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Chip makers face challenge
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July 29, 1996: 12:29 p.m. ET
Asian chip makers have rough time balancing supply and demand
From Correspondent Bill Dorman
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TOKYO (CNNfn) - The global over-supply of semiconductors has hit chip-makers across Asia.
Taiwan is a regional hub for computer assembly. On the semiconductor front, Taiwanese industry specializes in low-end memory chips -- currently a brutal market.
"Prices have fallen roughly to about a third the price since the beginning of the year, particularly for the major memory products, for the commodities," said Makio Inui, a technology analyst for Dresdner Kleinwort Benson. "Prices having fallen to these levels --most companies are going to be operating in the red in any event," he added.
South Korea's Samsung has cut back on production of its 16-megabit DRAM chips.
Production cuts are also affecting Asia's third big semiconductor player: Japan.
NEC, Mitsubishi Electric, and Hitachi have all recently announced reductions in the number of 16-megabit DRAMs they make.
Over the past year, much of Japan's new corporate investments have been high-tech oriented.
The cut-backs will carry broader implications.
"As the semiconductor cycle goes through a rough spot, then clearly Japanese manufacturers will be affected. Their desire to build new capacity and plant will be affected -- and so it's clearly not a good thing for the Japanese economy," said Robert Feldman, senior economist for Salomon Brothers Asia.
Future hopes are now focusing on the next generation of memory chips -- 64 megabit DRAMs. The major semiconductor makers in Japan and South Korea have all recently announced plans to increase production of those memory chips.
Even that strategy carries some risks. Relatively few products now use 64-megabit chips and future demand is still in the theoretical stage.
One lesson for semiconductor makers in Asia and elsewhere: the cycle no longer depends simply on chip technology, but on how those next generation chips will be used. 
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