corporation, Silicon Graphics, Inc., Sun Microsystems, Inc., Unisys Corporation, the American Electronics Association, the Computer and Communications Industry Association (CCIA), the Computer Systems Policy Project (CSPP) and the Information Technology Industry Council (ITI).

My company, Intel, is the world's largest semiconductor manufacturer and a major supplier of information technology building blocks to the global computer and communications industries. We provide our customers with chips, printed circuit board assemblies and software that are the "ingredients" of personal computers ("PCs"), servers and workstations. Our flagship business involves the mass production and sale of the Pentium® family of processors and other microprocessors, which are frequently described as the "brains" of a computer because they control the central processing of data in computers. In 1998, our sales exceeded $26 billion.

Today I would like to focus on the following four topics:

I. The Economic Value of Computers

1. The Computer Industry is Vital to the Health of the U.S. Economy

Growth. For the last 50 years, the U.S. computer industry has been a principal engine of economic growth in the United States, and increasingly the world. The U.S. computer industry is a premier example of American innovation and leadership. It has become a primary source of increased prosperity and job creation. By improving the efficiency, competitiveness, and profitability of U.S. industries, the computer industry has become central to the United Statesí overall productivity. The information technology industry, which is driven by computer technology, has come to contribute nearly 35 percent of real economic growth in the United States. The U.S. computer industry is essential to continued U.S. technological leadership and global competitiveness.

Innovation. The computer industry is in a constant state of change, with new products and competitors emerging almost daily. Illustrative of this march of technology is that over 75 percent of the revenues of computer companies come from products that did not exist two years before.

R&D. The computer industry keeps the United States competitive through its commitment to research and development. In 1997 CCRE companies alone invested approximately $14 billion in R&D. Of the top eight U.S. companies investing in R&D, five were in the computer industry or related fields, including IBM, Hewlett-Packard, Motorola, Lucent Technologies, and Intel.

Revenues. The Department of Commerce indicated that in 1998 U.S computer companies' worldwide sales of computers and computer hardware alone totaled more than $230 billion. Moreover, sales of software and computer services in 1998 generated another $152 billion. The estimated value of the U.S. information technology industry in 1998 was a staggering $680 billion, or approximately 8 percent of the nation's total gross domestic product.

Cost Reduction. Information technology helps to control inflation. While computing power more than doubles every 18 months, the cost of computing drops 25 percent annually. Average annual productivity growth in the United States has moved from 1 to 2 percent as information technology has increased efficiency. Due largely to computers and other information technology, the U.S. economy can now grow at 3 percent, rather than 2 percent, without generating higher inflation. This extra 1 percent growth per year translates into a gross domestic product increase of $1.1 trillion in ten years.

Employment. U.S. computer companies create high-quality, high-paying jobs. The average job in the U.S. computer industry pays nearly twice as much as the average non-computer-related job. The computer industry alone directly employs more than 500,000 in the United States. Another 3.8 million are employed in computer-related fields such as software design and production, telecommunications, and other information services.

2. The Computer Industry Contributes Significantly Throughout the U.S. Economy and Society

The impact of the U.S. computer industry extends deeply into the U.S. economy and society, with products and services that are essential to everyday life. Many vibrant industries trace their improved efficiency, competitiveness, and profitability directly to the computer technology upon which they rely. Indeed, health care, manufacturing, defense, agriculture, entertainment, education, finance, retail -- and just about every other sector of the U.S. economy -- are dependent upon the important contributions of computer technology.

The computer industry has been at the forefront of helping the United States to improve productivity and lead the world in innovation and, ultimately, knowledge. The explosion of the internet is a prime example of how computers contribute to the economy and affect the everyday life of millions of individuals. Internet use is growing 20 percent monthly and it is estimated that there will be nearly 330 million users of the internet (1 in every 15 people) by next year - and a projected 1 billion by 2005. Commerce over the internet, including retail, financial, and business-to-business services, is projected to reach $350 billion in the U.S. alone by 2001.

The internet's rapid growth is generating huge global demand for personal computers and other commodity-level computers. This includes rapidly increasing demand for commodity-level workstations and servers, which are needed to expand the worldwide information infrastructure. As Intel chairman Andy Grove points out, we are headed toward "a world of one billion connected computers."

The computer industry is central to ensuring that the U.S. economy remains vital and strong as the country enters the next millenium. The Department of Labor estimates that employment in the computer and data processing services industry will experience substantial growth over the next ten years. During this time, the three fastest growing individual occupations all will be directly related to the computer industry. Each of these occupations -- database administrators, computer engineers, and systems analysts -- will more than double in employment size. To continue to create jobs for the future and contribute to the overall economic health of the United States, U.S. computer companies need the freedom to innovate, grow, and export. To survive in today's fast-paced global environment, U.S. computer companies must anticipate market changes and bring new products to market faster than their foreign competitors.

