Newspaper article The Christian Science Monitor

The Chips Are Down for Industry That Has Become Vital to Exports

Newspaper article The Christian Science Monitor

The Chips Are Down for Industry That Has Become Vital to Exports

Article excerpt

FOR three years, the United States semiconductor industry - one of the nation's most strategically important businesses - has roared through hyper growth and expanding profits. Then, late last fall, its circuits overheated. The industry has suddenly slowed.

This deceleration threatens to damage important US regional economies and might even influence trade relations with Japan. Quietly, computer chips have become one of the nation's critical exports, along with aircraft, grain, and automobiles.

The subject is likely to be on the agenda when President Clinton travels to Tokyo next week to discuss, among other things, the continued opening of Japanese markets to American goods. "The amount of tension over the numbers doesn't exist the way it did five years ago," says Jeff Weir of the Semiconductor Industry Association (SIA) in San Jose, Calif. But "if that {sales debacle} happens, our side would get much more vociferous.... And it would probably put a lot more pressure on the Japanese." What cooled the semiconductor market is the same force that heated it up: personal computers. American consumers are no longer buying home computers in the volumes they did last year. Since personal computers use some 40 percent of all chips made, the slowdown is rippling through the industry. The deceleration affects not only high-value microprocessors, which run personal computers, but also a whole host of memory, video-related, and other chips scattered throughout the machines. Thus, the pinch felt by American microprocessor manufacturers, such as Intel and Advanced Micro Devices, is also hurting Japanese and Korean makers of memory chips. American consumers can already see the effect in plunging prices for memory chips. A year ago, each megabit of memory cost $40 or more; today, the price is roughly half that. The falling prices have caused several Japanese and Korean firms to cut back production of older four-megabit memory chips in favor of higher-capacity 16-megabit chips. Specialty chipmakers Even specialty chipmakers are affected. Last week, National Semiconductor Corp. announced it would lay off some 400 people - 2 percent of its worldwide work force - and take a related $20 million charge against earnings because of a slowdown in orders. The Santa Clara, Calif., company makes specialty chips for the computer, telecommunications, and other markets. Along with falling computer sales, the company has seen a drop off in US sales of analog cellular phones. "Those are the two big pieces that we feel are affecting the company," says Alan Bernheimer, spokesman for National Semiconductor. But "we don't expect this to be a decline like in the late '80s." Growing demand for digital cellular phones in Europe is helping to ease the slump. So far, the signs point only to a decline in growth, not a contraction. …

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