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Low DRAM prices are good for the industry

Our turn to do the squeezing

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This article was first published in September 1998 A fool is always busy - except in the computer industry, where resellers who charge too little for their products and services soon go bust. The process takes a little longer for vendors, but go bust they do. Siemens Nixdorf's decision to shut down its DRAM manufacturing plant on Tyneside, with the loss of 1,200 jobs, is a case in point. The company is writing off an investment of more than #1 billion. And, presumably, it will also have to pay back some of the #50 million in UK government grants it received for building the plant. It has complained to the EC that it is dumping memory chips well below cost. Hamstrung by the collapse of their country's currency, the Korean giants are dumping - so the argument goes - in an attempt to pay off dollar-denominated debt with much-needed hard currency. In the US, Micron Electronics, America's sole surviving memory chip manufacturer, is making much the same noises as Siemens. It blames structural oversupply in the DRAM market squarely on the Korean chaebols. Their reckless expansion of DRAM production in the mid-90s on the back of government grants, loans granted on unfeasibly cheap terms and cross-subsidies from sister companies caused this sorry mess in the first place, Micron claims. It has secured the backing of most members of the Semiconductor Industry Association to lobby for strict terms imposed on any IMF bail-out money that goes Korea's way. At its peak in 1995, the worldwide DRAM market was worth $45 billion, at user prices. This year DRAM vendors will pull in $20 billion - if they're lucky. DRAM prices have collapsed by anything between 90 and 95 per cent since 1995 - the year Siemens made its fateful decision to invest in North Tyneside - and unit production has sky-rocketed since then. With hindsight, Siemens made the wrong investment decision in opening Tyneside. It was made at a time of very high DRAM prices, which were fuelled by product shortages. The Siemens Tyneside shutdown will lend huge weight to pro-dumping forces in Europe. My guess is that the EC will take its cue from the US Federal Trade Commission and we'll see anti-dumping duties slapped again on certain categories of DRam before the end of the year. This would be a mistake. Whenever I hear calls for dumping duties or for 'fair trade', I hear the pleadings of protectionists at work. For who is suffering from low DRam prices, exactly? Manufacturers, obviously; employees, clearly (but in such a capital-intensive industry, there are not so many of these as you might think); some distributors too. But the rest of us - resellers, system builders and users - benefit from low DRAM prices. In 1995, the semiconductor industry made enormous profits on the back of supply shortages. Now it's our turn to do the squeezing. ®

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