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Impact of Chip Agreement Stirs Debate : Computer Makers Virtually Halt Orders as Prices Initially Leap

August 31, 1986|DONNA K. H. WALTERS | Times Staff Writer

There have been a few howls of protest from semiconductor buyers in the month since the bilateral trade agreement on chips went into effect. Mostly, though, the chip industry's customers have been silent.

But silence, in this case, is not golden.

The major computer makers--the biggest customers for chips in the United States--have been loath to criticize the trade pact with Japan, even though it has pushed some prices for memory-storage devices up two and three times what they were before the agreement was reached Aug. 1. But then again, they're not paying those prices.

Chip-ordering activity has been so quiet, say some industry observers, that they can almost hear the computer makers eating up their inventories.

"The sobering reality is that computer manufacturers are unwilling and unable to pay those prices," said Drew Peck, an analyst at the Gartner Group in Stamford, Conn. For the most common type of memory chip, the new prices are said to be as high as $8 apiece--compared to less than $2.50 before the agreement.

"It should be clear this is not a tenable situation for U.S. computer makers," Peck said. "But it doesn't worry me that much. It's a ludicrous situation that can't be sustained."

Most everybody concerned with the agreement believes that prices will begin coming down in October, when the Commerce Department revises floor prices for Japanese-made chips sold here.

How much and how quickly those prices come down, however, is a guessing game that is occupying the makers of the semiconductors, the companies that buy them and the distributorships that act as middlemen between them.

The waiting is causing some frayed nerves, especially at companies that do their manufacturing in the United States.

Such companies fear that prices of chips will remain too high for them to compete with companies that build overseas. They warn that if it becomes cheaper for them to go overseas to make or buy chips in semi-finished products than to buy the raw chips here, they will do so.

"If need be, we will have to find ways to do all or more manufacturing offshore to take advantage of lower prices," said John C. Roach, chairman of Tandy Corp. "We're not trying to be unpatriotic, we're just trying to make sure that the American industry is not put at a disadvantage compared to worldwide prices."

The concerns are gravest among makers of personal computers and other products that use a lot of the memory chips--a kind of electronic circuitry that serve as data-storage devices in electronic goods--covered by the trade agreement.

Analyst Rick Martin of Sanford C. Bernstein & Co. in New York said he has no doubt that some of these companies already are planning such moves.

Also, some chip customers worry that not everybody will be playing by the same rules.

They say that already some buyers and sellers are circumventing the price restrictions in the trade agreement. They doubt that Japan will be vigilant in keeping its end of the bargain, or that the U.S. government will be able to enforce the provisions applying to other markets.

David Kay, president of computer maker Kaypro, called the agreement "a miscarriage." Kay said sellers are trying "every trick in the book" to drum up business before October.

Of the higher prices, he said: "I don't have to pay (them). I can circumvent them with no problem and so can everyone else." Among the options Kay cited was moving manufacturing overseas.

Will Enforce Pact

Government officials say the agreement is and will continue to be enforced. "Any pre-dating of shipments is in clear violation of the agreement, and if we found such was the case, we would take swift action," said Desiree Tucker, spokeswoman for the Commerce Department.

"At this point we have not heard that this is taking place. But we will be doing a very thorough verification of the agreement in Japan (this week) and if any such violations have occured, we will find it."

Tucker said the verification trip is a routine matter and is another indication of the two governments' commitment to making certain the agreement is working.

The U.S. semiconductor industry--no more eager to see its U.S. customers move away than it has been to cede those customers to the Japanese competitors--expresses confidence that the trade agreement will prove to the ultimate benefit of the semiconductor customers as well as to their own industry. Patience, they counsel.

Part of the waiting involves finding out what is actually in the agreement. Government officials say the document will be made available after it is officially signed--an event scheduled for Tuesday.

The five-year trade agreement was reached after lengthy negotiations between the two countries.

It sets aside an unfair trade practices complaint and two of three cases in which Japanese computer chip makers were accused of "dumping" chips on the U.S. market--that is, selling below fair market value. (In preliminary rulings in the two cases, Japanese makers were found guilty of dumping practices.

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