Commerce Dept. Official Accuses Firms of ‘Predatory Pricing’ : Japan Warned on Semiconductors
A sharp drop in the price of some Japanese semiconductors has provided new ammunition for the troubled U.S. semiconductor industry in its trade dispute with Japan and prompted a top Commerce Department official to issue a warning to that nation.
Apparently responding to complaints from Intel Corp., the Santa Clara, Calif.-based semiconductor giant, Commerce Under Secretary Lionel H. Olmer, speaking in Tokyo, accused Japanese chip makers of “predatory pricing” in the only remaining category of semiconductors not already dominated by manufacturers from Japan.
Olmer’s remarks came in a speech in which he declared that Japan has accepted a U.S. demand for a change in Japan’s “business culture.” He said it presaged a “fundamental alteration of our relationship” with Japan and characterized it as a major accomplishment of the Reagan Administration.
But the flap over semiconductors after relative calm in that trade arena spelled new difficulties. Intel officials have charged that there has been a virtual “free fall” in prices for Japanese EPROM semiconductors in “the last few months, especially the last few weeks.” Analysts said that Japan might have targeted that key market after demand weakened in other segments of the industry that it already dominates.
EPROM is a type of semiconductor that was invented by Intel in 1971 and is used in many products, including personal computers, that need memory devices that can be programmed by customers. The market grew from $500 million in 1982 to $1.1 billion last year, grabbing Japan’s attention.
Olmer, a one-time executive at Motorola, a major U.S. semiconductor maker, characterized the pricing policies on EPROM chips from Japan as evidence of a major trade problem developing. Due to enter a private law practice later this month, he has been one of the Reagan Administration’s most severe critics of Japan.
The flap comes at a time when U.S. semiconductor firms are reeling from the computer industry slowdown, collapsing prices and inroads by Japanese manufacturers. Olmer was in Japan to again urge leaders to make their home market more accessible to U.S. products, especially in electronics and telecommunications.
The latest sign of the semiconductor slump came Monday when National Semiconductor, also of Santa Clara, announced that it was laying off another 1,300 people and canceling plans for a new wafer factory in Oregon.
Top semiconductor executives were holding an industry meeting in Florida and couldn’t be reached for comment on Olmer’s warning. But a spokeswoman at Intel confirmed that the company has met with the government about the EPROM situation and said that the company was reviewing “all sorts of options.”
“It’s a particularly important market for Intel,” spokeswoman Glynnis Kaye said. “We invented it, and it’s the only major product area (the Japanese) don’t control. It’s like an island.”
One option for U.S. manufacturers would be to file an anti-dumping complaint. Dumping is the selling of a product at less than its manufacturing cost. Intel officials said they aren’t currently making that accusation, and the Commerce Department said Olmer wasn’t, either.
“He was saying that Japanese prices are dropping more sharply than the normal experience curve indicates,” a Commerce official said, referring to the decline in prices that can normally be expected with increases in production. This official also said that Olmer was hoping to resolve the problem without legal action.
A recent analysis by Hambrecht & Quist, a San Francisco brokerage house, found that Japanese firms, led by Hitachi, Fujitsu and Mitsubishi, are among the top five producers of EPROM chips. The study said: “Advanced Micro Devices and Intel appear to be the only U.S. companies well situated to compete.”
The analysis also warned of severe factory overcapacity in Japan that will lead to steep price cuts in semiconductors. It added: “Semiconductor trade issues, which were relatively dormant in the last year, could resurface if the Japanese suppliers push for an aggressive export effort.”
Despite the latest quarrel, Olmer claimed major progress on the broader trade front.
“Since the end of World War II,” he said, “we’ve operated on the premise that ‘national treatment’ should be the underpinning philosophy that guides us”--specifically, that American companies exporting to Japan or operating here should receive the same treatment that Japanese companies get in Japan.
In telecommunications and in electronics, however, “we’re asking for more than that,” he said, adding, “We’re asking for reciprocal treatment, not national treatment. We’re asking for Japan to treat Americans in Japan as Americans treat Japanese in the United States.”
Olmer recalled an uproar that Commerce Secretary Malcolm Baldrige created in Japan three years ago when he said that Baldrige was misquoted as saying that “the Japanese need to change their culture.” In fact, Olmer said, new U.S. demands and commitments already made by Japan involve changing the business culture of Japan.
He warned that “the time left for delay” by Japan in opening its markets has shrunk as the U.S. bilateral trade imbalance has expanded, from $12 billion in 1980 to $36.8 billion last year.
He predicted that the U.S. trade deficit with Japan will approach $50 billion this year.
Donald Woutat reported from Los Angeles and Sam Jameson from Tokyo.