3. Exports Are Crucial to U.S. Computer Industry Innovation and Leadership

The U.S. computer industry operates throughout the world in terms of its customer base, competition and technological expertise. Computers and computing power are increasingly accessible to individual, business, and government consumers throughout the world. Today, the U.S. computer industry competes in more than 160 countries.

Exports are vital to the industry. For example, in 1997, exports accounted for over 54 percent of CCRE members' revenues. While the United States remains the largest single market for computer sales, worldwide demand continuously grows stronger. It is estimated that by 2000, 72 percent of the world's computers will be installed outside of the United States. In 1997, over 80 million personal computers were sold throughout the world. In 1997, of the 2.5 million servers and workstations sold worldwide, more than 1.6 million of them were sold outside of the United States.

U.S. leadership in the computer industry is being challenged by foreign companies in all product categories -- from the PC to the supercomputer. The continued ability to provide cutting-edge products to the world market will be critical to the U.S. industry's ongoing success. Indications that foreign competitive threats are mounting is evidenced by the following statistics (as measured in number of units sold worldwide):

Computer power is ubiquitous, irrespective of where computers are manufactured or sold. The ability to design, assemble, and manufacture computers is increasing significantly all over the world. Information on computer design, assembly, and enhancements is readily available on the internet. Moreover, widely available microprocessors, printed circuit board assemblies, interconnects and other computer components are easily assembled into functioning computers. Foreign countries thus already possess or can obtain the technological wherewithal to produce powerful computers.

II. Balance of National Security, Economic and Other U.S. Interests

Export control determinations inevitably require a balancing of many considerations. Paramount among these is national security. But national security alone does not capture the nation's overall interests. Economic, political and other interests also bear on export control decisions. At least since World War II, the U.S. export control system for industrial or dual use items has utilized an interagency mechanism to seek to balance U.S. interests in export control determinations.

The ultimate responsibility for balancing U.S. interests in export control decisions must rest with the government. While industry should not presume to intrude on the government's decision-making prerogatives, it is essential that there be a decision-making process that ensures that all of the nation's interests are fully taken into account.

In particular, three points bear on achieving an appropriate balance of U.S. interests in making export control determinations.

1. The U.S. Can Benefit Enormously From The Global Dissemination Of Information Technology

As has already been noted, the economic value of computers and information technology to the United States economy is substantial, whether in the form of growth and productivity gains or new ways to learn, communicate and do business.

The companies that generate this economic value, whether large or small, inevitably must operate on an international scale. Exports represent almost 60% of Intel's sales, and they are a significant portion of the sales of the vast majority of computer and information technology companies. Restrictive export controls therefore can impose a substantial cost, not only on individual companies, but on our nation. Equally important, they can restrain U.S. leadership in technology development and retard or distort the creation of value that flows from technology.

Restricting technology exports not only has an economic cost, but carries a cost in national security terms as well. U.S. defense capability depends importantly on technological capability, from advanced weapons to precision-guided munitions. Restricting U.S. exports cuts into the ability of U.S. companies to sustain and advance technology development. This directly threatens U.S. leadership in applying technology to defense needs.

2. There Are Substantial Political Benefits To Global Dissemination Of Information Technology

The dissemination of information technology around the world provides a major impetus for democratic discourse and democratic values. Information technology is distributed, dispersed and accessible. It represents a compelling means to empower the individual. A well-informed citizen is the foundation of a democratic society.

The number one reason for buying a personal computer today is the drawing power of the internet. The internet is inconsistent with government based on fear and misunderstanding.

3. Export Controls Must Be Selective to Be Effective

Several features of modern information technology run counter to effective export control. High volumes, modularity and networking all work against the ability of an export licensing system to contain products within national boundaries.

An export control system will be oppressive and self-defeating if it tries to restrict those exports which are not capable of being effectively controlled.

III. Controllability of Computers

Today's computer industry presents new and fundamentally distinct challenges for the U.S. export control system. The increasingly decentralized and globalized nature of the industry - characterized by mass production, wide distribution, and ease of access to computing power - is at odds with the centralized nature of the U.S. export control system.

The overwhelming penetration of personal computers, workstations, servers and microprocessors into what has become a global information infrastructure makes these products both uncontrollable and unworthy of control. Several key features and trends contribute directly to this uncontrollability.

1. Microprocessors

Microprocessor technology is evolving at an incredibly rapid pace. Since the last revision to export control levels for computers in 1996, the computing power of widely available microprocessors has increased five fold. Today, a $1,500 laptop has as much power as a multi-million dollar "supercomputer" of the 1980s. This rapidity of technological development and innovation will continue, if not accelerate, for years to come. For instance, it is expected that by next year, a single microprocessor will contain 50 million transistors. This number could reach 1 billion by 2012. This compares with just 275,000 transistors per chip fifteen years ago.

