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Graphics leader ATI may raise prices

The move would follow similar actions by S3 last week and could portend a spike in personal computer prices for the holiday season.

ATI Technologies, the world's largest graphics chip company, may raise prices as a result of the component shortage developing in the wake of the recent Taiwan earthquake.

The move by ATI, if taken, would follow similar actions by S3 last week and could portend a spike in PC prices for the holiday season. Price hikes may possibly also result in market share increases for graphics chip companies that lack Taiwanese connections, observers speculated.

Graphics chips are some of the most crucial chips in a computer, along with the main processor and chipset. Though the supply of processors, such as Intel's Celeron and Pentium III, do not seem to be affected in any significant way by the quake, availability of graphics chips and chipsets is shrinking rapidly.

Many of these products are fabricated by Taiwan-based manufacturing giants United Microelectronics Corporation (UMC) and Taiwan Semiconductor Manufacturing Corporation (TSMC). Both companies reported damage because of the quake.

All these components are used to build motherboards, which are also in short supply in some cases.

"We will likely increase prices," said Jo-Anne Chang, manager of investor relations at Toronto-based ATI. "There are cost issues we have to deal with...[for instance] memory prices are going up," she said.

Pricier components can mean more expensive PCs or, at the least, less-dramatic price drops than the market has become used to in the last couple of years. The Taiwan earthquake could put a damper on the "free" and ultra-low-cost PC market, according to analysts.

Chang said that her company has three to four weeks of graphics chip inventory. The most recent report from Taiwan manufacturers is that they are at 80 percent capacity, she said, somewhat behind official statements from some manufacturers. TSMC's most recent statement, for example, said 95 percent of the chipmaking equipment had been "released for production."

But Chang denied that they are telling some customers that supply of chips will be delayed because of the earthquake. Availability of the company's popular "3D Charger" add-in circuit board, for instance, is limited, but this came about before the Taiwan earthquake, she said. She also said that, to some extent, the increase in demand for memory, which can affect supply, happened before the earthquake.

Analysts say the impact of the earthquake will differ, according to company and market. "The effect of the earthquake will vary among graphics vendors, since not all have their chip production in Taiwan," said Peter Glaskowsky, an analyst at Microprocessor Report.

"Most [PC makers] have qualified more than one type of graphics chip for their systems. Price increases or supply reductions on one brand or type of chip will likely prompt [them] to shift purchases to another brand until availability of the first brand improves."

But he added: "Some systems are aimed at markets for which only one or two types of graphics chip are suitable. The makers of these systems may be obliged to pay more for the chips they need, and pass the cost increase along to the consumer."

ATI's Chang asserted that most of this is out of ATI's control. This is "part of a bigger event?we have to monitor this very carefully. We are trying our best to have product available but facts unfold daily."

Micron Technology, the largest U.S.-based manufacturer of memory chips, has also been raising prices, though its plants are located in the U.S. and therefore price hikes are happening as a reaction to market forces.

"It is hard to break out the impact of Taiwan vs. the market forces in play prior to Taiwan [but] prices have indeed gone up," said Kipp Bedard, vice president of corporate affairs at Micron.

Delays in Rambus-based computers have become another major cause behind the memory price hike, others have said. Because of postponements in the delivery of Rambus components--unrelated to the earthquake--the market was shifting back to standard SDRAM memory chips, causing shortages.