Yen’s Strength Could Bruise PC Industry : Computers: Memory chips made in Japan now cost as much as 20% more, biting into the profits of U.S. distributors.
A stronger Japanese yen is boosting the cost of computer memory chips by as much as 20%, cutting into profits of Southern California parts distributors and threatening to interrupt the price declines that have typified the personal computer market.
In dollars, the prices for memory chips from Japanese companies such as Toshiba Corp. and Hitachi Ltd. have risen as much as 10% in recent weeks. By the time those hikes pass through brokers and vendors, the increases to consumers upgrading their computers could be twice that.
For example, the retail price of a typical set of 4 megabytes of memory could climb $34--about twice the increase to wholesalers. That would raise the price to consumers from $170 per set to $204.
The higher costs come at a time when the growing complexity of software programs requires ever more memory. Microsoft Corp.’s long-awaited Windows 95 operating system is expected to require twice as much memory--8 megabytes--as its current Windows version to run properly on most personal computers.
In the industry, the rising value of the yen has its biggest impact on memory chips because Japanese companies control 40% of that market.
“The prices aren’t going to go down until the yen does, and I don’t think that’s going to happen,” said Rob Reed, president of Memory International Inc., a privately held distributor in Irvine.
Industry analysts say much of the price increases that would affect complete computer systems will be absorbed by computer manufacturers because of competition and expected declines in the costs of other components, such as hard disk drives.
But consumers looking to upgrade their computers will feel the full effect of the hikes.
Southern California parts distributors, which supply retail outlets and computer assemblers, normally would have welcomed an increase in demand for memory chips. But because of the stiff price increases, they have seen a fall-off in sales that they worry will hurt their bottom line.
“Customers have a hard time whenever prices go up,” Reed said. “They’re holding off because they always think the prices are going to go down next week.”
His company has raised prices on the memory chips it sells by 15% to cover the higher prices charged by manufacturers and the resulting decline in orders. Customers who stopped buying in the expectation that prices would decline again are only slowly beginning to order chips again, Reed said.
Simple Technology Inc. in Santa Ana, another distributor, expects to boost its prices by 10%.
“We don’t want to be susceptible to the wild fluctuations in the broker market, and we want our customers to be able to rely on a constant supply of memory at a reasonable price,” said Manouch Moshayedi, the company’s chief executive.
Memory chips are less glamorous than their better-known cousins, microprocessor chips. Microprocessors, such as the well-known Pentium made by Intel Corp. of San Jose, are the heart of the computer, carrying out the complex instructions contained in computer programs.
In contrast, the chips known as dynamic random access memory chips, or DRAMs, merely store information until it can be used by the microprocessor.
But memory chips are just as crucial in today’s personal computers, and their prices are more volatile because the market is more competitive than it is for microprocessors. In addition to the Japanese firms, several South Korean companies, particularly Samsung Electronics Co., have built their own chip plants in recent years.
The growing influence of Samsung, the world’s largest memory chip maker, and other South Korean companies could dampen the price increases and make them less severe than those during a 1989 DRAM shortage.
Major manufacturers such as NEC and Fujitsu Ltd. also produce many of their chips at plants in other countries, including the United States.
Though chip makers are moving some of their production to countries where costs are not measured in yen, most still peg their prices to the value of the Japanese currency, said Jim Handy, an analyst at Dataquest Inc., a San Jose-based market research firm.
“They may not be paying for everything in yen, but they’re still thinking in yen,” Handy said. “They’re still dealing closely with each other and tend to set their prices accordingly.”
* STRONG DEMAND: Measure of chip orders highest in more than two years. D7
