Japan’s Chip Makers Plan Major Outlays

Japan’s top 10 semiconductor companies will invest more than $3.2 billion this year in plant and equipment, nearly 40% more than 1987, figures from the firms show.

The increase marks a sharp turnaround from the past two years, when NEC Corp., Toshiba, Hitachi and other manufacturers held back capital investment. They feared a repeat of the excess supply that sent prices plummeting and ignited a trade feud with the United States.

But now, neither firms nor industry analysts are worried.

“The numbers sound alarming, but these companies have held down investments for the better part of three years. Equipment is old. There’s a lot of upgrading that needs to be done,” said Steve Myers, a Jardine Fleming Securities analyst.

“We’re being cautious not to overdo it,” a Toshiba spokesman said.

Toshiba is planning a $640-million investment, up 14.3%, making it the biggest spender.

Manufacturers, spurred by over-optimistic demand forecasts, built up capacity for 256-kilobit dynamic random access memory microchips, or DRAMs, in the mid-1980s. Prices plunged when demand fell short, leading to U.S. claims that the Japanese were unfairly selling below cost.

U.S. anger led to a 1986 pact under which Japan pledged not to sell microchips below cost and to provide American chip makers greater access to Japanese markets.

Tokyo’s alleged failure to honor the pact led Washington to slap 100% tariffs on selected Japanese electronics last April. Some tariffs have been lifted but those on personal computers and other products remain.

Expect Strong Growth

Japanese firms now say there is room for expansion even with an expected production increase by U.S. companies.

“We’re projecting double-digit growth for semiconductors in the mid-term, and we have to invest heavily for one- and four-megabit DRAM production,” a spokesman for Matsushita Electric said.

Matsushita Electronics Corp., in which Matsushita Electric holds a 65% stake with Dutch electronics giant Philips holding the rest, plans to more than double semiconductor capital spending in the year to March 31, 1989.

The rise will take investment to $416 million from $176 million a year earlier.

Toshiba said most of its investment was to boost output of one-megabit DRAM microchips. Toshiba already leads one-megabit DRAM production, churning out about 5 million a month.

Myers said the new investment would lead to a doubling of Japanese one-megabit DRAM output, an increase that would only bring supply and demand into equilibrium.

He said strong demand for microchips in computers, facsimile machines and other products meant there was no chance of a new excess supply.

Slowdown Forecast

Companies are likely to continue boosting investment, spending an additional 15% to 20% next year to prepare for production of four-megabit DRAMs, expected to come into widespread use by 1991.

A note of caution, however, came last week from the World Semiconductor Trade Statistics Japan Council, which forecast that while global demand would rise 30.1% in 1988 to $42.3 billion, growth in 1989 would only be 3.9%.

A slowdown could create another period of excess supply in an industry whose demand peaks often coincided with Olympic years, one company spokesman said.

But others were more bullish, saying that the WSTS forecasts, based on data from semiconductor makers, underestimated demand.