Semiconductors under scrutiny

Date: 24/04/1997

INFORMATION technology companies are on tenterhooks as they await a crucial decision by European Commission trade officials on whether to protect local producers of key semiconductors or allow users to buy them at the cheapest world prices.

A recommendation by officials on what trade regime should apply to D-RAM (dynamic random access memory) semiconductors is expected within the next fortnight, following fast on the heels of hearings with Europe's information technology giants.

Manufacturers such as Germany's Siemens are calling for the Commission to go ahead with the phased introduction of minimum prices on D-RAMs from Japan and South Korea. The German manufacturer and European outposts of the US company Texas Instruments are amongst the biggest producers of D-RAMs in the EU.

In the other corner are the users of D-RAMs, from phone companies to computer manufacturers, who argue that they should be allowed to buy their chips wherever they are cheapest.

They warn of losing out to US and Asian competitors if they are forced to pay artificially inflated prices.

The D-RAM dossier has moved to centre stage following a Commission decision to rescind all trade protection measures on a more sophisticated semiconductor - the EPROM (erasable programme read-only memory).

Measures setting out minimum prices for D-RAMs have been suspended for the moment, but are due to be phased in by June if there is no decision to drop them definitively.

Officials warn that the EPROM decision gives no clues what will happen to its less-refined cousin. “They are two different products and markets. The decision on D-RAMs is still very open,” said one.

The market for EPROMs is buoyant, with strong demand and high prices. But, in stark contrast, the D-RAM sector has been dogged by low prices and low demand over the last two or three quarters, with manufacturers promising to cut production in a bid to breathe life into the sluggish market.

Nordic countries and companies have been in the vanguard of calls for protectionist trade measures to be dropped, after high technology companies such as Sweden's Ericcson and Finland's Nokia discovered EU entry threatened their former free-trade regime for key components.

“We have spent a considerable amount of time and resources trying to convince the Commission that there are no reasons to reinstate the measures,” said an Ericcson spokesman.

“If you take the number of jobs at stake from the chip users and the producers in Europe, there is a considerable imbalance in favour of users. Many of these products have become ordinary commodities and it is no longer a question of protecting strategic industries.”

The current market situation for D-RAMs is a turn around from the heady days of 1993 and 1994, when manufacturers rushed into a booming market which saw demand take off with the fast evolution of personal computers and a doubling in memory requirements in only two years.