NY Times on shortage of semi components
nytimes.com
Shortage of Technology Parts Is Still
Dampening Results
By BARNABY J. FEDER
I.B.M. Sun Microsystems, Ericsson —
the list of companies reporting that their
recently completed quarter's sales and
earnings were crimped by component
shortages is not only broad but it is led by
many of the biggest names in the global
communications and information technology
sectors.
The overall impact of the shortages appears to
be down this quarter from earlier this year,
now that tens of billions of dollars have been
committed to expanding the component
makers' capacity. While some of biggest
projects, like I.B.M.'s $2.5 billion investment
to build a new factory in East Fishkill, N.Y.,
will not be online for two or more years, the
component makers' spending includes
numerous smaller investments that are already boosting production. At
the same time, the pressure is easing because some large cellular phone
manufacturers like Motorola have cut back their projections of
consumer demand and thus their anticipated component orders.
Still, the prevailing view among analysts and industry executives is that
constraints could continue to affect manufacturers of computers, cell
phones and numerous other electronic devices well into next year.
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Nonetheless, the current cyclical shortage is remarkable in several
respects. For the first time since the early 1980's when VCR's and video
games were factors in the electronics market, the cycle is not being
driven by the personal computer business. Component manufacturers
were caught off guard in 1999 as wave after wave of unexpectedly
strong demand rolled in from the cell phone market, the numerous
companies building the communications networks supporting the Internet,
and wireless device makers like Palm. Still more demand arose from
old-economy products like cars and toys. Earlier this year, Mattel Inc.,
whose products include the Elmo talking doll, said that shortages of
microchips could cost it $100 million in lost sales by the end of this year
and Hasbro Inc., Mattel's biggest rival, was forced to delay introduction
of Shelby, a friend for its interactive Furby doll.
"The growth rates for some of these things has been incredible," said
Douglas Andrey, director of finance for the Semiconductor Industry
Association. "The second half of 1999 was one of the strongest we have
ever seen."
Throw in economic recovery in Asia and the absence of a substantial
slowdown that many expected from Year 2000 computer disruptions
and the end result was a shock to the electronics supply chain.
The component shortages have ranged across a far wider variety of
components than in past cycles, according to many analysts. In some
cases, manufacturers have found themselves scrambling for such
commodity items as diodes and resistors.
"I've been in the industry 40 years and I've never seen demand like this,"
said Glyndwr Smith, senior vice president at Vishay Intertechnology
Inc., a leading producer of capacitors and resistors based in Malvern,
Pa. Vishay has begun allocating its production capacity for next year
among its major customers.
"In January, we estimated we would be meeting demand by
Thanksgiving," Mr. Smith said. "Now we are estimating midsummer of
next year."
The shortages have produced a wild ride for investors in the component
companies. Vishay's stock, for example, closed at $26.88 yesterday,
down 57 percent from its high in May when it was one of Wall Street's
darlings, but still up 68 percent from a year ago.
The component companies say current conditions have encouraged many
customers to seek multiyear supply agreements. In the past, customers
who sought such agreements were trying to lock in low prices. These
days, they are trying to guarantee supplies. |
