Shortages in Electronic Parts Are Only Part of the Story
By Jim Seymour
Special to TheStreet.com
Originally posted at 1:05 PM ET 10/3/00 on RealMoney.com
I know I've been sounding pretty dour lately, but to go the other way for a moment, I think the parts-shortages worries we're hearing so much about this week have to be put in context. The hand-wringing over Handspring (HAND:Nasdaq - news), for example, is seriously overdone.
Sure, everyone is running into "supply-chain discontinuities," as I heard a PR person call the problem the other day. But while it does need to worry about things like a steady supply of displays, etc., Handspring is at least free of the problems being faced by Palm (PALM:Nasdaq - news), which uses flash-memory parts that are among the components that are the hardest to get. (Digital cameras are booming, and are absorbing a lot of flash production. Cell phones also use a lot of flash parts.)
I'd think a little about the ripple effects of shortages due to component problems. If Palm is unable to ship as many personal digital assistants in the upcoming Christmas quarter as it could sell, absent component shortages, that's going to hurt Palm resellers, too. And it's generally agreed that Palm was hit hard by that in the quarter that just ended, actually shipping only about three-quarters as many units as it could have. Think Circuit City (CC:NYSE - news). Think Best Buy (BBY:Nasdaq - news).
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Also on the theme of component shortages, Dell (DELL:Nasdaq - news) CEO Michael Dell told an audience in Hong Kong Monday that the company is seeing surpluses of some key components, such as DRAMs, after competitors overbought. Dell is now picking up those parts cheap, on the spot market. He also inferred that Dell isn't worried about shortages. On the other hand, Dell is now reaping the rewards of the multiyear supply contracts it has signed with such primary suppliers as Toshiba and IBM. These deals, usually valued by the principals in the $3 billion to $5 billion range, are real winners for Dell, locking up supplies of key components for years ahead -- while not actually requiring Dell to buy anything like that much gear.
The rich get richer ...
By the way, with Dell now under $30, I get a steady trickle of emails from RealMoney.com readers asking if, as I said early in the year, I still expect to see Dell trading in the $70s by the end of the year, based on the strength of its server and storage businesses.
No, of course not. Missed that one.
But those businesses are strong and getting stronger, and when Dell starts to move back up, it will be largely on the backs of those two lines of business. Plus, its blooming notebook business.
I should also add that Dell said Monday he still sees the company hitting its 30% revenue-growth prediction for this year.
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Speaking of Circuit City, have you been watching its cutbacks in floor space and inventory on some traditional mainstays -- refrigerators, microwaves, washers -- in order to free up both inventory capital and space for electronics, especially PCs? I commented on this subject months ago, when Circuit City said it was going to change its product mix, but I've been amazed on tire-kicking trips at how fast Circuit City has made the transition. That was a lot of old white-goods inventory to move, a lot of store redesign to pull off.
It looks to me as if, despite the gloom and doom about PCs, Circuit City is getting ready for a big, big fourth (calendar) quarter in computers. And selected other consumer-electronics gear, such as MP3 players, new cordless phones, etc.
It's a big bet, and if Circuit City timed this right, the stock should move as we get monthly sales reports through the end of the year. If not, well, maybe it can move the washers and dryers back in.
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The Semiconductor Industry Association released figures Tuesday showing worldwide sales growing 53%, year over year, according to its latest (August) numbers. The increase is across the board, both by chip type and by geography. But C|net points out that within semiconductor types, the differences are dramatic. Increases in sales of flash-memory parts, for example, top 100%, while the sales of pricey central processing units grew only in the single-digit range.
On a geographic basis, the Asia-Pacific region led the parade, up 60.2%. The Americas were up 50.3%.
Looks like sales are going to support the Semiconductor Industry Association's forecasted 30% annual growth for the year 2000. Now if only we could get the Street, full of gloom and doom on semis, to look at these figures.
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