Microchip glut won't stop Va. progress

The Economy

March 17, 1997|By Jay Hancock

THE WORLD is still swimming in certain kinds of microchips, but the glut isn't expected to stop Virginia's progress toward being a silicon center. Stall, yes. Stop, no.

A year ago both Motorola and IBM/Toshiba were planning to build chip factories in the Old Dominion. IBM/Toshiba's was to be in Manassas; Motorola's, outside Richmond.

Both plants were to make memory chips, found everywhere these days in personal computers, sewing machines, toasters, cell phones. Motorola was going to spend $3 billion and hire thousands. IBM/Toshiba budgeted $1.5 billion and planned eventually to employ 4,000.

Both deals were announced in 1995, and they instantly put Virginia on the map as a noticed new location for computer manufacturing. Virginia joined Austin, Texas; Chandler, Ariz.; Portland, Ore.; and Ireland. Electronic Buyers' News, a weekly trade paper, put Virginia on its list of silicon "hot spots."

But an unforeseen thing happened on the way to the chip party. It seemed that the world already had dozens of factories making memory microprocessors and new plants cropping up regularly. They were punching chips out last year by the millions. And the industry ran out of customers.

"In the last quarter of 1995, computer makers were going gangbusters," said Matt Sheerin, editor of Electronic Buyers' News. "They started buying and buying and buying" dynamic random-access memory chips, or DRAMs, the kind to be made in Virginia. "At the same time, a lot of DRAM manufacturers were bringing plants on line."

But computer makers ended up "with too much inventory," Sheerin said. "They forecast way off. They were stuck with a lot of excess parts, and they started selling them on the gray market; that's how prices started plunging."

DRAM prices plummeted by 80 percent in 1996. Total worldwide semiconductor revenue fell by 10 percent last year, depressed by the memory-chip glut and other markdowns. It was the first time that happened in a decade.

And guess what? The prices of construction labor, concrete and chip-making machines didn't fall by 80 percent. The result: "A lot of the [factories] that were being built were basically put on hold," Sheerin said. "A lot of these plants now are just sitting there unused."

As the lights went out in factory after factory last year, speculation spiraled around both the Motorola and IBM/Toshiba facilities, the hood ornaments of Gov. George F. Allen's "new" Virginia economy.

Motorola pulled the plug last April, but IBM/Toshiba forges on. That project has been held up by disputes with Virginia regulators over water discharges, but an IBM spokesman said the plant should open by the end of this year. (This proves that Virginia does have regulators who occasionally challenge businesses, contrary to some Marylanders' beliefs.)

Motorola's project is officially on hold, not dead. But people in the industry say capital-spending plans for all memory-chip makers are in flux, subject to improvement or deterioration in the market.

"If I were someone looking for a job at the Motorola plant outside Richmond, I would not be holding my breath," Sheerin said.

But the computer industry is not the steel industry. The computer business transforms, grows, flows, evolves with quicksilver speed. Planned obsolescence, something Ralph Nader accused U.S. carmakers of in the 1960s, is built into the silicon trade, and nobody complains.

The chips glutting the market now will be largely obsolete and irrelevant in two years. Indeed, IBM/Toshiba's factory is expected to make the next generation -- super-powerful 64-bit and 256-bit DRAM processors. Analysts believe that DRAM prices have bottomed out.

The American Electronics Association just ranked Virginia ninth nationally in total high-tech jobs, which include much more than computer employment. Maryland came in 15th. Maryland does better when ranked on its concentration of high-tech jobs -- 10th. But Virginia beat us there, too, in the eighth spot.

Virginia's place on the map of semiconductor hot spots is being held open.

Pub Date: 3/17/97

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