Fear and loathing in the face of DRAMs

Fujitsu and Acer are seriously considering ceasing production of memory chips, although rival companies say that will do nothing for the already over-burdened market.

Fujitsu president Naoyuki Akikusa told the Jiji news agency: "We will take a more cautious approach toward DRAMs. We will decide in the future whether or not to continue."

Akikusa is expressing fears that are already tiring the memory manufacturers -- that there are too many fabrication plants in the world, too many chips stockpiling in the warehouses, and too little profit to be made from the ever-falling margins.

A stumbling market for DRAMs -- memory devices used in personal computers -- caused plunging revenues at some big electronics makers in 1997. Over the past two years, prices of 16-megabit DRAMs, last year's mainstream products, have dropped 90 per cent amid a supply glut caused by a global slowdown in PC sales.

According to sources, top Taiwanese memory maker Acer is also close to making a decision one way or the other. It is already attempting to diversify into made-to-order chipmaking, away from the profitless bulk market.

Toshiba, however, resolutely remains. "Toshiba does not intend to get out of the DRAM market," said Helmut Schock, memory marketing manager for Toshiba Europe, "even though we have the same pains that everybody has." The company has just completed tests, with Intel, of its Direct Rambus DRAM, a faster DRAM chip that has already been accepted for next year's desktops by Dell and Compaq.

Schock added that firms pulling out of manufacturing, or into more specialised areas, will not alleviate the glut. "There are about 10 [fabrication plants] too many. When one leaves, another buys in," he said, referring to the buy-out of Texas Intruments' DRAM business by Micron Technology.

He added that the "turning point" would be in 1999 when the demand for memory chips on handheld and integrated application devices would begin in earnest.

However, analysts are skeptical of any early recovery in the DRAM business. Many said a price decline of the current mainstay 64-megabit DRAM was gathering speed, making it difficult for any chipmaker to earn a profit.

Among Japan's five biggest makers, Hitachi and Toshiba both saw group net profits fall about 90 per cent in the last business year as losses in the DRAM business cut their profits. And Mitsubishi Electric suffered its first group net loss in its postwar history.