Strong, bullish article on flash memory demand.
bloomberg.com
Technology News
Fri, 21 Jul 2000, 11:47pm EDT
Agilent, IBM, Ericsson Feel the Sting of Electronics-Component Shortages
By Michael Lovell
Palo Alto, California, July 21, (Bloomberg) -- Companies from Agilent Technologies Inc. and International Business Machines Corp. to Ericsson AB are losing sales because a parts shortage is preventing them from making computers and communications gear.
Agilent, which sells everything from ultrasound devices to phone-network testers, said shortages may cut profit by as much as half from the year-earlier period's. Ericsson, the biggest maker of mobile-phone networks, blamed losses in its phone-making unit on a lack of flash-memory chips and other parts.
The dearth of semiconductors, capacitors, liquid crystal displays and flash memory already has sapped profit at Dell Computer Corp. and cut sales growth at Palm Inc. and Nintendo Co. Now the shortages may linger as long as two years because parts makers weren't prepared to gear up so quickly after an industrywide slump in the late 1990s. That could take a toll on more companies.
``I don't think this is something that turns around in a quarter,'' said Kurt Brunner, a fund manager at Swarthmore Group Inc., which has $750 million in assets and owns shares of Cisco Systems Inc. and Tellabs Inc.
Agilent shares tumbled 25 1/2, or 35 percent, to 47 1/2 in New York Stock Exchange trading after last night's profit warning for the fiscal third quarter that ends July 31. About 19 million shares changed hands, more than four times the three-month daily average. Ericsson American depositary receipts dropped 2 3/4 to 19 13/16.
Caught by Surprise
Parts makers say they were caught by surprise by the escalation in cell-phone use.
Motorola Inc., the No. 2 mobile-phone maker, predicts 425 million to 450 million cell phone shipments industrywide this year, up from a forecast of 400 million as recently as May.
``We're all expanding, but we can't expand enough,'' said Benedict Rosen, chief executive of AVX Corp., the world's No. 2 maker of ceramic capacitors used in cell phones and computers.
Rosen last month traveled to South Korea and Japan to speak with customers such as Sony Corp. Last week he flew around the U.S. on a similar mission to find out what his customers want.
``The word is the same everyplace. `We need more parts,''' Rosen said. AVX will spend $275 million this year to expand its manufacturing, up from earlier plans for $225 million.
Lack of a single multilayer ceramic capacitor, which costs less than a penny and can be smaller than a grain of salt, can prevent a cell phone from being built at all. Tight supply is leading to price increases for tiny resistors and capacitors, unusual because prices typically fall over time. Rising prices can eat into profit margins.
Kemet Corp., the biggest maker of solid tantalum capacitors, will raise prices in September. Vishay Intertechnology Inc. has said prices for its parts are rising 5 percent a quarter.
Profits Reduced
Sales of flash-memory chips, which retain information in devices when the power is off, will rise to about $15 billion in 2002 from about $8 billion this year, according to Dataquest Inc. Even so, analysts say chipmakers can't add capacity fast enough to meet demand from makers of cell phones and digital cameras.
Analysts estimate that mobile phones account for as much as 40 percent of the flash market.
Ericsson said a lack of chips will cut pretax profit by as much as $560 million this year. Royal Philips Electronics NV, Ericsson's main supplier, said a fire at a New Mexico plant halted production for six weeks in the second quarter. The fire hurt Philips's phone production and supplies to its customers.
While that problem was temporary, Amsterdam-based Philips said its own suppliers can't provide enough parts either.
A lack of flash-memory chips may keep Philips from selling its target of 18 million mobile phones this year.
Shortages of motherboards, which contain the main chips of a PC, cut into second-quarter sales of IBM's notebook and server machines, Chief Financial Officer John Joyce said Wednesday.
The shortages contributed to IBM's personal-computer business losing $69 million before taxes in the period.
NCR Corp. yesterday reported $50 million in lost or delayed sales because of shortages of cash register and scanner parts, including glass. NCR said supplier Solectron Corp., the No. 1 contract maker of electronics, didn't get it enough components.
``Demand continues to outstrip supply,'' said Thomas Alsborg, a Solectron spokesman. ``We haven't been able to fully keep up.''
Computers Need Chips
The computer industry has struggled with shortages all year. Last month, Dell CEO Michael Dell said the No. 1 direct seller of PCs faced parts shortages from suppliers such as Intel Corp.
``Some components are in a shortage, and we're having to work hard to get the supply we need,'' Michael Dell said at the time.
Dell's shares fell 7 percent on Jan. 27 after the company said fiscal fourth-quarter profit was little changed, in part because of shortages.
Intel and rival Advanced Micro Devices Inc. are struggling to keep up with demand for flash memory and microprocessors. Advanced Micro said it is almost sold out of flash memory for the third quarter and doesn't expect the supply to start catching up with demand until as late as 2002.
Advanced Micro raised its forecast for processor shipments this year to 28 million units from an earlier forecast for 25 million.
``All the chip companies are saying they are sold out and demand will go on for a few years,'' said analyst Rick Whittington of BancAmerica Securities, who rates both Advanced Micro and Intel a ``strong buy.''
The Food Chain
Even the companies that make the equipment that make the chips can't get enough chips.
ASM Lithography Holding NV, the world's second-largest maker of equipment that projects a circuit image onto a silicon wafer, said this week it can't get chips for its own machines as it races to fill orders from chipmakers.
The Dutch company said it could make as many as 100 more of its multimillion-dollar machines this year if not for part shortages from suppliers, from integrated circuit makers to lens and precision machinery tool companies.
``We're sold out for the year,'' Doug Dunn, chief executive of ASML, said Wednesday. ``It's frustrating that our suppliers can't deliver but we're addressing that.''
Shortages are directly reaching the consumer. Pace Micro Technology Plc, Europe's biggest digital set-top box maker, said it too is short of chips. That's forcing Telewest Communications Plc, the U.K.'s No. 2 cable company, to ask customers to sign up later for digital television services and make do with analog services now.
Some investors are less concerned about the shortages.
``Sometimes these things tend to get overblown,'' said Arthur Bonnel, manager of the $270 million U.S. Global Investors Bonnel Growth Fund, which owns 40,000 to 50,000 shares of Cisco.
Cisco had a hard time getting flash memory earlier this year, analysts have said. But its position as the world's biggest maker of computer-networking equipment and second-biggest company at $480 billion in market value help it get what it needs.
``In an industrywide shortage, if you're the gorilla, you're going to get the bananas,'' Bonnel said. ``Cisco definitely is a gorilla in this industry.'' |
