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Will the U.S. fall behind in tech?

Three fundamental concerns have Microsoft and Intel executives saying that the U.S. could soon cede its technological leadership

By David Kirkpatrick
FORTUNE.COM

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(FORTUNE.COM) -- At last week's Agenda technology conference, many in the audience pricked up their ears when Pat Gelsinger, Intel's chief technology officer and head of research, began passionately complaining on stage about U.S. technology competitiveness.

"Perhaps the current downsizing of the U.S. IT industry is not a temporary thing," Gelsinger said. "Maybe we are headed for becoming a second-class citizen in the world of IT." He mentioned China and India among countries he said were more committed to IT as a national priority than is the U.S.

It was shocking enough to many in the audience, including me, to hear Gelsinger's worries. But that night at a reception I found myself standing with both him and Craig Mundie, chief technical officer and strategist for Microsoft. I asked Mundie if he shared Gelsinger's fears, expecting a tepid endorsement or a mere statement of respectful disagreement. Instead, I got full-bore enthusiastic, even insistent, agreement. "If the U.S. cedes its leadership in IT there will not be a second chance," opined Mundie, with Gelsinger nodding approvingly.

What has top executives of arguably the world's two most important tech companies saying that the U.S. may soon cede its tech leadership? Three fundamental concerns: what both see as a disastrous diminution in national commitment to IT research and development, a dearth of engineering graduates, and the low penetration of broadband compared with other countries.

"We see a fundamental shift away from IT investment in the U.S.," Gelsinger had said onstage. Lamented Mundie that evening: "The percentage of gross domestic product spent on government-funded R&D is less than half what it was in the 1950s. In software R&D, Microsoft outspends the total Defense Department by a factor of three -- though its slogan is 'Military superiority through information superiority.'" I asked them if state-sponsored spending was really as necessary as it once was, given that the tech industry has grown so large and companies like theirs spend huge amounts on R&D themselves. (Last year Microsoft spent $4.3 billion, Intel $3.8 billion.) Not sufficient, they both replied, noting that government spending seeds university and corporate spending, even as it symbolically underscores national priorities.

Another worrier was Ray Bingham, CEO of the U.S.-based Cadence Design Systems, whose software helps automate design of sophisticated semiconductors, the heart of modern IT. "China produces 600,000 engineers a year and 200,000 of them are electrical engineers," he said in his presentation. By contrast, the U.S. last year granted 70,000 undergraduate degrees in electrical engineering and 37,000 graduate and doctoral ones. Compounding the problem: many U.S. graduates are not Americans and end up returning to their home countries. Last year 54% of engineering doctorates went to foreign students. Bingham added that the Chinese engineers "are being put in place so the semiconductor design of the future will take place there. If we continue not to invest ourselves, we're in trouble." Mundie, echoing this concern, noted that this year China will be opening 35 special software universities. "Yikes," I replied.

Then there's broadband Internet access. "As a company we're incredibly disappointed by the slow deployment of broadband," Intel's Gelsinger said. "Our national infrastructure is hideously behind what you're seeing in Korea and Japan and China and elsewhere." He continued, sarcastically: "Other countries didn't get the memo that beefing up the IT infrastructure couldn't contribute to economic growth." Gelsinger and others think broadband is critical because it is the platform on which powerful applications of the future will be developed, and because adoption will pull with it huge amounts of spending on hardware and software. He noted that the cost of broadband access in Japan is frequently much lower than it is in the U.S., even as services there deliver higher speeds.

All this led me to recall the first story I ever did as a writer on FORTUNE's computer beat, back in the June 17, 1991 issue, called "Who's Winning the Computer Race." It was a time of great hand-wringing on U.S. technological competitiveness, and I attempted a painstaking evaluation of who was ahead in six areas: processor design, software, data networks, optoelectronics, chipmaking equipment, and displays and printers. After talking to dozens of industry experts here and abroad, I concluded the U.S. would stay ahead in just the first three. Many then held views in line with those of Frank Carrubba, director of Hewlett-Packard Laboratories, who said, "We see the possibility of [the U.S.] losing ground rapidly and completely." Not much different from what Mundie and Gelsinger are saying today. But not long after my 1991 article, adoption of Windows 3.0 sparked a dramatic return to growth for the entire tech sector, a trend soon reinforced by the Internet explosion. The U.S. actually stayed strong in just about all the areas I wrote about back then.

So should we be worried? One could cynically argue that Intel, Microsoft, and Cadence talk this way because they would be among the big commercial beneficiaries of renewed government spending on technology. Regardless, it's apt that these executives are suddenly speaking out. Too little national attention is focused on the reality that technology is global, and that many, many countries see it as key to competitiveness. One thing that has changed since 1991 is the willingness of U.S. government to get involved. An increasingly tech-illiterate leadership in Washington has come to assume our long-robust private sector will keep us ahead. But if we were truly to fall behind in usage and development of IT, it would have deep consequences for jobs, economic performance, and our broader national standing as a global leader.



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