Chip Shortage Strains Computer Makers

Times Staff Writer

At a time when many computer manufacturers are enjoying strong orders, a worsening shortage of key memory chips is taking some of the wind out of their sales, delaying production and deliveries of their equipment.

The shortage, which has become serious in the past 60 days, has driven up prices of certain kinds of memory chips and, in turn, forced some personal computer makers to raise their prices.

"We would be shipping more computers and selling more" if chips were in ample supply, said Michael Morand, senior director of systems marketing for AST Research, an Irvine computer company. "This is coming at a really bad time for the industry."

AST blamed higher chip prices for price increases of 10% announced Tuesday on its personal computers and printers. AST is telling its customers that they will have to pay a premium for quick deliveries.

"We're telling customers we can sell them a $5 chip set for delivery in December or a $20 chip and give it to you tomorrow," said AST's Morand.

Due to Several Factors

The chip shortage has been particularly troublesome to companies that employ "just-in-time" production methods, in which manufacturers reduce inventory costs by having supplies delivered on an as-needed basis.

The shortage also has hurt small companies more than large ones. Small companies generally don't have the buying power of large firms, which usually get priority from their suppliers when parts are scarce.

Industry observers, who were at a loss to predict how broad the effects of the chip shortage will be, blame the shortfall on several factors.

Some point to strong sales of increasingly powerful computers, which use more memory chips than less sophisticated models. Meanwhile, computer chip manufacturers are shifting production to a next-generation chip, but the changeover has taken longer than expected.

Others place part of the blame on a 1986 U.S.-Japan semiconductor trade pact, which was aimed at helping U.S. chip makers compete with Japan. The Japanese Ministry of International Trade and Industry, or MITI, responded by ordering cuts in production. By some accounts, Japanese semiconductor makers also have responded by supplying a bigger share of their chips to Japanese, rather than U.S., manufacturers.

"The trade agreement and some of MITI's influence have affected the shortage," said Victor de Dios, an analyst with Dataquest, a San Jose market research firm. "But the combination of various economic and business decisions" by chip manufacturers and computer companies is the more immediate cause.

The most serious shortage is for dynamic random access memory, or DRAM, semiconductors, the most widely used computer memory chips. Semiconductors are used to store and process information in computers and other electronics products. DRAMs, in particular, handle short-term memory.

Japanese companies produce more than 75% of the DRAM chips sold worldwide.

"The current demand is seriously outstripping supply," said Norman Neureiter, a vice president at Texas Instruments, one of two U.S. companies that manufacture DRAMs. Micron Technology of Boise, Idaho, is the other U.S. producer of DRAMs.

Texas Instruments and other semiconductor companies have been transferring production to a more sophisticated one-megabit DRAM, which handles 1 million bits of information.

Production Bugs

The one-megabit DRAMs are capable of storing about four times as much information as the 256-kilobit DRAMs they are replacing. Both the one-megabit and 256-kilobit chips have been in short supply worldwide.

Some semiconductor companies have been plagued by production bugs with the more powerful chip, which pack more memory into less space. "A small particle of dirt or dust on one of these denser chips can be a real problem," said a spokesman at one semiconductor company, who asked that his name not be used.

Dataquest forecasts "a general shortage" of DRAMs through 1988. The market research firm expects the shortfall for one-megabit chips to ease by 1988's third quarter.

"But we don't know when the shortage will improve for 256K chips," said analyst de Dios.

DRAM prices have increased between 100% and 150% during the past few months, said Chris Kryzan, marketing manager for Wyse Technology, a San Jose computer manufacturer.

According to figures provided by Dataquest, the average price for 256K DRAMs purchased under contract has risen to about $3.25 during the first two months of 1988, compared to $2 in 1987's first quarter. But so-called spot prices for the 256K chips have been as high as $7.50.

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