As microprocessor performance has improved, costs have dropped by nearly 25 percent per year, making new technologies accessible to a broad customer base. Higher performance at lower cost means that technology advances are occurring at a heightened pace. The MTOPS (millions of theoretical operations per second) level for the Pentium® III, introduced in February 1999, is twice that of the Pentium® II, introduced less than two years earlier. By the second half of this year, the Pentium® III will have nearly tripled the MTOPS level of the top of the line Pentium® II. Currently the Pentium III performs at about 1,200 MTOPS. Next year, Intel projects that its Merced microprocessor will perform at 5,622 MTOPS, representing more than a quadrupling of computing power over the next 18 months.

The progression of microprocessor performance is illustrated in the following chart:

Microprocessors are sold worldwide in mass volumes and through multiple distribution channels. Intel, for instance, ships globally roughly 2 million microprocessors every week and is increasing capacity to support worldwide demand for its products. These products are sold into a global network of upwards of 50,000 distributors and dealers. Volumes should increase significantly in the years ahead, given projections of strong growth in the world microprocessor market over at least the next 5 years.

2. Computers

The performance and versatility of commodity computer systems has increased exponentially over the past twenty years. These machines now play an integral role in U.S. business services, manufacturing, education, and entertainment. In the mid-1990s, the internet transformed the computer from a productivity and entertainment tool to a communications and information resource. During this time, the price of commodity computers has plummeted dramatically. This computing revolution is reflected in the fact that the worldwide consumption of computers has surpassed that of both the automobile and television.

Increases in computer performance have paralleled those of microprocessors. Computer systems incorporating more than one microprocessor are now widely available on the world market. In 1997, there were global sales of over 1.8 million computers that can accommodate two processors, over 400,000 computers that can accommodate 4 processors, and over 100,000 computers that can accommodate 8 processors. Annual sales are projected to be in those same ranges over the next several years. By the end of 1999, the installed worldwide base of computer systems that can accommodate 2, 4, 6, and 8 processors should be approximately nine million.

The effect that these "multiprocessor systems" have on available computing power is reflected in the following chart.

Even with these tremendous advances, the power of the computers described above pales in comparison to the power of true supercomputers, which perform at over one million MTOPS. The following chart clearly shows the significant difference between supercomputers and the high-volume, commodity computers described above.

Foreign computer companies compete or are capable of competing with U.S. computer companies for sales of computers that perform above the export control limits imposed by the United States. The following table demonstrates the extent to which foreign computer companies are competing in the server, workstation and PC markets.

TOP FOREIGN COMPUTER MANUFACTURERS

Based on Units Sold Worldwide in 1997

Company

Country

Worldwide Rank

Workstations

Worldwide Rank

Servers

Worldwide Rank

PCs

Acer

Taiwan

18

 

7

Amdahl

Japan

 

14

 

AST Research

Japan

   

14

Axil

Korea

13

   

Comparex

Germany

 

16

 

Cetia

France

14

   

Epson

Japan

25

 

23

Fujitsu

Japan

9

5

8

Groupe Bull

France

 

15

 

Hitachi

Japan

11

13

17

Hitachi Data Systems

Japan

 

10

 

Japan Computer

Japan

19

   

Legend

China

   

25

Mitsubishi

Japan

24

19

 

NEC

Japan

7

8

11

Olivetti

Italy

   

18

Samsung

Korea

23

 

15

Sharp

Japan

   

20

Siemens Nixdorf

Germany

15

6

12

Sony

Japan

21

 

22

Tatung

Asia/Pacific

12

   

TriGem

Korea

   

19

Toshiba

Japan

20

21

6

Vobis Group

Germany

   

13

The number of foreign computer companies and the number of products they offer that compete at the performance level at which U.S. computers are controlled is increasing all the time as computer technology continues to advance and become available overseas and at relatively low cost. The following chart shows the increasing number of foreign computer companies that are marketing servers and workstations that can perform above the current control threshold.

As an example of this foreign capability, dual-processor motherboards are widely available at low cost from countries such as Taiwan, allowing powerful dual-processor systems to be easily assembled for approximately $2,000. In addition, four-way multiprocessor technology is easily and cheaply available throughout the world, allowing for the production of systems that will be able to perform above the current computer export control thresholds. Within the next twelve months, eight-way multiprocessor technology is also projected to be widely available. Furthermore, the "know-how" to assemble from commodity parts computers that can perform in excess of the present control thresholds is currently widely available.

Indeed, it is forecasted that foreign computer manufacturers will sell in 1999 over 20,000 eight-way configurable computers, over 120,000 four-way configurable computers, and over 650,000 two-way configurable computers. Many of these systems will be able to perform above the current 2,000 MTOPS control threshold.

