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Computer Memory Chip Prices Double, Japanese Plant Fire Cited

July 20, 1993

NEW YORK (AP) _ Prices of computer memory chips have doubled in the past week, reflecting fears that world supplies may soon dwindle because of an explosive fire at a Japanese factory that makes an important ingredient.

The largest U.S. semiconductor and personal computer makers said Tuesday they have hefty inventories and are not immediately worried about a potential disruption.

But small companies that manufacture less than a few dozen PCs daily and must constantly look for parts report the fastest rise in memory chip prices they have ever seen.

For instance, a module of three chips that represent 1 megabyte of memory cost dealers about $33 early last week and on Tuesday ranged from $65 to $72 at five distributors contacted by The Associated Press.

A megabyte is 1,000 bytes, a common measurement of storage capacity in computers. Most new personal computers are made with at least 4 megabytes of memory. That means the spike so far could potentially add at least $120 to the cost of building a PC.

No one is sure whether the increase will last long enough to affect large PC makers like IBM and Apple, and ultimately result in higher prices for most computers.

″It’s too early to know what the long term impact may be,″ said Jim Smith, spokesman for the IBM PC Co., the largest maker of personal computers.

Small companies, however, are feeling the disadvantages of their size.

″We can’t give anybody a quote that’s good for more than a day,″ said Steve Dendrinos, owner of Computer King in Knoxville, Tenn.

″It’s really unbelievable. I’ve seen nothing so dramatic in such a short period of time,″ said Sal Annunziato, a partner in Databyte International, a Branford, Conn., distributor of memory components.

Increased demand for personal computers, intensified by the need for more memory to run the latest software, had already pushed some semiconductor prices up this year. Nonetheless, the computer industry remains engrossed in a competition that has radically lowered prices in the past few years.

The explosion and fire that leveled the Sumitomo Chemical Co. plant in Niihama, Japan, on July 4 have gained more attention recently as people realized the factory’s importance in the manufacture of semiconductors.

The plant was the world’s largest producer of high grade epoxy resin, a key ingredient in the special plastic casing of many chips. News accounts have variously placed Sumitomo’s market share from 40 percent to 60 percent.

″I think it caught everybody by surprise to realize that one plant was this important to total supply,″ said Jonathan Seybold, a computer industry analyst in Los Angeles.

″Nobody had focused on the fact that the resin production was so concentrated,″ he said. ″No one’s certain how much is in the pipeline.″

Sumitomo has not specifically estimated how long it will take to rebuild, saying only it will be ″some time.″ It says it has a two-month inventory of resin, may change some of its other plants to resin production and last week made an agreement for the No. 2 resin maker, Nippon Kayaku Co. Ltd., to fill some of the void.

″If they had an accident, they would surely count on us,″ said Mikio Hamaguchi, general sales manager for Sumitomo Chemical America in New York.

Dow Chemical Co. was the largest U.S. maker of semiconductor resin but stopped early last year. It is now analyzing the market left by Sumitomo along with costs of converting a plant to again make the product, spokesman Ken Hawthorne said.

Semiconductor makers say they don’t anticipate an immediate change in pricing or production but are looking for other resin sources.

Motorola Inc. uses plastic in most of its semiconductors and has formed a task force to study the possible effects of a disruption of resin, spokeswoman Angie Hatfield said.

Texas Instruments Inc. does not expect to be ″adversely affected″ but is still gathering information, spokesman Ted Jernigan said. ″It’s been a complicated process to determine what’s going on,″ he said.

The largest maker of semiconductors, Intel Corp., relies on ceramic casing for most of its chips and does not anticipate an impact, spokesman John Thompson said.

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