Cheaper PCs to follow chip crisis

Falling prices in both the chip market and the memory market could ultimately benefit consumers according to Edmumd Gemmell, a Dataquest analyst. "The semiconductor industry is far removed from the end consumer but the fall in DRAM prices could go some way to making PCs cheaper," Gemmell said.

The news follows a statement Monday by Intel's executive vice-president Paul Otellini about the possibility of giveaway computers in exchange for a user's commitment to an Internet provider. Joe D'Elia, a Dataquest analyst does not think we will be seeing free computers in the foreseeable future but believes prices will fall to the £500- £600 mark during 1999 and stabilise at that point.

The decline in the chip market is blamed on overcapacity driving prices down. The financial crisis in Asia is also a factor. Interestingly European companies have fared the best in 1998 outperforming the rest of the world for the first time, according to D'Elia.

Intel was one of the few vendors to report growth of revenue in 1998 according to Dataquest research. "Intel has never been in recession. They are a law unto themselves," said D'Elia. Competition from AMD and Cyrix has caused growth to slow down and D'Elia predicts the threat from the competition will become more serious in 1999.

For most semiconductor vendors, 1998 was a year of struggle, with seven of the top eleven vendors seeing a revenue drop of at least 14 percent. "Semiconductor vendors around the world are glad to see the back of 1998, a year stated to be the worst since the mid-eighties," said D'Elia.

Although many chip companies have had to defer capital spending, Research and Development spending has remained "remarkably stable" during the recession according to Gemmell. "R&D is the lifeblood of the semiconductor industry. Companies cannot afford to cut budgets for it," he said. In a separate report today, analysts claimed chip producers will increase capital investment to cope with a supply shortage.