Asian crisis hits chipmakers hard

The big five chipmakers are reportedly going to slash their combined investment for fiscal 1998 by at least 10 percent.

3 min read
There are new signs that the Asian economic crisis is hitting chipmakers particularly hard.

Semiconductor manufacturers NEC, Toshiba, Hitachi, Fujitsu, and Mitsubishi are likely to slash their combined investment for fiscal 1998 by at least 10 percent from the $6.1 billion projected at the beginning of the current fiscal year, according to Nihon Keizai Shimbun, Japan's most prestigious business daily.

The cuts will peg capital spending below $5 billion for the first time in four years, the newspaper reported.

Meanwhile, one of the world's largest suppliers of chip production equipment, Tokyo Electron, will halve its capital investment in 1998, according to Nikkei.

In the 1980s, Japanese chip makers rose to prominence as the largest memory manufacturers in the world and, consequently, they reaped the financial rewards of dominating the market. But they were eclipsed in the 1990s by Korean makers such as Samsung, who flooded the market with cheap memory, creating the glut that exists today.

Oversupply has been exacerbated by sluggish growth in sales of PCs--which gobble up the lion's share of these chips--and the overall Asian economic downturn. The five chipmakers told the newspaper they expect lower earnings this fiscal term, for the second straight year.

Toshiba plans to reduce capital investment in chips by $66.7 million or more. Toshiba originally planned to hold investment flat in fiscal 1998, but reported yesterday that it expects its group net profit to plunge 85 percent this fiscal year and sees no guarantee of an earnings recovery next term.

Traditionally one of the most aggressive of the five in investment strategy, Fujitsu said it will sharply scale back new plant spending. The company originally planned to spend just over $1 billion to build a plant to process 300mm wafers but will now switch to older technology, Nikkei reported.

Mitsubishi and Hitachi both expect losses in their chip divisions as well, and both plan to cut millions of dollars from investment outlays. NEC will maintain fiscal 1997 levels of investment. The combined chip investment for the five will fall for the third straight fiscal year from a peak of $7 billion in fiscal 1995.

South Korea's economic turmoil has also played a role in persuading Japanese firms to put off capital spending, asserted Dataquest analyst Bruce Bonner. Because Korean companies are set to cut their own capital spending by a more precipitous 35 percent (see related story), Japanese firms can afford to delay implementing new technologies.

"Now that the South Koreans aren't the hyper-competitive force they used to be because they have to watch their pennies, their competitors can pull back their?discretionary spending," Bonner earlier told CNET's NEWS.COM.

Tokyo Electron's decision to scale back to between $150 and $195 million in capital investments, down from about $365 million, reflects the huge cutbacks on the part of Japanese and Korean chipmakers. Spending will be devoted to upgrading production lines in Europe and the U.S., Nikkei said, quoting company sources.

Commercial production of machinery for producing next-generation 12-inch (300mm) silicon wafers will likely be put off. The larger size will enable manufacturers to gain more chips from each wafer, yielding costs savings.

Brooke Crothers and Kurt Oeler contributed to this report.