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tumors with a heating process, eliminating in many cases the need

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technology for voice and data, which has both national security

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technology which enables a widely diverse

a widely diverse group of people to

share a limited transmission capacity whenever they wish, thereby

bringing the cost of these services within reach of a vast number

of users.

Mr. Chairman, we

we appreciate that the question before

the committee is: "Does the R&D tax credit work?

Does it

encourage companies to undertake research and development efforts which it would not otherwise undertake?" The answer from M/A-COM is a resounding "Yes!!"

The credit has been in effect for only two years; yet

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regardless of the presence or absence of the credit, but that is

not the question.

What has happened is that a "tilt" has been

created in favor of expanding our effort at a more rapid rate, just as you intended when you enacted the credit. It is too soon

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and the additional dollars we spent on R&D. I can, however, offer some specific observations on particular M/A-COM R&D

efforts which were affected by the credit.


Since the credit was enacted, M/A-COM has made decision to intensify its research in gallium arsenide (GaAs), a

material which could be used with

with or in place

in place of silicon


semiconductor components.

Within the last year, we have made the

commitment to acquire a $20 million facility to house this research and the manufacturing that results, and we will, of course, equip and populate it to the tune of many millions more.

The presence of the credit made it much easier for us to commit

to this level of effort, even though it represents an outlay far in excess of any we could expect to recover from the credit for years to come.

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Our GaAs effort is a long-term program.

Decisions we make today will influence our company for decades to come. With that in mind, it is obvious that no such decision is made solely

on the basis of the credit.

On the other hand, this investment

represents a major risk of assets for us.

The willingness of the

government to recognize that risk through the credit is no small

factor in our willingness to undertake it.

There is one other thing I should mention about GaAs.

It represents one of the technological areas in which the United

States does not enjoy clear technological superiority over our

trading partners, including Japan.

Perhaps the safe play for us

would be to stay in an area where we already have the head start.

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technological competition in which the outcome is not assured, we

multiply our risk.

We believe that this is precisely what you

wanted us to do when you enacted the credit, and we are doing it.

There are other fields in which the United States does

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From M/A-COM's perspective, this is very

important to our

our corporate growth.

Because we

are competing

vigorously in the international market and selling this equipment

in other countries, we are benefiting 0.s. trade balances. Digital satellite equipment requires sophisticated R&D, and we are committing our funds more readily than we might have done in I have spoken at some length of the impact on our corporate thinking that the credit has provided. Let me give you a few figures to illustrate what it has meant to us financially.

the absence of the tax credit.

In fiscal year 1982, based on total sales of $587 million, we had

about $15 million of tax-qualified R&D.


1981 we had about

$8.3 million in tax-qualified R&D, and in 1980 we had about $5.7 million. This gave us a tax credit for 1982 of about $1.6

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approximate; we haven't yet filed our fiscal 1982 tax return.


addition, there is a substantial difference between tax-qualified

R&D and the R&D calculated according to financial accounting principles; I will return to this point in a moment.

The $1.6 million tax

credit is not a massive sum of

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money for a company with sales of $587 million. profitability standpoint, however, we consider


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significant--nearly 48 of our profits of $41 million, or about 4

cents per share of common stock. Moreover, it is a sign to our management team that the policymakers in Washington do care about stimulating technological development. To us, it is significant

that the tax credit has created an atmosphere that is favorable

to R&D; in the long run, this is more important than the specific

dollar effects.

I would like to address briefly a problem we have

encountered in implementing the credit.


financial people

have been uncertain as to the precise value of the credit to our

company because the Department


the Treasury,

rather than

accept the Financial Accounting Standards Board definition of

R&D, has chosen to create a new definition of its own for tax

purposes. While we understand and are sympathetic to Treasury's concerns that the credit not be abused, it is our feeling that we

are liable to a long series of audit disputes and uncertainty

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difficulties are not so great for us that we are not using the

credit; however, I suspect that a number of smaller companies, who do not have our expertise, will experience proportionately

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approach and not make full use of the credit,

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demonstrate that the R&D tax credit has been doing exactly what

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companies like M/A-COM to redouble our research and development


Our message to you is simple: in order to retain and

enhance this atmosphere that encourages corporate R&D, we suggest

that you make the credit a permanent part of the tax code.

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projects and can

best prosper in an environment

an environment of long term

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nature; long

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