FAIRCHILD DEAL FAILURE SEEN MAKING JAPANESE WARY Schlumberger Ltd's <SLB.N> decision to end an agreement in principle for Fujitsu Ltd <ITSU.T> to buy 80 pct of its <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.