For PC Makers, 'Tis The Season To Be Worried
Oct 18, 1999 (Tech Web - CMP via COMTEX) -- Shortages of critical
components, price hikes, and product delays are sowing uncertainty in
the PC industry, forcing almost weekly supply re-evaluations through
the end of the year.
In a normal season, PC makers would be putting the finishing touches on
their holiday models. But the Oct. 25 introduction of Intel's
Coppermine processor, the delay of its Camino/Direct Rambus DRAM
platform, and the possible launch later this year of Windows 2000 will
force some OEMs to redesign their PCs at least twice as they gear up
for the holidays.
Adding to the confusion, the fallout from last month's earthquake in
Taiwan has OEMs and suppliers rushing to establish lines of
communication and lash down the supply chain. While there are signs the
industry is wrestling these uncertainties into a manageable bundle,
several unanswered questions are causing system makers to keep a close
eye on their component budgets.
"There's a lot of stuff that's still in the realm of speculation now,"
said Kelly Spang, an analyst with Technology Business Research, in
Hampton, N.H.
Indeed, major PC OEMs have come forward in the past few weeks warning
analysts that unexpected component spot shortages may affect their
shipments. Earlier this month, Hewlett-Packard president and CEO Carly
Fiorina told analysts she was "sure of some disruption and delay in
some elements of [HP's] PC supply chain."
Likewise, officials at Houston's Compaq last week said they predicted
some near-term spot shortages in certain unspecified desktop-PC
products during October and November.
Although supply-chain fluctuations are affecting virtually all PC
components, the availability of DRAM is being watched most carefully by
vendors such as Hitachi Semiconductor (America), in San Jose, Calif.
While Taiwan makes only a small fraction of the industry's DRAM, strong
demand and a general lack of capacity have driven prices up sharply in
the past eight weeks.
Even though Hitachi now only ships about 20 percent of its bit capacity
through the PC channel, market conditions have forced it to take the
unusual step of renegotiating DRAM contract pricing about every other
week as opposed to once a month.
"The market collapse broke some of the standard rules for how prices
get negotiated," said Ron Bechtold, vice president of Hitachi's DRAM
division.
After years of surfing a steady decline in DRAM pricing, some OEMs are
now sacrificing main memory for other, higher-profile components. Round
Rock, Texas-based Dell, for example, is already the talk among
suppliers for its willingness to cut the standard DRAM load-out. As a
build-to-order supplier, Dell is free to configure systems with a fixed
amount of memory and then add or subtract modules on the production
line.
This summer, a typical configuration for Dell's Dimension desktop PCs
would have been 128 megabytes, according to Ron van Dell, director of
the Dimension line. But the rising cost of DRAM has forced the company
to start configuring Dimensions with less memory, he said.
"The market collapse broke some of the standard rules for how prices
get
negotiated," -- Ron Bechtold Hitachi Buyers approach a Dell PC purchase
"with a certain share of wallet, if you will," van Dell said. "Instead
of adjusting the DRAM configuration from 96 to 128 MB, they may spend
that somewhere else, on a processor speed bump, perhaps. People are
going to weigh the memory cost more heavily."
That means an enormous number of buying decisions still remain for the
holiday season. Consider: The XPS500, one of Dell's most popular
high-end machines, contains a 500-MHz Pentium III, 128 MB of SDRAM, a
13.6-gigabyte hard drive, Nvidia's Riva TNT-2 graphics card with 32 MB
of DRAM frame buffer, an 8X DVD-ROM, plus assorted peripherals and
software for $1,840. Dell's fastest machine uses a 600-MHz Pentium III.
Analysts like Technology Business Research's Spang said they are
predicting the typical performance PC sold by Dell and others this
Christmas will average in the 500-MHz range, with OEMs shipping
extremes in disk-drive capacities -- from 13 to 27 GB -- as well as
graphics chips.
However, OEM buyers must consider Intel's plan to ship its Coppermine
processors at frequencies up to 733 MHz -- even if sources predict the
fastest chips will cost more than $750, a sharp jump from the $615
600-MHz Pentium III. Moreover, if Intel makes good on its promise to
launch the twice-delayed Camino chip set before the end of the year,
then a Direct Rambus skew and premium must be factored into the mix.
Advanced Micro Devices' high-end Athlon processor represents another
wild card for this year's fourth quarter PC market. Although early
issues associated with motherboard availability threatened a seamless
launch, the processor is in such apparent abundance that it's prompted
Compaq and IBM to add new models based on the chip, according to Spang.
An AMD spokesman declined to comment.
Whether the Athlon can build a head of steam amid the uncertainty of
this year's holiday sales season is still in question. However, at
least one PC maker, HP, said, in an effort to stabilize its product
offerings, the company is launching just one Coppermine-based platform.
When asked if it plans to substitute Coppermines with Athlons, an HP
spokesman replied, "Not yet."
The effect of the impending launch of Microsoft's Win 2000 operating
system represents another concern for OEMs. According to reports and
analysts, Win 2000 is slated for a December release, meaning PCs with
the new operating system won't ship until after the first of the year,
perhaps even delaying some OEM component purchases.
What is known is that Win 2000 will drive up DRAM consumption.
Microsoft specifies that a "Windows 2000-ready" PC must contain a
minimum of 64 MB of SDRAM, but OEMs often double the minimum for
optimal performance, bumping the average DRAM load-out to 128 MB.
"To me, Windows 2000 will have a greater impact on the price of DRAM
than the quake in Taiwan," Spang said.
When it comes to graphics chips, buyers may find they have more wiggle
room. According to analyst Jon Peddie of Jon Peddie Associates, in
Tiburon, Calif., graphics-chip vendors aren't raising prices so much as
they are eliminating volume discounts -- and selling older inventory in
the interim. Spang added that the new Intel 810E chip set will likely
sell well because its stable supply and integrated graphics features
will contribute to lower cost.
Copyright (C) 1999 CMP Media Inc.
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