Stronger Yen Boosts Cost of Memory Chips : Computers: Distributors such as Irvine’s Memory International fear rising prices will slow sales, cutting into their bottom line.
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 industry.
In dollars, the prices for memory chips from Japanese companies like 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 price increases to consumers upgrading their computers could be twice that.
The retail price of a typical set of four megabytes of memory, for instance, could rise $34--about twice the increase to wholesalers. That would raise the price to consumers from $170 a set to $204.
The higher costs come at a time when the growing complexity of software programs requires ever more memory. Microsoft Corp.’s much-awaited Windows 95 operating system, for instance, 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 in memory chips because Japanese companies control about 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 figure much of the price increases that would affect completed 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 price hikes.
Southern California parts distributors, who supply retail outlets and independent computer assemblers, normally would have welcomed the increase in demand for memory chips. But because the supply is coming with such a stiff price hike, they have seen a falloff in sales that, they fear, 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, Reed said, are only slowly ordering chips again.
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 chip made by Intel Corp. in 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, only store information until it can be used by the microprocessor.
Memory chips, though, are just as crucial for 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 manufacturing 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 the 1989 DRAM shortage.
The shortage that year prompted several U.S. computer companies, including International Business Machines Corp. and Digital Equipment Corp., to form their own chip-making consortium to guarantee a supply. The effort, known as U.S. Memories, fell apart in 1990 after other companies were unwilling to risk angering existing suppliers by joining.
The failure ensured that Japanese companies would continue to dominate the memory chip market. Major manufacturers like NEC and Fujitsu Ltd. also produce many of their chips at plants in other countries, including the United States.
Though the 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.”
Toshiba Corp., which dominates the market for notebook computers from the Irvine offices of its Toshiba America Information Systems subsidiary, may have an advantage against other personal computer makers because it makes its own memory chips. Toshiba will raise prices on chips it sells to others soon, said Ken Ishihara, a vice president at Toshiba America Inc. in New York City.
AST Research Inc. also expects to enjoy a close relationship with Samsung once the South Korean company completes its purchase this summer of 40% of AST stock. AST executives have said that access to the South Korean giant’s components is a key reason for the deal.
The alliance won’t come soon enough. In a recent AST filing with the U.S. Securities and Exchange Commission, the company said that one of its memory chip suppliers, LG Electronics Inc., would halt shipments in April because of its own competition with Samsung. LG supplied 15% of AST’s memory chips, according to the filing.
AST spokesman Emory Epperson would not comment on LG’s exit.
Arun Kamat, an LG spokesman, said his company stopped supplying AST because its South Korean plant’s capacity had reached its limit, not because Samsung was buying AST stock. “This was something we’ve been telling them (AST) about for six months now,” Kamat said.
Analysts said AST would likely pay higher prices to replace the lost LG chips for at least several months until the Samsung deal becomes final.
* STRONG DEMAND
Measure of chip orders posts two-year-plus high. D9
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What Price Memory?
The stronger yen is driving up computer memory chip prices while increasingly complex computer programs create greater demand. Wholesale prices per DRAM (dynamic random access memory) chip. 1st quarter 1993: $10.85. 1st quarter 1995: $12.73.
U.S. Share Fades
Japan and South Korea now dominate what was once an American stronghold. DRAM market share by country:
Japan: 38%
Korea: 34%
Other: 17%
U.S.: 11%
Sources: Dataquest, UBS Securities; Researched by JANICE L. JONES / Los Angeles Times
