STATEMENT OF GARY P. ARNOLD, VICE PRESIDENT, NATIONAL SEMICONDUCTOR CORP. ON BEHALF OF SEMICONDUCTOR IN DUSTRY ASSOCIATION Mr. ARNOLD. Mr. Chairman, my name is Gary Arnold. I am vice president and chief financial officer of National Semiconductor Corp. I am here today representing the Semiconductor Industry Association, which is comprised of 55 member companies. We want to express our very strong support for the legislation which is the focus of this meeting, S. 738, which would make that credit permanent. Although it is not the thrust of my comments today, we would like to express our support for S. 1194 and S. 1195. The U.S. Semiconductor Industry has been a world leader in semiconductor products both in terms of technology and market share. However, competition in both the United States and the world markets among semiconductor manufacturers is intense and is focused primarily between U.S. companies and their foreign competitors. In order for us to meet this competitive challenge and maintain our position in the world semiconductor and and high technology markets, we feel that the preservation of this credit, making the R&D tax credit a permanent fixture, is imperative. A House committee report at the time the research and development credit was put in place recognized that there had been a deterioration in the level of expenditures for research and development in U.S. industry. They felt very strongly at that time that this credit would in fact stimulate further expenditures in research and development areas. It is our position that it has been a significant contributing factor to the increased levels of research and development expenditures in the high technology and, more specifically, in the semiconductor industry. I know at National Semiconductor we have increased our research and development expenditures consistently over the last 8 years, going from a level of about $24 million, in 1976, to an approximate spending level in our fiscal year ending next week of $112 million. We have increased our expenditures on research and development in spite of having experienced the two worst profit years in our history, and we will continue to do so. I would not lead you to believe that the research and development credit is the single most important item in stimulating those expenditures, but, however, it is a very critical, very helpful element in our decision process. As I mentioned before, our primary competitive threat, and I think we are all aware of how formidable that is, is the Japanese industry, and as my associate here pointed out, we are seeing the competitive threat in other jurisdictions. We recently had a company nationalized in France, and the commitment of the French Government to the development of the semiconductor industry is in the billions of dollars. In order for us to maintain a competitive position in the world marketplace, we need such stimuli as research and development. I was not aware until last night that the administration was proposing only a 3-year extension. I would suggest that a 3-year extension would fail to recognize the realities of the necessity for our continued dedication to research and development expenditures throughout the rest of this century, and it would result in us being back here in 1985 asking for a further extension of it. The planning cycles in our industry more typically are 3 to 5 years out, and we need the certainty of the availability of that credit for an extended period of time. Thank you for your attention. Senator DANFORTH. Thank you, Mr. Arnold. Mr. Considine? [The prepared written statement of Mr. Arnold follows:] TESTIMONY OF GARY P. ARNOLD VICE PRESIDENT NATIONAL SEMICONDUCTOR CORPORATION On Behalf of SEMICONDUCTOR INDUSTRY ASSOCIATION Before the Senate Finance Committee Subcommittee on Taxation and Debt Management May 27, 1983 SUMMARY OF PRINCIPAL POINTS OF WRITTEN TESTIMONY The U. S. Semiconductor Industry The U. S. semiconductor industry has been the world leader in semiconductor products both in terms of technology and market share. However, competition in both U. S. and world markets among semiconductor manufacturers is intense and is focused primarily between U. S. companies and their foreign competitors. In this competition, the development of new products and process technologies is critical to a degree that is perhaps unique when compared to other industries. The R&D Tax Credit Must Be Made Permanent to Ensure the The Semiconductor Industry Association (SIA) very strongly supports S.738, which would make the R&D tax credit permanent and indeed making the R&D credit permanent is the number one tax legislative priority of SIA members in this Congress. - - The reasons behind the original enactment of the R&D credit promoting economic growth, productivity gains and U. S. competitiveness in world markets continue to exist today and will grow in importance throughout the balance of this century. In the high technology industries, the need for massive investments of capital resources in R&D activities never has been more evident. We face a formidable competitive threat from the Japanese and European high technology industry which has access to massive government subsidies. The R&D tax credit has been effective as a stimulus to increase R&D activities. For our fiscal year ending May 31, 1983, we will have expended approximately $112 million on R&D activities in the face of the worst profit performance we have realized over the past 16 years. The availability of the R&D tax credit certainly was an element in our consideration of these expenditures and will continue to influence our planning of future R&D expenditures. My name is Gary P. Arnold. I am Vice President of National Semiconductor Corporation, headquartered in Santa Clara, California. National is an independent semiconductor manufacturing company with annual sales currently of well over $1 billion per year. I appear before you today representing the 55 companies of the Semiconductor Industry Association (SIA). Our purpose today is to voice our very strong support for S.738 which would make the R&D credit permanent. Making the R&D tax credit permanent is our number one tax legislative priority in this Congress. In addition, we also support the concepts of the tax incentives embodied in S.1194 and S.1195 to encourage private support of scientific education and university basic research. But first, I would like to take a moment to describe for you the current state of the semiconductor industry. The U.S. Semiconductor Industry The U.S. semiconductor industry has been the world leader in semiconductor products both in terms of technology and market share. However, the recent recession in the United States has seriously eroded the sales and, in particular, the profitability of these U.S. companies. We now are at a time when the position of the U.S. industry is already under a |