By ALEX FRANGOS
JAKARTA—The weaker U.S. dollar and high gold prices are making it more expensive to produce microchips and hurting profits, according to Marvell Technology Group Ltd. Chief Executive Sehat Sutardja.
"The cost of the weaker dollar is causing our cost of manufacturing to go up. The price of gold and plastic is going up and that's obviously hurting our bottom line somewhat," Mr. Sutardja said in an interview on the sidelines of the World Economic Forum on East Asia.
"Gold is a huge problem," he said. He said the increases were adding "tens of millions" of dollars to the companies' material costs, which are around $1.6 billion a year. Marvell had $3.6 billion in revenue in its fiscal year ended January 2011.
The price of gold, currently at $1,532 an ounce, has roughly doubled in two years. Investors have piled into gold since the financial crisis began as a way to take advantage of fears that the value of currencies such as the dollar, euro and yen are undermined by too much debt.
The dollar has also weakened broadly. A weak dollar often accompanies higher prices for commodities, which are priced in dollars globally. That is the case for oil and its derivatives such as plastics.
Marvell, which designs chips and outsources manufacturing to other companies, didn't use gold hedges to protect itself.
"I wish we hedged. But we couldn't predict it. At this point, the hedging is the wrong thing to do because it can only go down," he said, referring to the price of gold.
To get around the problem, Mr. Sutardja said Marvell, which supplies chips to BlackBerry maker Research In Motion Ltd. and Apple Inc., is turning to materials such as copper for the internal circuitry of the chips.
"There are other materials we can use—they just give us headaches," he said. It can take months to a year to make sure the new designs meet specifications and customer needs. Copper can replace gold but is less malleable.
He said the cost of plastics, which are derived from crude oil, is also a factor.
"All this speculation in crude oil is hurting the country," he said.
Mr. Sutardja, a native of Indonesia who has become a billionaire since emigrating to the U.S. and building Marvell, was in Indonesia for the first time in over a decade. He met with Indonesia President Susilo Bambang Yudhoyono to talk about improving the business climate here and investing in technology.
"I always wanted to open a design center in Indonesia, but the opportunity just never came to us," he said.
Indonesia's economy has grown strongly in recent years on domestic consumption and a mining boom. But over the past decades, Indonesia has lagged behind its neighbors such as Singapore, Thailand and Malaysia in attracting technology and other manufacturing companies.
In Asia, Marvell has design centers in Singapore, China, Japan, Taiwan and India. The right government incentives and other attractions for business have "always been missing in Indonesia," he said.
"Singapore was our first design center outside the U.S. It was because the Singapore government approached us when we were very young and they were very aggressive to attract us then," he said.
He said Indonesia needs to create a science and technology park similar to ones in Singapore and Taiwan, both places that have become hubs for technology companies.
Write to Alex Frangos at alex.frangos@wsj.com
