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March 16, 1988

SEMICONDUCTOR INDUSTRY ASSOCIATION RESPONDS TO CRITICS OF US-JAPAN PACT

By CBR Staff Writer

Stung by the growing chorus of criticism that the US-Japan Semiconductor Trade Agreement has exacerbated the crippling shortage of memory chips, if not actually causing it, the Semiconductor Industry Association has published a lengthy apologia insisting that far from causing any shortage, the agreement appears to have encouraged new suppliers to enter the dynamic memory chip market. The San Jose body asserts that current US producers are making significant investments to expand dynamic capacity, one major producer has re-entered the market and several others are studying market conditions for re-entry. It points out that the trade agreement was established in order to eliminate dumping by Japanese producers and to improve foreign access to the Japanese market, adding that neither of these objectives required the use of production limitations, quotas, restrictions or average floor prices and that if restrictions were applied, it was done by the Japanese unilaterally, although the Ministry of International Trade & Industry has now claimed that restrictions are not in place. It reckons that the shortage is attributed to a 15-month electronics expansion as reflected in the Association’s book-to-bill ratio, coupled with a production shortage resulting from 1985-86 when US manufacturers were seriously hurt by Japanese predatory pricing practices. It quotes a study by William Finan and Chris Amundsen of Quick, Finan and Associates: The tight supply conditions seen in late 1987 are only temporary. Several firms have just begun full scale production of 1M chips and others will soon follow in the first half of 1988. Thus, throughout most of 1988, potential supply capacity will ramp up faster than demand under any plausible market scenario. The study predicts an end to the shortage by mid-1988, and the Association reckons that the market may return to oversupply within the next three to six months.

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