Despite an industry-wide movement to scale back chip plant investment, memory prices are expected to continue falling.
Capital spending cuts by Toshiba and Hitachi, among the world's leading memory producers, will postpone the building of production facilities for 64-megabit memory chips, but the next-generation products currently aren't in great demand. Most PC systems use memory based on 16-megabit chips, which will remain in oversupply.
Meanwhile, South Korea's devaluing currency should keep prices low, since costs are paid in the won but memory itself is purchased with the dollar. Devaluation makes the cost of exported goods cheaper for the buyer.
Toshiba's new 64-megabit plant in Oita, Japan, will be pushed back by one or two years from its scheduled start next fiscal year, according to Nihon Keizai Shimbun, Japan's leading business daily. The company decided to delay a 150-billion-yen ($1.13 billion) investment because of the memory market's slump, Nikkei said, a line that's been oft repeated.
But South Korea's peril has also played a role in decisions to delay chip plant construction, observed Dataquest analyst Bruce Bonner. "A lot of these guys are [cutting back] because they see the Koreans cutting back," he said.
"Korea has been forcing their hands. This gives the Japanese some breathing room," he added. South Korean firms, notably Samsung, have been challenging Japan's leading position, at least until nationwide hardship set in.
The impact of Japanese plant delays won't be noticeable until 2000, when the production volume of 64-megabit chips begins to fall short of expected demand, Bonner predicted. "[The delays] are not setting these companies up very well for being a leader in the next generation, and could lead to some market leadership changes," he said.
Most memory manufacturers already have 64-megabit chip plants online. Computer manufacturers will begin using memory modules incorporating 64-megabit chips in 1998 in server computers and high-end workstations, and introduce them to PCs later during the year and in 1999.