FAIRCHILD DEAL FAILURE SEEN MAKING JAPANESE WARY

  Schlumberger Ltd's &lt;SLB.N> decision to
  end an agreement in principle for Fujitsu Ltd &lt;ITSU.T> to buy
  80 pct of its &lt;Fairchild Semiconductor Corp>, and the political
  furore that surrounded the proposed sale, will make Japanese
  companies more cautious in their efforts to acquire U.S. High
  technology firms but will not halt such attempts, industry
  analysts said.
      The collapse of the deal will not be a critical blow to
  Fujitsu but it will boost the cost of future U.S. Expansion by
  the Japanese firm, said analysts polled by Reuters.
      "The acquisition of Fairchild is not essential to Fujitsu's
  North American operations, but it would have been a great
  boost," James Capel and Co analyst Tom Murtha said.
      French-controlled Schlumberger said yesterday it was ending
  the agreement because mounting political controversy in the
  U.S. Made it unlikely that the sale of the Fairchild stake
  could be completed in a reasonable time.
      The sale was opposed by the U.S. Commerce Department and
  Defence Department, partly on national security grounds.
      Fujitsu's acquisition of Fairchild would have given the
  Japanese computer maker control of a comprehensive North
  American sales and distribution system and access to
  microprocessor technology, an area where Fujitsu is weak,
  analysts said.
      The deal would also have given Fujitsu 14 additional
  microchip production facilities worldwide, eight of them in the
  U.S., A report by the Capel firm said.
      "It was an entry point, a port for semiconductors and a
  marketing channel for other things," said Barclays de Zoete Wedd
  analyst Rick May.
      Several analysts said the purchase would not have given
  Fujitsu access to critical defence technology.
      "(Fairchild) simply doesn't have key technology -- that's a
  thing of the past," May said.
      The failure could be a blessing in disguise for Fujitsu as
  it might have had to spend several hundred million dollars to
  modernise Fairchild's production lines, Capel's Murtha said.
      The failure of the deal will doubtless encourage Japanese
  firms to take a lower profile in attempts to acquire U.S. High
  tech firms but they are unlikely to stop, analysts said.
      Most analysts said Fujitsu was likely to go the more costly
  route of expanding its own production and distribution
  facilities in the U.S., Although some said it could use the
  estimated 200 mln dlrs set aside for buying Fairchild to try to
  acquire some less politically symbolic firm.
      "It may slow the pace of Japanese acquisitions, but the
  necessity of expanding their production and design capacity in
  America remains," said Capel's Murtha. "The Japanese will
  continue to shop for bargains, but it will be harder to find
  ones that are politically acceptable."
      Japanese firms are likely to favour joint ventures or
  smaller equity stakes in firms to avoid the political backlash
  that blocked the Fairchild sale, analysts said. "They're not
  going to slow up, they're just going to buy smaller pieces ...
  Because of the political risk," said Barclays de Zoete's May.
      Several Japanese firms have already taken 10 to 30 pct
  shares in smaller U.S. High technology firms such as super
  minicomputer makers, he said.
      Opposition of the sort that blocked Fujitsu could end up
  harming U.S. Firms and undermining a trend toward multinational
  tie-ups, some analysts said.
      "This is not really of benefit to U.S. Firms either," said
  Jardine Fleming (Securities) Ltd analyst Nick Edwards. "The
  pooling of resources in semiconductors is a positive move --
  why should the government step in to prevent it?"
      Japan's Minister of International Trade and Industry Hajime
  Tamura told a press conference that interference by U.S.
  Government officials in the Fairchild deal was inappropriate.
      "This is entirely a private sector matter and not a matter
  for governments' comment," Tamura said. "I think it was improper
  for U.S. Government officials to intervene to the extent they
  did," he said.
      A spokesman told Reuters the ministry's view is that
  international investment flows ought to be free and that such
  flows are of increasing importance in line with the growing
  closeness of U.S.-Japanese economic ties.
  

