IBM faces yet another parts shortage

After component shortages robbed the company of badly needed sales in the second and third quarters, IBM is now having trouble getting 14.1-inch displays for notebooks.

Like the early situations, this problem is specific to IBM. The timing is a tough knock for the Armonk, N.Y.-based computer maker, which already has been struggling to meet demand for ThinkPad portables.

On Sunday, IBM learned that a manufacturing problem had all but cut off its supply of 14.1-inch liquid crystal display (LCD) panels used in two portable lines: ThinkPad A and T.

"It's not an industrywide problem," IBM spokesman Tim Blair acknowledged Wednesday. He instead described the display shortage as a "short-term hiccup that should be resolved in the next one to two weeks."

Working with its LCD supplier, IBM recently decided to switch to a thinner and lighter display panel, one that would shave some weight off the ThinkPad A and T and be easier to manufacture.

Blair wouldn't go into specifics about the manufacturing glitch other than to say the LCD supplier had "to make some changes on the line and some things were shut down" as part of the switch.

Typically, analysts say, companies avoid shutting down assembly lines when switching products to avoid shortages.

But in this case, if IBM believed the manufacturing change was "a whiz-bang switch," it might not have kept an additional product line going with the older displays, said ARS analyst Matt Sargent.

"It's hard to know what the case is, whether they were just wrong or they didn't think it through well enough," he added.

Changes in manufacturing are not uncommon, particularly for IBM, which is in the process of cutting $1 billion in costs this year from its PC division. Much of the cost-cutting revolves around how products are manufactured and distributed.

"It's not uncommon for manufacturers to make changes led by prices and availability," Technology Business Research analyst Bob Sutherland said. "These changes don't usually take more than two to four weeks to implement."

But even two weeks could put a squeeze on IBM as strong demand for ThinkPad A and T models--both introduced in May--has made them tough to come by.

In fact, in September IBM led the U.S. portable market as sold through dealers to Fortune 500 companies, according to market researcher NPD Intelect. In September, IBM had 34 percent share--down from 43 percent in August--compared with Compaq Computer at 28 percent and Toshiba at 26.7 percent.

Demand for ThinkPad portables swelled in July after A and T models started reaching the market, and IBM struggled to fulfill orders.

Gauging the ultimate impact of the display shortage is tough, Sargent said, because PC companies tend to place LCD orders far in advance of sales.

IBM's problem is an already short supply of portables with 14.1-inch displays.

According to the ShopIBM Web site, out of 20 available ThinkPad T models with 14.1-inch displays, only seven are in stock. The others are listed as available "within 4 weeks." By contrast, only one 13.3-inch model is out of stock.

Of 22 ThinkPad A models with 14.1-inch displays, IBM's Web site reports 19 are out of stock.

The problem should not affect ThinkPad i and X series notebooks because neither uses a 14.1-inch LCD panel.

The display news is another blow to IBM as it struggles to get beyond component shortages that hurt sales during the two previous quarters.

After IBM suffered a sales slowdown related to the Y2K bug, many financial and industry analysts had looked for good revenue growth during the third quarter. But IBM's revenue growth came in at half of expectations, as component shortages affecting RS/6000 and AS/400 servers hurt sales.

During the second quarter, a shortage of a component used on motherboards for ThinkPad portables and Nefinity servers led to $250 million in lost sales for IBM. Many analysts believe that without the shortfall, the company's PC division would have returned to profitability during the second quarter.

In the third quarter, the PC group posted operating income of $65 million, its first quarter in the black in about two years.