Electronics Prices Expected To Rise
By MICHAEL WHITE AP Business Writer
PEBBLE BEACH, Calif. (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 at a 25 percent pace 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 mostly 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 Inc.
The price of computer memory chips has more than doubled in recent months. Systems that included 96 megabytes to 128 megabytes six or eight months ago now come with 32 or 64 megabytes, Fuhs said.
Supplies have tightened as a result of several factors, including growing demand in the United States and Western Europe for chip-dependent devices. Another key factor, analysts said, has been the economic recovery in Asia and improved economic circumstances in Eastern Europe and the Middle East.
Analysts compared the current situation to 1994 and 1995, when prices soared and manufacturers built new chip factories to meet consumer demand worldwide. The result, however, was an oversupply that caused prices to crash in 1996. The Asian financial crisis added to manufacturers woes as sales of high-tech gadgets plummeted in what had been the world's fastest-growing economies.
Now, manufacturers are again building new plants and upgrading to more efficient manufacturing technology. For example, Intel Corp (NasdaqNM:INTC - news)., the world leader in microprocessor manufacturing, is refurbishing plants in Oregon and Massachusetts to increase capacity. The company also is gearing up to make chips from larger, 12-inch-wide silicon wafers, a move that will allow the company to cut more chips from each wafer, said Michael R. Splinter, a senior vice president for manufacturing at Intel.
The chip supply problem has already had an impact. Gateway Inc (NYSE:GTW - news). announced on Monday it will buy microprocessors from Advanced Micro Devices, an Intel competitor, because of a shortage of Intel chips. The decision came after Gateway , the No. 2 direct seller of PCs, warned that it won't meet fourth-quarter earnings forecasts because it couldn't get enough chips from Intel. |
