Tight chip supply likely to boost prices on consumer electronics
Published Wednesday, January 12, 2000, in the San Jose Mercury News
PEBBLE BEACH (AP) -- Consumers can expect to pay more for computers and other electronic goods over the next two or three years as the demand for chips continues to push prices upward.
The chip supply squeeze that began earlier this year probably will continue through 2002 as manufacturers race to build new production plants, analysts said Tuesday.
``Bad news for shoppers, great news for the industry,' said G. Dan Hutcheson, president of VLSI Research Inc. in San Jose.
``What we will see with these higher prices is it will fund things like breaking the Internet bottleneck, increase bandwidth,' Hutcheson said in an interview. ``It's a bitter pill, but it will be better for the health of everybody.'
Higher prices, however, could lead to better and ultimately less expensive products as companies invest new profits into more efficient manufacturing techniques and better retail products, analysts said.
Hutcheson made the comment as VLSI and other research companies released new chip industry forecasts at a symposium sponsored by Semiconductor Equipment and Materials International. The trade association represents 2,300 companies that make the equipment and materials used to manufacture memory chips, microprocessors and logic chips used in computers, Internet circuitry, cell phones, televisions and other devices.
VLSI predicted chip sales would grow 25 percent in both 2000 and 2001, up from 18 percent in 1999, as a result of increased demand and tighter supplies.
Dataquest Inc., another research firm, expects industry revenues to grow 22 percent to 25 percent in 2000, from $160 billion in 1999 to $195 million to $200 million. The company forecasts a similar increase in 2001.
IC Insights predicts 22 percent revenue growth in 2000 and 2002, with the expansion slowing to 17 percent in 2003.
Supplies are likely to remain tight until 2002 or 2003, when new manufacturing plants begin production.
Neither company provided figures for how high tightening supplies would push prices at the retail level. Analysts said, however, that manufacturers most likely would either raise costs or change the mix of features offered in their products.
``What constitutes a standard system, that's what will change,' said Clark Fuhs, an analyst with Dataquest.
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