Today's low personal computer prices, particularly those on machines made by smaller companies, are likely soon to shoot up more than $100 per machine because of a panic in the world memory-chip market.
Prices already have doubled for computer owners who want to expand the capacity of their machines to handle memory-hungry new programs based on Macintosh System 7 or on Microsoft Windows or the OS/2 operating system for IBM compatibles, industry officials said.
In the last week the Semiconductor Industry Association, which represents the bulk of U.S. chipmakers, has formed a task force to study the problem and held meetings in Washington, D.C., and Tokyo hoping to head off further panic, said the group's spokeswoman, Angela Newlove.
The disruptions now raging in world computer chip markets started when an explosion at a Sumitomo Chemical Co. factory in the town of Niihama, Japan, on July 4 wiped out the source of 60 percent of the world supply of an epoxy resin called cresol.
Mark Giudici, an analyst who follows the DRAM market for the California-based research house Dataquest Inc., said Dataquest's Tokyo office has been told by Japanese police that an arson investigation is under way.
A possible motive might be to manipulate the prices of chips essential to the manufacture of the 25 million personal computers expected to be sold in the next year.
When mixed with pigments, cresol makes the small black boxes that encase computer chips, particularly the chips called DRAMs (for dynamic random access memory), said Ken Hawthorn, chief of Dow Chemical's epoxy-making operations, headquartered in Midland, Mich.
Dow stopped making cresol in 1991 in the face of competition from Japanese suppliers, who now control virtually the entire world market. Hawthorn added that Dow is considering reopening its chip resin plant in Freeport, Texas, but will not do so unless the company is assured of making a profit from the DRAM situation.
"We're not going to expend the substantial resources that returning to production would require just to have Sumitomo come roaring back and put us out of business," said Hawthorn.
Newlove acknowledged that computer companies must restore resin production quickly or face severe consequences. Industry officials are pressing Dow to return to production because all sources of the resin are in Europe or Asia, Hawthorn said.
The chips are essential to every personal computer and many peripherals such as printers, modems, sound cards and scanner boards because they provide the electronic space where the machines load and run their programs.
The microprocessors that supply the actual computing power are encased in ceramic material rather than plastic. Thus production of chips such as California-based Intel Corp.'s 486s and Schaumburg-based Motorola Corp.'s 68000 series are unaffected.
When news of the Japan blast surfaced in such industry publications as Electronic Buyers' News and InfoWorld, speculators started rushing to buy up the world's supply of DRAM chips.
Osaka-based Sumitomo responded by issuing a prepared statement saying "our inventory should last several months" and that several other companies could fill any gap by producing cresol until Sumitomo's factory is restored.
But ensuing events showed that a DRAM crunch was waiting in the wings even without the explosion, experts said.
Most new Macintosh machines carry 4 megabytes of DRAM, as do most new IBM compatibles. That is about double the amount of a year ago-and more computers are being sold than ever before, largely as a result of a price war.
Further adding to the demand for DRAMs is the fact that most of the new low-price machines being sold are based on Intel 486 microprocessors and come equipped with Microsoft Windows software that requires at least 4 megabytes of RAM to work smoothly. Many users say they vastly prefer 8 megabytes for Windows.
For example, Rajan Ahmad, manager of campus support for Loyola University's computer network, which includes 4,000 machines linked into a wide-area network, said the college has been forced to scale back its plans to upgrade each node to 8 megabytes of RAM as a result of the price increases.
"I know that this shortage talk is just a lot of malarkey," Ahmad said. "These companies typically acquire supplies to last them for 300 or 400 days to make sure their production lines aren't shut down, so it's ridiculous to say there is a shortage just two months after the factory fire in Japan."
Dataquest's Giudici said big companies such as International Business Machines Corp. and Apple Computer Inc., which typically buy the chips under long-term contracts, are likely to get through the current price swings with only small price increases of around $30 per machine.
Even these big companies are paying sharply higher prices when they buy on the spot market, though, he explained. DRAM prices for these large companies have jumped from $37 on the average in May to an average of $55 today. "Some of these companies have paid as high as $70 in the past week," Giudici said.
The hundreds of smaller companies that have flourished in the current computer boom are likely to be forced to add $100 to $150 to the cost of each machine because they must buy on the spot markets, Giudici said.
Those hit hardest, however, are people like Ahmad who want to upgrade.
Barry Lebu, president of 50/50 Microelectronics Inc. in Sunnyvale, Calif., said DRAM spot market prices are averaging $89 per megabyte, up from $39 just four weeks ago: "Some are as low as $69 and some are hitting $119, but the average price is $89."
Lebu's company is the country's leading supplier of chips that IBM-compatible owners frequently add to bring their 2 megabyte machines up to 4 megs and their 4-megabyte PCs up to 8 and above.
"It doesn't matter whether a factory in Japan blew up," said Lebu, "this market has been overheated for some time and shortages are inevitable."