This foreign availability and capability must be considered when formulating an effective multilateral (or unilateral) computer export control regime.

As computer technology advances and is spread around the world, the installed base of computers that can perform above current export control thresholds will continue to grow. There is presently a large overseas installed base of servers and workstations, many of which either perform close to or above the current export control thresholds. The following chart illustrates this increasing foreign installed base.

By the end of 2000, it is forecast that over eight million multiprocessor servers and workstations will have been sold overseas by U.S. and foreign computer manufacturers. It is also forecast that by the end of 2000, over one million computers that can be configured with up to four microprocessors will have been sold overseas. Most of those computers will operate above the present computer export control thresholds or can be easily upgraded with the latest most powerful commodity microprocessors to perform above those levels.

Accordingly, the large installed base of computers outside the United States cannot be ignored when formulating a multilateral (or unilateral) computer export control regime. The larger the installed base -- the more difficult it is to implement an effective export control system.

IV. Immediate Action Needed to Keep Pace With Technology

Currently, the export control threshold for computer systems is 2,000 MTOPS for the most sensitive destinations, that is, the so-called Tier 3 countries. Over the next twelve months the performance level of commodity computers will reach 12,300 MTOPS. These computers will be widely available in large volumes in world markets and manufactured and sold by numerous foreign (non-U.S. capital affiliated) companies.

These computers and their components will also be distributed and sold through both direct and indirect channels, such as third-party resellers, retail stores, as well as by phone and through the internet. There are also multiple alternatives to service by the original manufacturer, and they are small enough to be easily shipped. Since components are widely available around the world, 8 microprocessor systems can also be easily assembled by third parties. Thus, it is imperative that the current control threshold be raised to 12,300 MTOPS.

V. Export Control Exemption for Commodity-Level Computers

There is a growing consensus that the current export control system for computers is heading for a serious collision between controls and commodity products that cannot be effectively controlled. A new export control system needs to be designed to take into account the substantial technology and market changes that have occurred, and will continue to occur, in the worldwide computer industry.

The current export control system for computers was designed for an industry and technology that resulted in the manufacture and sale of thousands of computers, and for a time when the U.S. computer industry controlled the market. The current system is not capable of working effectively when worldwide sales are in the hundreds-of-thousands, and when there are numerous foreign competitors.

Under these circumstances, the most appropriate and most effective export control system from a national security as well as a national economic perspective is one that is based on drawing the line between computers that are commodities and those that are not. Commodity computers are simply beyond the reach of effective controls.

The goal of a commodity-based export control system would be to use a range of criteria to arrive at what constitutes the performance level (MTOPS) for a commodity computer. In order to keep pace with changes in technology and market forces, the commodity determination should be made frequently and at set intervals (such as every six months). The determination should also be conducted in a prospective manner, in other words, looking forward over an upcoming time period, such as 180 days, rather than looking backward.

In addition to these scheduled determinations, the regulations should provide for an "as-needed" review. When technology and market forces move faster than can be anticipated by the biannual review process, U.S. computer manufacturers should be able to request an out-of-cycle review.

The principal criteria should beó

If it is determined that 100,000 or more of all computers configured for a certain number of microprocessors are manufactured and sold worldwide and that foreign companies are capable of manufacturing and selling such computers, the level of performance (MTOPS) would be determined by calculating the MTOPS level using the performance of the highest performing microprocessor deemed to be mass produced. (This formulaic approach is necessary to prevent discrimination between similar and competing products that are not identical.)

Other attributes that might be considered include: (1) distribution and sales channels (the ability to purchase the computer and/or its components through third-party resellers, retail stores, as well as by phone and through the internet); (2) service and maintenance (there are alternatives to using the manufacturer); (3) ease of transport; or (4) ease of assembly (because of the worldwide availability of components, a user could by-pass the manufacturer and assemble a computer capable of providing essentially the same level of performance).

The basic principles behind a commodity computer export control exemption should also apply to microprocessors and other microcircuits. The computer industry and the semiconductor industry are interdependent and mutually supportive. As I have described, microprocessors are sold worldwide in high volume and through thousands of distribution channels, placing them beyond the reach of effective controls.

For any microprocessor exemption to be workable, fair, and consistent with current U.S. export control policy, several principles should apply:

There is growing support for a commodity-based export control system for computers and other information technology, including microprocessors. CCRE believes that the Administration should on its own initiative take regulatory action to implement immediately a commodity exemption for computers, microprocessors, and other microcircuits.

CCRE would support a grant of authority to implement a commodity exemption in the reauthorization of the Export Administration Act. However, we should caution against specifying too much detail in legislative language in light of the unpredictable and quickly changing nature of technology development.



Home | Menu | Links | Info | Chairman's Page