Chip Makers Switch To 64mb Drams
Fujitsu Ltd on Tuesday joined NEC Corp , Toshiba Corp and Mitsubishi Electric Corp in boosting production of the next-generation 64-megabit DRAMs, or dynamic random access memory chips, instead of the 16-megabit DRAMs which are currently the mainstay. Because of lower profitability, we can't raise production of 16-megabit DRAMs as we planned originally, said a spokesman at Mitsubishi Electric.
The price of a 16-megabit DRAM chip, used mostly in personal computers, fell to less than 1,000 yen ($9) in late August about one-fifth of the level it was at in January following a worldwide slowdown in PC sales. Industry officials say the prices are still heading downward.
For major chip makers, the break-even price for a 16-megabit DRAM is estimated at between 1,200 yen ($11) and 1,400 yen ($12).
Fujitsu said it would start mass production of 64-megabit DRAMs at its Iwate plant in northern Japan early next year, six months sooner than originally planned. Its new US plant in Oregon will start making the same chips in late 1997 immediately after starting operations, instead of making 16-megabit DRAMs.
Both Fujitsu and NEC said they plan to make one million 64-megabit DRAMs a month by the end of March 1997. But with demand for 64-megabit DRAMs limited, the impact of the drop in prices of 16-megabit DRAMs should seriously depress the makers' earnings in the second half of the current business year ending March 1997, analysts said.
It is inevitable that profits from the chip business will deteriorate in the second half of the current business year, said Goldman Sachs (Japan) analyst Hitoshi Kuriyama. He said the chip business will post operating deficits until after March 1997.
Goldman Sachs said in a report that inventories of 16-megabit DRAMs at PC makers and DRAM makers will start to decline in the October-December period of this year. But the prices will not stabilise until after the middle of 1997, it said.
Some electronics makers have already mentioned the possibility of lower profits for the 1996-97 business year.
NEC said its profits on a group basis may fall short of their year-ago level during the year. A spokesman said an expected jump in profits from information equipment at the parent company may not make up for the doldrums in the chip business.
According to one analyst, Toshiba relies on the chip business for 75 per cent of its parent current profit, NEC for 65 per cent, Hitachi for 55 per cent and Fujitsu for 45 per cent.