Chip Price Hikes Give Boost to U.S. Firms

Big demand for personal computers with bargain-basement prices is driving up the cost of computer chips, giving a boost to U.S. manufacturers but raising the stakes for embattled PC makers, experts say.

Rising chip prices also stem from a preliminary Commerce Department decision to charge South Korean manufacturers with dumping memory chips on the U.S. market at unfair prices.

Computer industry analysts say prices for chips--the integrated electronic devices that operate software, determine computing speeds and provide for memory capacity--have surged by as much as 30% in recent weeks.

That’s good news for the U.S. companies that manufacture the products, such as world leader Intel Corp. or Texas Instruments Inc.

In fact, some analysts believe that the nation’s semiconductor industry could be about to experience its first back-to-back, double-digit growth since 1989, with U.S. revenue rising by 17% this year and by about the same margin again next year.

“That could be good for the industry,” said Lawrence Borgman, analyst at Josephthal Lyon & Ross Inc.

But experts also warn that higher computer-chip prices are making hard times harder for PC manufacturers that have been locked in a raging price war for more than a year.

Analysts say vicious competition in PCs will make companies such as International Business Machines Corp., Compaq Computer Corp. and Apple Computer Inc. reluctant to pass on higher costs to consumers.

But Jeff Henley at BIS Strategic Decisions predicts the biggest victims will be small PC makers that lack the financial resources to absorb higher costs.

“I would assume that it would help the brand players because they have the cash flow and they can afford to buy the chips even if they are higher,” he said.

While Korean manufacturers step back from the market to assess the Commerce Department’s ruling, PC makers have started to scramble for chip supplies to ensure their ability to meet orders.

The PC industry accounts for 15%-20% of worldwide computer chip consumption, and analysts say the result of the surge in orders has not only been higher prices, but shortages as well.

Prudential Securities analyst Mark Edelstone said PC sales will grow by 8%-10% this year, from 25 million machines in 1991.

Demand for cheap PCs has had its biggest impact on dynamic random access memory chips, or DRAMs, which have risen in price most quickly.