Concerns about Policies and Economics for High-Performance Computing

Steven J. Wallach

Steven J. Wallach is Senior Vice President of Technology of CONVEX Computer Corporation. For more complete biographical information, see his presentation in Session 3.

First, I would like to "take a snapshot" of the state of the supercomputing industry. I think today we certainly have leadership roles because the U.S. is the world leader in supercomputing. I think one of the key areas that people do not often talk enough about is in the area of application leadership. Even when you go to Japan to use a Japanese supercomputer, more than likely the application was developed in the United States, not in Japan. I do not think that I have heard this mentioned in other presentations, but this is a very, very important point. He who has the applications ultimately wins in this business. Also, we are establishing worldwide standards. If the Japanese or Europeans build a new supercomputer, they tend to follow what we are doing, as opposed to trying to establish new standards.

Those are some positive points. What are some of the negatives? Most of the semiconductor technology of today's supercomputers is based on Japanese technology. That is a problem because it is something that we do not necessarily have under our control.

What scares me the most is that for all U.S. supercomputing companies, other than IBM, supercomputers are their only business. They cannot afford to fund efforts for market share over a three-to-five-year period. For the Japanese companies—Hitachi, Fujitsu, and Nippon Electric

Corporation—the supercomputer business is a very small percentage of their overall business, and they are multibillion-dollar-a-year companies. If they chose to sell every machine at cost for the next five years, you would not even see a dent in the profit-and-loss statements of the Japanese companies. Personally, this is what scares me more than anything in competing against the Japanese.

In contrast, how does the U.S. work? We have venture capital. Some people call it "vulture" capital. When a product is very successful and makes a lot of money for its creators and inventors, that one success tends to bring about many, many "clones" that want to cash in on the market. We can go back in the late 1960s, when the minicomputer market started and we had Digital Equipment Corporation and 15 other companies; yet the only companies that really grew out of that boom that are still around are Data General and Prime. Almost everyone else went out of business.

The problem is that five companies cannot each have 40 per cent of the market, so there is a shakeout. This happened in the minicomputer business, the tandem business, and the workstation business; it certainly happened in the midrange supercomputer business.

Now let us take a look at government policy. Typically, the revenue of most companies today is approximately 50 per cent U.S. and 50 per cent international. This is true for almost every major U.S. manufacturer. At CONVEX Computer Corporation, we are actually 45 per cent U.S. (and 35 per cent Europe and five per cent other), but it is always surprising that 15 per cent of our revenue is in Japan. We have not found any barriers to selling our machines in Japan; some of our largest customers are in Japan.

In five years, when you buy a U.S.-made high-definition television (HDTV), it probably will have been simulated on a CONVEX in Japan. We have over 100 installations and literally zero barriers. The only barrier that we have come across was at a prestigious Japanese university that said, "If you want to sell a machine to us, that's great; we'll buy it. But when we have a 20-year relationship with a Japanese company, we typically pay cost. If you want to sell us your machine at cost, we will consider it." Now, if that is a barrier, then so be it. But personally, I say we have had no barriers whatsoever.

U.S. consumption, from CONVEX's viewpoint, is anywhere from 30 per cent to 50 per cent and is affected by the U.S. government directly or indirectly—directly when the Department of Defense (DoD) buys a machine and indirectly when an aerospace contractor buys a machine based on a government grant. From an international viewpoint, our export policy, of course, is controlled. The policy is affected by U.S. export laws like those promulgated in accordance with the Coordinating

Committee on Export Controls (COCOM), especially with respect to non-COCOM countries, such as Korea, Taiwan, and Israel. The key is that we now have competition from countries that are not under our control (such as Germany, Britain, and France), where there are new developments in supercomputers. If we were to try to export one of these machines, the export would be precluded. So I think we are losing control because of our export policies.

In the current state of government policy, government spending impacts revenues and growth. For companies like CONVEX, effects from government money tend to be the early adopters (universities, national laboratories, etc.). These institutions buy the first machines and take the risk because the risk is on government money. Sometimes proving something does not work is as significant a contribution as proving something does work because if you can prove it does not work, then someone else does not have to go down that path.

The other thing we find that helps us is long-term contracts. That is, buyers will commit to a three-or four-year contract with the government helping, via the Defense Advanced Research Project Agency (for example, through the Thinking Machines Corporation Connection Machine and the Touchstone project) and the NSF centers. The NSF centers have absolutely helped a company like CONVEX because they educated the world in the use of supercomputers.

One of the reasons we do very well in Japan is because Japanese business managers ask their engineers why they are not using a supercomputer, not the other way around. So we are received with open arms, as opposed to reluctance.

So where are we going? The term I hear today more and more is COTS, commercial off-the-shelf, especially in DoD procurements. Also, I think we have totally underestimated Taiwan, Korea, Hong Kong, and Singapore. Realistically, we have to worry about Korea and Taiwan. I have traveled extensively in these countries, and I would worry more about them than I would about the SUPRENUM and similar efforts.

The thing that worries me is that we Americans compete with each other "to the death" among our companies. Can the U.S. survivors have enough left to survive the foreign competition?

Another concern I have is about the third-party software suppliers. Will these suppliers begin to reduce the number of different platforms they support?

My last concern is whether the U.S. capital investment environment can be changed to be more competitive. In Japan, if a company has money in the bank, it invests some extra money to diversify its base. In Japan, the

price of stock goes up when a company explains how it is investing money for long-term benefit; because a lot of the stock is owned in these banking groups, earnings might be depressed for two years until the investments shows a profit. By contrast, in U.S. companies, we live quarter to quarter. If you blow one quarter, your epitaph is being written.

So what am I encouraging? I think we have to have changes in the financial infrastructure. Over half the market is outside the U.S., and we have no control—U.S. dumping laws mean nothing if the Japanese want to acquire our market share in Germany. So I think somehow we have to address that issue. My experience with Japanese companies is that in Germany they will bid one deutsche mark if they have to; in Holland, one guilder; but they will never lose a deal based on price. It can be a $20-million machine, but if they want to make that sale, they will not lose it on price. So, we must deal with the fact that U.S. dumping laws affect less than 50 per cent of the market.

One last thing in terms of export control: I personally think we should export our technology as fast as we can and make everyone dependent on us so that the other countries do not have a chance to build it up. One of the reasons we do not have a consumer electronics industry now is that the Japanese put the U.S. consumer electronics industry out of business. Now they are in control of us because we cannot build anything. The same thing, potentially, is true with HDTV. We should export it; let others be totally dependent on us, and then we will actually have more control because other countries will have to come to us.