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January 5, 1988

SAN FRANCISCO (AP) _ Japan maintained its dominance of the semiconductor industry in 1987, a year of strong worldwide recovery, but U.S. companies are poised for strong gains this year, a market research firm said Monday.

Chip companies worldwide fared better during 1987 than at any time since an industry slump began in late 1984 and bottomed in early 1986, to the study by Dataquest Inc.

Total sales grew 24.3 percent over 1986 to $36.6 billion.

Sales and revenue increased for many companies, with some growing at a rate that doubled and even tripled the overall industry expansion, Dataquest said. Among the top 10 companies worldwide, Intel Corp. of Santa Clara, Calif., posted the biggest percentage gain, with revenue up 51.4 percent to $1.5 billion.

Dataquest and other industry analysts predicted American chipmakers will enjoy a continued resurgence this year as the dollar declines further and offshore customers return to U.S. companies.

″The decline of the U.S. dollar will help the industry immensely, if only because of less price competition from Japan, which is an aggressive price marketer,″ said Andrew J. Kessler, an analyst with PaineWebber Inc., in New York.

The strength of the yen against the dollar helped Japanese companies boost chip revenues 27 percent, from $14 billion in 1986 to $17.8 billion in 1987, Dataquest said.

Japan’s share of the industry worldwide, based on revenues, edged up from 46 percent in 1986 to 48 percent in 1987, similar to its growth the previous two years, Dataquest said. But the company cautioned that last year’s growth was largely a reflection of the yen’s strength, not greater unit sales.

North American companies, virtually all of them in the United States, increased 21.7 percent in sales from $11.7 billion in 1986 to $14.2 billion in 1987. North American companies claimed 39 percent of the market, compared to 42 percent in 1986.

European companies maintained an 11 percent market share but increased sales from $3.3 billion in 1986 to $4 billion in 1987.

Dataquest’s figures give an inflated picture of Japan’s market share gain because they are measured in terms of the U.S. dollar, which declined against the Japanese yen and European currencies in 1987, said Mel Thomsen, Dataquest’s director of semiconductor industry services.

″This (report) doesn’t say (the Japanese) sold more semiconductors, just that the value of a Japanese semiconductor is higher in terms of U.S. dollars,″ said Nanci Magoun of Dataquest.

Still, the Japanese have made tremendous inroads during the past decade. In 1984, when the world market for chips was valued at $29 billion, the Japanese matched the Americans with 40 percent of the market, Dataquest said. Ten years ago, Americans held 60 percent and the Japanese 25 percent.

Despite these figures, several factors will give U.S. companies an edge in 1988, Thomsen said. The drop in the yen means Japanese companies will have less money to invest in their semiconductor segments, he said. At the same time, he noted, the U.S. market is beginning to expand.

″A lot of customers are migrating back to the U.S. because it is no longer cheaper to assemble these parts overseas,″ said Kessler.

The effects of a 1986 U.S.-Japan semiconductor trade agreement, aimed at increasing America’s market share in Japan, are beginning to be felt, several analysts said.

″The U.S. is holding its own, and the trade agreement has stemmed the flood of losses because Japan is no longer selling here below costs,″ said Thomas Kurlak, analyst with Merrill Lynch Global Securities Research and Economics Group in New York.

But he said the competition will be ″a tough horse race,″ with Japanese and U.S. innovations ″at a stalemate,″ including simultaneous development of the next generation of memory chips.

The top five companies in North America are Motorola Inc., Texas Instruments Inc., Intel Corp., National Semiconductor Corp. and Advanced Micro Devices Inc.

NEC Corp. of Japan remained number one for the third year in a row, with revenues exceeding $3 billion in 1987. Toshiba International Corp. and Hitachi Ltd. followed in second and third place, respectively .

Semiconductor chips consist of electronic circuits that perform calculations or store information and are the brains of computers, radar, missiles and other electronic devices.

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