Laptop bottleneck costs IBM

As first reported by CNET News.com, the ThinkPad shortages, along with those affecting Netfinity servers, cost IBM about $250 million in sales during the second quarter.

IBM had attributed the problem to a single component unique to ThinkPad and Netfinity motherboards. The problem apparently had to do with production changes made by the component's supplier, creating a shortage of motherboards used in both product lines.

ThinkPad general manager Adalio Sanchez said the one-time problem affecting motherboards and other industry-wide component shortages led to the supply situation.

"Those issues are largely behind us," he said. "The T series is improving, and by the end of August we will be in decent shape. There is some supply of the T20 today."

Sanchez acknowledged that A series models are more constrained, but that is in part "because they have been extremely popular with the university crowd. In fact, yesterday we delivered 3,000 to (the University of North Carolina). Tomorrow we're delivering Wake Forest."

A20 models are expected to remain in short supply "all the way until mid- to late September," he added.

For IBM, the timing is not good, as it comes during one of the busiest selling seasons of the year and at a time the company is struggling to turn around its money-losing PC division. Servers and portables are the division's only two profitable product lines.

Armonk, N.Y.-based IBM has largely resolved the server shortage, with only one model in short supply. But the ThinkPad situation has worsened rather than abated, as the company had promised.

IBM had predicted ThinkPad T20 models would be readily available in late July and A20 notebooks by mid-August. But IBM's Web site today reported only two of about 40 A20 configurations in stock and one out of 15 T20 configurations. Delivery, according to the Web site, is expected "within four weeks."

Sources at a major distributor, who asked not to be identified, confirmed IBM's ongoing ThinkPad shortage.

Out of 106 ThinkPad configurations, 76 are back-ordered. Hewlett-Packard, by contrast, had only 14 out of 109 notebook configurations back-ordered. Compaq Computer offers 68 configurations of Armada notebooks, 18 of which are back-ordered. Toshiba is back-ordered on eight out of 23 configurations.

When viewed another way, the distributor sources said, the shortages are disastrous compared with those of competitors: IBM has about 20 times as many back-ordered units as Compaq and Hewlett-Packard and eight times as many as Toshiba.

ThinkPad T20 models with 700-MHz Pentium III processors are the hardest to find, with many configurations back-ordered 500 units or more.

"Looking at the results...the ThinkPad A20 and T20 have widespread availability problems compared to their competitors. As a result, their market share has been dropping off in the dealer channel," said ARS analyst Matt Sargent.

While the T20 and A20 are two of IBM's newest models and in great demand, other ThinkPads are also in short supply. Both 570 models listed on the company's Web site are out of stock, as are two out of five ThinkPad 240 configurations.

Consumer units available
Fortunately for IBM, consumer models, which typically are big sellers during the lucrative back-to-school buying season, are readily available. Virtually all ThinkPad i Series 1200, 1300 and 1500 configurations are in stock through IBM and dealers.

According to retail sales data from market researcher NPD Intelect, the shortages have cost IBM. In June, in terms of notebook revenue, IBM dropped to 25 percent market share from 30.90 percent a year earlier. Toshiba moved into the top spot with 26 percent share, up from 23.20 percent share a year earlier. Compaq had 23.50 percent market share for June, followed by Sony at 8.60 percent, HP at 7.80 percent and Apple at 5.60 percent.

NPD Intelect culled the data from retail and mail-order outlets and corporate dealers selling to Fortune 500 companies.

"Obviously losing share in a market they want to hold onto, you're losing 5.9 percent year over year; you're clearly being affected," said NPD Intelect analyst George Meier.

With shortages still a problem, IBM's PC division could take yet another revenue hit during a time of badly needed recovery. The division plans to cut $1 billion in costs this year as part of ongoing restructuring and streamlining of operations. During the second quarter, the PC group lost $69 million, down from a loss of $169 million the first quarter.

The shortages are likely to cost IBM some back-to-school and government sales, said Technology Business Research analyst Bob Sutherland. "It is not a good time to be having this kind of problem."

While students could still buy available ThinkPad models or delay their purchases, government agencies face a firm buying deadline. Many agencies go on summer buying sprees as they look to exhaust their budgets before the federal fiscal year closes Sept. 30.

Still, not all the news is bad.

Server shortages, which accounted for the bulk of last quarter's $250 million in lost sales, have lessened substantially, with only one model, the Netfinity M3500, hard to come by. Of seven M3500 configurations listed on IBM's Web site, only one is in stock. However, other Netfinity models, with a few exceptions, appear to be widely available.