Japanese rein in chip output

Press, 1 December 1987, Page 54

Japanese rein in chip output

By LINDA SIEG of Reuters (through NZPA) Tokyo “Once burned, twice shy” could well be the current motto of Japan’s major makers of computer microchips. Once saddled with vast overcapacity when their optimistic forecasts were betrayed by a market slump, the companies are approaching a recovery with caution. “Last time we thought the future looked too rosy,” said a spokesman for Hitachi. “We. invested too much and when the recession came, we suffered. Because of that experience, we won’t do the same again.” Wisdom born of experience is not the sole reason for the chipmakers’ caution, according to industry analysts. A 1986 United StatesJapan pact on semiconductor trade under which Tokyo pledged not to sell chips at below cost is also likely to rein in Japanese output and investment plans, they say. Because of the pact, the Ministry of International Trade and Industry (MITI) is closely monitoring chip exports and output and watching investment plans. “MITI has entered the ball game and when MITI enters, they don’t leave,” said Mr Jon Joseph, an analyst with merchant banker Shearson Lehman Brothers Asia. “Exports are now strictly controlled so it is not possible to sell cheaply overseas,” said an official at a leading Japanese chip maker. “If there is an oversupply which results in price declines, trouble with the United States would increase, so we must have prudent production plans.” Washington says Japan is no longer selling chips at below cost. It has lifted SUSI3S million (5NZ217.35M) worth of the SUS3OOM (SNZ4B3M) in trade sanctions it placed on selected Japanese exports last April because of Tokyo’s alleged failure to honour the pact. The remaining sanctions relate to American demands for greater access to the Japanese chip market. At present Japanese chipmakers are boosting output to meet growing demand spurred by the upturn in and United States markets.

The higher output also responds to a chip shortage created when earlier cutbacks, urged by MITI to help dry up the source of cheap chips for export, clashed head-on with a recovery in world demand, company spokesmen and analysts say. For the moment, the higher output is being matched by healthy demand. But an oversupply could emerge if the American economy turns down sooner than expected as a result of the collapse of world stock markets last month, analysts predict. “If demand stays at the same level, the market will be able to absorb the additional Japanese output. But there is obvously a cause for concern,” said Ms Carole Ryavec, an analyst with the investment house, Salomon Brothers (Asia). Japanese chipmakers do not foresee an oversupply in the near-term. "The increased production is to meet demand,” the Hitachi spokesman said. “It looks as if personal computers are driving the recovery, but really it is more fundamental demand related to infrastructure, such as telecommunications. “So even if consumer spending declines, we do not expect a downturn in the semiconductor market.” Despite their relative optimism, major Japanese chipmakers are not planning to repeat the vast increases in capital spending seen in 1984-85. NEC Cp says it plans to invest 40 billion yen (SUS296M) in the year to March, 1988, the same amount as last year. Toshiba says it plans to invest 30 billion yen (SUS222M), compared with 53 billion (SUS393M) the previous year. Hitachi and Mitsubishi plan moderate increases while Fujitsu will boost spending to 32 billion yen (SUS237M) from an original plan for 26 billion (SUSI93M), company spokesmen said. Much of the spending will be to upgrade existing plant, create more capacity for high-demand onemegabit dynamic random access memory (DRAM) chips, prepare for mass production of the next generation four-megabit DRAM, or boost capacity for specialised chips such

as ASICs (application specific integrated circuits), they said. The relative Japanese restraint also reflects heightened awareness that semiconductor demand is cyclical — that lean years inevitably follow the fat. “The semiconductor market has repeatedly gone through the 'silicon cycle’ of boom and bust,” said a report by the Electronics Industries Association of Japan. “It is therefore desirable for the semiconductor producers to base their plans regarding facility expansion and production levels on careful, well-founded projections of the world demand.”