Shortage of CE color screens may drag on

Demand for these new handhelds has far outstripped production capacity, sources say, a situation that will probably not be resolved for at least another year. Already, initial shipments of some of the first color palm-size PCs have reportedly been delayed due to the display shortage. These handhelds, first announced in March, are now expected to hit stores in volume during the summer.

This prolonged shortage may hinder growth of palm-sized devices based on Microsoft's Windows CE operating system, especially if the situation results in higher prices for palm-size PCs. These devices already cost more than Palm Computing's Palm devices, which garner about 72 percent of the handheld market.

The predicament is the result of a combination of factors. The overall display market is tight right now, with demand for low-cost notebook and desktop displays at an all-time high. These displays do not yield the high profit-margins of some of the fancier and larger LCD panels. The extra funds from the larger displays in turn help manufacturers crank up production. The recent Asian economic crisis did not help matters, either.

"All these different segments of growth occurred at a time when the industry chose not to expand," said Joel Pollack, vice president of the display business unit for Sharp, which manufacturers reflective color displays for Nintendo's popular Game Boy device. "It's quite true that active matrix displays are in allocation mode, which means supply is shorter than demand."

The same type of reflective color display used in the color Game Boy is also used in Compaq's Aero 2000 and Everex's Freestyle 540 palm-size PCs, which has reportedly been delayed because of the screen shortage, sources say. Sharp is the only major manufacturer of this type of display, and the Game Boy's popularity may be taxing the company's ability to keep up with demand for the color palm-size PCs.

More than 8 million Game Boys with the color screens have shipped since it was introduced last year, a rate of 94,000 units per week in 1999, according to Nintendo.

"The growth and demand has gone beyond anyone's expectations," Pollack said. Sharp makes the display in the Game Boy unit, Pollack confirmed, but declined to discuss any manufacturing contracts with palm-size PC makers. The Game Boy display could be used "generically" in many palm-size PCs, according to Pollack.

The production shortfall should be corrected by the end of 2000, he said. In the meantime, consumers may notice a shortage of products offering this type of color display and in some cases, higher prices.

"In some cases, manufacturers of equipment have absorbed some pricing changes, but there may be a lack of availability where it hasn't been before," Pollack said. "The availability of displays will improve as equipment comes online for new production. The cycle time is 18 months to two years."

Analysts say this type of cycle is typical, and that the lag time may not last that long. "It does take [two years] for a new factory to come online, definitely," said Dave Mentley, vice president of Stanford Resources. Mentley predicts the tightness to last through 1999. "There are six fairly aggressive [manufacturing and production] projects going on in Taiwan right now."

Mentley cautions that palm-size displays are a small part of the overall display market, and shortages will probably not affect the entire desktop and notebook display market. "All of the small-size displays add up to 10 percent of the market," he said. "It's not going to make much of a dent in the market--if Sharp can't supply these things, it's not an industrywide problem."

In the mean time, other palm-size PC makers are using different types of displays from other manufacturers. Philips, for example, is using its own display in its Nino 500, which began shipping this week, a company spokesperson said.