Cool Gadgets Hit by Worldwide Component Shortage
By Eric Auchard, Global Technology Correspondent
NEW YORK (Reuters) - Booming demand for computers, consumer electronics and especially cellphones has set in motion a worldwide component shortage that has put the brakes on a hoped-for acceleration in technology growth this year.
These shortages have led many electronics makers to put off promised shipments, delay new product introductions and warn of less-than-rosy financial results ahead -- stifling momentum for the hard-pressed technology stock sector, analysts said.
The industry quandary -- affecting the entire electronics food chain -- could spell trouble later this year among hungry holiday shoppers looking to scoop up the latest video game players, handheld computers and other high-tech gizmos.
Hot-selling Palm (NasdaqNM:PALM - news) electronic organizers, Nintendo Co. Ltd. (7974.OS) gaming devices, Motorola Inc. (NYSE:MOT - news) StarTAC cellphones and Dell Computer Corp. (NasdaqNM:DELL - news) notebook computers all have been caught short, analysts said.
``(Cellphones are) an enormous monster sucking up capacity,'' said analyst Michael Zimm of CIBC World Markets in New York.
``I have been involved in the electronics manufacturing industry for 15 years and have never seen anything like it,'' he said of the unprecedented demand for components.
Supplies are tightest for flash memory, which gives wireless phones, handheld computers and other devices their ``instant on'' capabilities, as well as capacitors that hold electronic charges and are also used in computer memories. PARTS COMPETITION STRETCHES FROM GAMES TO CISCO INTERNET GEAR
Zimm said fears about shortages had abated in early 2000 but had returned with a vengeance recently.
``Now we see that there is going to be heavy shortages until the end of this year,'' he said, adding that tightness could stretch into 2001.
In the latest signs of trouble, leading Japanese video game maker Nintendo Co. Ltd. (7974.T) said on Wednesday that it would delay the long-awaited launch of a more powerful version of Game Boy, the world's top-selling handheld game console.
Nintendo said it would put off the introduction of its Game Boy Advance machine for five to six months. It blamed a tight supply of components such as liquid crystal displays (LCDs) and other circuitry built by Sharp Corp. (6753.T) for Nintendo.
Palm, the top maker of electronic organizers, also has confirmed it is parceling out its latest devices due to competition over parts with cellphones, which contain the same memory and LCD screen components used to make Palms.
Broker SG Cowen said in a report on Wednesday that Palm rivals Hewlett-Packard Co. (NYSE:HWP - news), Compaq Computer Corp. (NYSE:CPQ - news), Casio Computer Co. Ltd. (6952.T), Sharp Corp. (6753.T) may also come up short on needed display and memory components.
Canada's ATI Technologies Inc. (Toronto:ATY.TO - news), the world's top graphic chips maker, warned on Wednesday that it will report lower-than-expected revenues and a loss for the third quarter because of a growing worldwide computer component shortage.
Even Cisco Systems Inc. (NasdaqNM:CSCO - news), the world's leading maker of Internet equipment, have seen its shares fall sharply since earlier this month after the company cautioned that parts shortages could hurt results in the next several quarters. COMPONENTS SHORTAGES HAVE ROOTS IN YEARS OF UNDER-INVESTMENT
The shortage has dampened once stellar growth outlooks for many players in the world electronics food chain, stretching from makers of the tiny electronics in Asia, North America and Europe, to assemblers, finished goods makers and distributors.
Companies caught short blame exploding demand for cellphones, which has far exceeded the forecasts of cellphone makers such as Ericsson only a few years ago.
Executives and analysts say that years of under investment in additional technology capacity are responsible -- stretching back to the inventory gluts that wracked the chip and personal computer makers in 1996 and 1997 and the uncertainties of the Asian economic crisis in 1998 and the Year 2000 bug in 1999.
Component makers benefit from sold-out product lines but may suffer in the court of stockholder opinion because their manufacturing constraints limit any hope of increased growth until more factory capacity can be brought up to speed.
Leading makers of liquid crystal displays include Sharp, Picvue Electronic Co. Ltd. (2333.TW) and Wintek (2384.TW). Flash memory makers include Atmel (NasdaqNM:ATML - news), Advanced Micro Devices Inc. (NYSE:AMD - news), Intel (NasdaqNM:INTC - news), Macronix (2337.TW), Sharp, Toshiba (6502.T), and Samsung Electronics (05930.KS).
In an effort to play catch-up, electronic device makers, semiconductor foundries, capital equipment suppliers, and contract manufacturers have begun a massive round of reinvestment in additional plant capacity around the world.
Even Intel Corp. (INTC.O) has suffered from shortages of its fastest microprocessors, leading it to announce on Wednesday a $2 billion, 3-year plan to boost chip capacity at its advanced plant in New Mexico.
However, capacity expansion of existing plants takes roughly six months to purchase and install the delicate photolithography equipment used to print micro-circuits while new plants take up to 18 months to construct.
``Of course (the capacity expansion) is not going to happen overnight,'' CIBC's Zimm said. ``But it clears up some of the doubt about early 2001.''
Zimm estimated that contract electronics assemblers such as Solectron, Flextronics, SCI, Chartered Semiconductor would see another 5 to 10 percent in additional sales growth this year if the capacity situation would ease, which he saw as unlikely.
Computer assemblers at a contract manufacturer in Guadalajara, Mexico have had to shift from mass production to one-by-one hand insertion to conserve the precious commodity parts, according to Merrill Lynch analyst Jerry Labowitz.
Elliott Rogers, global head of technology research for brokerage Credit Suisse First Boston, sees a silver lining in the component situation in that it delays the day the industry must face the return of excess capacity, a historic cycle in the notoriously boom-to-bust-boom-again industry.
He argued that product shortages create pent-up demand for products that can be realized later and that this helped extends the current growth cycle outward into 2001 and beyond.
``Demand is not satisfied: That to me is not the end of the world: One would like to see a little pent up demand,'' Rogers said. ``It also keeps you from walking over the cliff of overcapacity,'' he added. |
