Shortage of chips could add 10% to PC prices

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PRICES OF computers could rise by up to 10 per cent within weeks because the cost of memory chips, required in large amounts for modern machines, has soared in the past three months. The increase would be the first time that the price of a PC with the same specification has risen rather than fallen over a few months.

Manufacturers are steeling themselves to introduce the hikes just as the busiest buying time of the year approaches. But industry observers have warned that unscrupulous retailers may put up the price of machines already in stock, .

Prices of memory chips, also known as RAM, have quadrupled since July. In the past week alone prices have doubled on the international "spot" market, where intermediaries buy huge amounts of chips at short notice for manufacturers.

"This could add about pounds 80 to the cost of a machine with 128 megabytes (Mbyte) of memory, which presently costs about pounds 800," said Rob Davies, a spokesman for the British company Time Computers.

"Over the past few years processors and memory have fallen in price, so this could be the first time that many PC buyers notice the price of computers increasing. That could have severe effects on the market."

Jeremy Spencer, editor of Computer Shopper magazine, said: "It's going to be quite a hike. It's going to affect every make, because they're all on very tight margins."

That will dismay manufacturers, who expect up to half their sales to domestic users to occur in the run-up to Christmas. But prices could be pushed higher, with no signs of the chip shortage easing.

Mr Spencer added: "Many retailers will try to put up the prices right away on machines they've already got in stock, even though the memory was bought ages ago."

The rise in RAM prices has been fuelled by shortages caused by factory closures in the Far East, and low yields of new chips from a new production method, said Henry Warren of Icis-Lor, which tracks the price of commodities.

The amount of RAM significantly affects the performance of a PC because it provides a rapidly accessible memory store that the processor can operate on. Even the fastest processor is hobbled without a large memory.

Many PCs nowadays have 128 Mbyte or even 256 Mbyte - but the price of the chips has risen since the summer by pounds 80 and pounds 160 respectively. Manufacturers can pass the cost straight on to the consumer, absorb it themselves in a cut-throat market, or offer machines with less memory. But the latter would severely limit the potential of a machine.

Tiny Computers, another British PC manufacturer, is now trying to decide what to do but could not rule out a price rise. RAM prices reached a historical high in 1995, when a general shortage made them more valuable, weight for weight, than diamonds.

Prices then fell rapidly as more factories opened in the Far East, reaching a record low in 1998. But the economic crisis in Asia and oversupply prompted the closure of many plants. That, allied to a change in technology to chips with double the capacity, has rapidly pushed up prices.