Component shortages are worsening, with no relief in sight.

                          More parts are going on allocation or seeing lead-times stretch, just as leading
                          consumer OEMs and their contract manufacturers prepare to churn out products
                          for the coming Christmas season. Obtaining enough capacitors, resistors,
                          flash memory, and other components to meet red-hot demand for cell
                          phones, handheld computers, and other consumer gadgets and games
                          could prove as challenging as a round of Tomb Raider III .

                          "We don't believe this situation will change in any meaningful sense for the rest
                          of the year. We're in a fight for product, and we're in an expedite situation in
                          some cases. We're just trying to get as many parts as we can," said Steve
                          Church, co-president of distributor Avnet's Electronic Marketing Group, Phoenix.

                          "More items are being added to the shortage list daily," said Ben
                          Schwartz, vice president of strategic marketing at distributor Jaco Electronics Inc.,
                          Hauppauge, N.Y. "The most severe are tantalum and ceramic capacitors and
                          some resistors. We are starting to hear more about higher demand and
                          shortages in low-voltage power MOSFETs used in handheld products and power
                          supplies. We hear very long lead-times in logic ICs and obviously all
                          memory-type products. Flash is hardest to get, but slow static and low-density
                          static are hard to get, and we are seeing increased demand again in DRAM."
                          The higher demand for DRAM is being caused by an incredible surge of demand
                          for handheld products and the fact that PCs need more DRAM with the latest
                          microprocessors, Schwartz added. 

                          Avnet's Church told analysts last week that on the passive component side,
                          Kemet has joined AVX and Murata in going on allocation. On the semiconductor
                          side, "the list is longer than normal." Parts on allocation include small signal
                          diodes, transistors, microcontrollers (both MPC and XPC), flash, soft filters, and
                          some SRAM products, RF inductors, and RF capacitors. On the analog side,
                          Church cited long lead-times for many products including programmable logic,
                          ASICs, memory products, EPROMs, and various flash and SRAMs. "The
                          lead-times are obviously longer than they were (in the previous) quarter?and
                          this will continue," he said.

                          Will shortages limit holiday production? "I think end-consumer products could be
                          affected," said Jaco's Schwartz. "If the economy remains strong, then
                          demand for high-end consumer products will be strong. Producers may
                          not be able to produce as many as they want." 

                          But George Perris of Sierra Marketing Group, Rocklin, Calif., believes there is
                          currently double ordering going on, and that therefore supply will eventually
                          catch up with demand and OEMs will wind up getting all the parts they need.
                          "There is some double ordering in passives. I don't see a problem with end
                          products. By the end of the year, if we still have a passives crunch, that will show
                          things are more serious than we thought."

                          Asked his take on double ordering, Avnet's Church said there were some minor
                          instances where that was likely happening, but he believes that double ordering
                          is rare in this era of just-in-time delivery and build-to-order. "We don't see much
                          evidence of it," he said.

                          Meanwhile, most passives makers are adding capacity, yet are still unable to
                          meet demand, according to Dick Rosen, AVX Corp. chairman and chief
                          executive. "I don't see how it is possible for us to catch up in the next 12 months,"
                          Rosen said. 

                          "Our current estimated capital expenditures for the year 2000 will exceed $250
                          million, most of which will be spent on capacity increases in our tantalum and
                          MLCC capacitor lines and semiconductor lines," said Felix Zandman, chairman of
                          Vishay Intertechnology Inc., Malvern, Pa. 

                          "If we were to try to satisfy all the perceived demand out there today, we and all
                          of our competitors would need to double our capacities which, of course, is not
                          possible in the short term," said David Maguire, chairman and CEO of Kemet
                          Corp., Greenville, S.C. 

                          But many OEMs say they need more parts right now. "The very largest OEMs
                          and contractors get products from component makers and franchised distributors
                          at the expense of small and medium guys," said Chuck Magee, vice president of
                          sales and marketing at independent distributor America II Electronics, Saint
                          Petersburg, Fla. "The big fish get taken care of. Everyone wants to support their
                          largest customers in this environment. Our niche as an independent distributor
                          tends to be in the second tier, but now we must charge our customers higher
                          prices that are hard to swallow. Right now, we can find products for quick
                          delivery, but it is market priced." That makes it difficult for the component buyer
                          at the OEM, who must decide whether to buy at market price and raise prices, or
                          hold off and perhaps not be able to produce enough of his own products,
                          according to Magee. How does America II obtain parts now? "We pay cash
                          overseas to secure products," said Magee.

                          Meanwhile, the flash memory market is expected to see triple-digit
                          growth this year. IC Insights Inc., the Scottsdale, Ariz., market researcher,
                          estimates the 2000 market for flash will increase 119 percent to reach $10 billion.
                          The firm last month called flash "the fastest growing and arguably most closely
                          watched IC product segment in the year 2000." 

                          The No. 1 and No. 2 flash suppliers in the world are Intel Corp., Santa Clara, and
                          Advanced Micro Devices Inc., Sunnyvale, Calif. Other flash players are Atmel
                          Corp., STMicroelectronics BV, Silicon Storage Technology Inc., and traditional
                          DRAM stalwarts who are looking for diversity and like the looks of the flash
                          market, including Hyundai, Samsung Semiconductor, and Micron Electronics. 

                          At Silicon Storage Technology Inc., the Sunnyvale-based fabless flash
                          memory firm, "the market demand for our products, old and new, is
                          so strong that nearly every density of product is on allocation despite
                          the substantial increase of our production capacity (via manufacturing
                          partners)," said Bing Yeh, president and CEO. 

                          The larger flash players such as Intel are adding capacity, but are
                          having a tough time keeping up with demand, according to Steve
                          Cullen, DRAM analyst at Cahners In-Stat Group. As for DRAM,
                          Cullen points out that tightening in the DRAM market manifests itself
                          when prices stop dropping, or aren't dropping as fast.

                          "In tight DRAM markets, prices don't always go up, they just stop
                          going down," said Cullen. "Anything less than a 30 percent per year
                          drop is an increase. (Christmas) may be a little tight, but I think the
                          real tightening will come over the next two to three years. 2003 could
                          look like 1995."

                          Meanwhile, Intel has been struggling to meet demand for its Pentium
                          III processor products ever since it announced plans in October to
                          convert its fabs to a new 0.18-micron manufacturing processor it calls
                          Coppermine. PC OEMs say that it immediately became a challenge to
                          get ample supplies of Intel's top-of-the-line processors.

                          As the crunch continued into 2000, Intel had consistently portrayed its
                          supply problems as a short-term phenomenon, first saying that the
                          shortage would abate by March. Two weeks ago, Andy Bryant, Intel
                          chief financial officer, warned supplies will continue to be tight through
                          the end of the second quarter. "We undercalled demand," Bryant
                          said at a meeting with financial analysts in New York last week. "We
                          don't believe that will happen in the current quarter."