Japan Eases Production Curb on Computer Chips

Japan’s trade ministry has given the go-ahead for Japanese makers of computer memory chips to increase production levels, a move that is eliciting sighs of relief from customers in the United States.

The Ministry of International Trade and Industry issued new production guidelines on Wednesday allowing a 10% increase in production of 256K D-RAMs and EPROMs, two mass-produced kinds of memory chips, and a nearly 50% increase in output of 1-megabyte D-RAMs, the new generation of dynamic random-access memory chips.

“We’re glad to see this,” said Ralph Thomson, vice president of American Electronics Assn., a trade group whose members are major users of the chips. Thomson said that at a meeting last week of American Electronics Assn. members, the predominant concern was the availability of such chips.

In both the United States and Europe, fears of computer-chip shortages have increased since spring, when the Ministry of International Trade and Industry issued the first of two cutback orders that resulted in a 20% reduction in Japan’s memory-chip output. The production cutbacks were designed to help enforce a chip trade agreement with the United States.

Expected to Restore Balance

The relaxation of the production cuts, say industry observers, will restore some balance to the market. “This will reduce the customers’ anxiety,” said Victor deDios, a memory-chip analyst at Dataquest, a San Jose-based market research firm.

The ministry said the cutbacks would help drive up prices for the chips and dry up a “gray market” that had been flourishing, especially in the Southeast Asian countries, where the chips are widely used in the manufacture and assembly of computers and other electronics goods. Indeed, earlier this month, the United States cited improvement in pricing when it eased trade sanctions that had been imposed on Japan in April for failure to comply with the trade agreement.

But the cutbacks also created a tight supply in the United States and Europe. The Japanese ministry’s cutback orders came just as the personal computer industry was spurring an upturn in demand for chips. An official of Hitachi, one of Japan’s biggest chip makers, said that at the end of March, demand was so strong that the company was taking orders for chips it wouldn’t be making until this year’s fourth quarter.

Some customers feared a real shortage and some began “hedge” buying--that is, ordering more than they actually would need, sometimes from several manufacturers and distributors. At the American Electronics Assn. meeting, Thomson said, member companies “were talking about hedge buying. A few even mentioned panic buying, and that’s bad. That’s deja vu . That’s 1984 redux ,” he said, referring to unrestrained buying by chip users in 1984.

The 1984 buying patterns--keyed to overestimates of growth in personal computer sales--led to massive buildups in production capacity, bloated inventories, pricing wars and, eventually, an industrywide recession from which most chip makers are just now recovering. Fears of a repeat experience were voiced by many in the industry when the Japanese ministry first announced that it was “suggesting” the cutbacks.

The few American and European firms still making memory chips have profited from the tight supply. Dataquest’s DeDios estimated that Japanese companies, which last year held 82% of the worldwide market for 256K D-RAMs, will close the year with a 62% share.

But non-Japanese companies can no longer increase production to meet the gap caused by the Japanese production cutbacks, DeDios said. Even with the relaxing of the ministry’s guidelines, he predicted, monthly production of the 256K chips will lag behind worldwide demand by about 5 million to 6 million units, or about 10%.

The Semiconductor Industry Assn., a U.S. trade group, had objected to the reduction in production levels, contending that it was not the best method of implementing the semiconductor trade agreement.

“In April, we said these production quotas threatened to create artificial shortages,” Sheila Sandow, an SIA spokeswoman, said Wednesday. “We have to get back to the objectives of the trade agreement, to end dumping and open their markets.”