



It`s a saga of international intrigue, toppling industries, high-stakes risks, technological marvels and a grim scramble for the necessities.

And, yes, it means you can tell your grandchildren you survived ''The Great DRAM Shortage of 1988''-because the shortage may affect the American computer industry for generations.

In the meantime, perhaps we`d better explain that DRAM is an acronym for

''dynamic random access memory,'' an otherwise meaningless name for the kind of computer memory chip that modern computers rely on.

Today`s sophisticated thinking machines need large numbers of memory chips. In fact, 1988 world demand constituted 1.2 billion to 1.5 billion of the most popular ''256K'' variety, and maybe 250 million to 300 million of the larger, newer and fancier ''one-megabit'' variety, estimated Jim George, vice president and general manager at Motorola Semiconductor Products in Austin, Tex.

Unfortunately, there were only 900 million 256K and 200 million one-megabit chips to be had, he estimated. (''256K'' chips mean that there are 256,000 or so memory cells-bits-on a chip; the ''K'' stands for kilobyte. On a one-megabit chip, there are 1 million memory cells. Since it takes eight bits to make a byte-storage space for one character of information-the chips are used in sets of eight, plus an optional ninth for something called ''parity checking.'')

The result? Something akin to the oil crisis.

Since the start of the year, contract prices for 256K chips have gone from about $2.90 to $4, with prices on the spot market getting as high as $12, said Dataquest Inc., a market research firm in San Jose, Calif. There have been rounds of price increases for finished products from computer companies

(or they are shipped at former prices with less memory installed). While chips generally can be had for a price, buyers at the low end-who want add-in memory boards for personal computers-are deciding to wait for the price to come down, creating what George called ''pent-up demand.''

And the price will come down, because of the astonishingly cyclical nature of the semiconductor business. Those cycles, abetted by the

international intrigue mentioned earlier, explain how this glamor industry ended up looking like the Soviet farm sector-and why the U.S. has lost dominance to Japan in this increasingly vital field.

First, you need to understand that memory chips-more so than people-come in generations. The good old days-about 1983-saw the salad days of the 64K chip, and America made about 60 percent of them, with Japan producing the other 40 percent.

Shortly after that, the next generation-the 256K chips-started coming out. The chipmakers, foreseeing nothing but ever-increasing demand for chips, spent 1983 and 1984 heavily investing in production capacity. But instead of going up, what actually happened was that the bottom fell out of the chip market.

''About 1985, the personal computer market was tremendously overextended,'' recalled Stan Victor, spokesman for Texas Instruments Inc. in Dallas. ''There were a lot of manufacturers, all fighting for the same 10-percent share of the market. Then, demand for computers started slowing, and the computer manufacturers found themselves with a tremendous inventory. So they stopped buying chips. For about six months there was no demand. People started selling chips for whatever price they could get.''

The darkest days were 1985 and early 1986, when 256K chips were selling for less than $2. The semiconductor industry lost about $5 billion during that period, estimated George, mostly from DRAM chip losses. Of the 11 American firms that were making DRAMs before the crunch, only 3 are still in the market-Texas Instruments; Micron Inc. of Boise, Idaho; and Motorola, which left the business but is now re-entering it. (Motorola is a special case in that its resurgence is based on technology acquired from Toshiba Inc., in exchange for Motorola`s 32-bit microprocessor technology.)

However, George said, $4 billion of the $5 billion loss was suffered in Japan. Yet the Japanese hung tight, selling chips below cost, their losses covered by other branches of the manufacturing companies.

The practice of exporting items to sell at a price below their production cost-called dumping-got Japan in trouble with the U.S. government, which imposed trade sanctions against Japan in the form of tariffs on certain items. The Japanese promised to stop dumping and also agreed to give U.S. firms greater access to the Japanese domestic solid-state market.

Dumping has ended, but it`s a moot point, since open-market prices now are far above production costs. But U.S. access to the Japanese solid-state market has remained at 10 percent, so some sanctions remain in force, said a spokeswoman for the Semiconductor Industry Association in Cupertino, Calif.







At the same time, ''After those horrible losses, most companies decided not to make the $200 million investment it takes to make a chip-fabricating plant, to make the one-megabit chips,'' he said. ''Instead, they converted some of their 256K fabrication facilities to one-megabit chips.'' The capacity could not easily be switched back to 256K chips, since the two types of chips have different compositions.


The problem (for everyone) is ''yields''-the percentage of good chips from every batch that comes out of the oven (so to speak). Yields have been so low that the industry won`t give out actual numbers.


But all sources agreed that yields are increasing. The DRAM shortage has been easing gradually since April. The Semiconductor Industry Association expects the shortage to evaporate ''in the very near future.'' Dataquest foresees a gradual price decline for 256K chips, to about $3.50 by the end of next year, as both makers and users switch to one-megabit chips. Prices for one-megabit chips, meanwhile, should slide to about $14 from about $40 by spring, and to $7.25 by the end of next year as supplies increase.







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