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Taiwan earthquake could affect holiday PC sales

Demand for PCs remains very strong, but the scarcity of critical components, due to the Taiwan earthquake, is hitting PC makers' ability to deliver systems for the holiday buying season.

    If you want to buy a personal computer, it might be best to make the move now.

    Or so say analysts who study the trends that determine PC pricing. What's happening is that last month's devastating earthquake in Taiwan is putting the squeeze on some key computer components, which means consumers may pay more for some computers.

    The quake essentially brought a two-week halt to manufacturing in one of the world's most important regions supplying the essential guts of a PC, components like chipsets, DRAM chips, and printed computer circuit boards, also called motherboards.

    In the first sign of trouble ahead, Compaq Computer warned retailers of potential spot shortages in consumer PCs, lasting into November. Compaq's warning is just a sign of bigger trouble ahead, said analysts.

    "[The problems are] going to ripple through, so you might see PCs less heavily discounted or maybe see their prices inch up a bit," said Nathan Brookwood, a principal at Insight64. "I suspect that [$500 PC prices]--with a $400 Prodigy rebate bringing it down to $99--will be increasingly rare."

    Holiday shoppers looking for the best deal on a PC might be better off shopping at Halloween, analysts said.

    And consumers buying from direct manufacturers, such as Dell Computer, Gateway, and Micron, should consider ordering early, analysts said. Gateway is currently promising PC delivery in a week from the time of the order, and Micron and Dell are promising 10 days and two weeks, respectively.

    "All you need is a stock out in one key component and you have a line down to your PC [manufacturers]," Brookwood said. "There would appear to be [what's happening] with graphics chips and some core logic."

    The biggest trouble area is notebooks, which already face display shortages, analysts said.

    "You're looking at the equivalence of four to eight weeks of lost production," said Danny Lam, a principal at Fisher-Holstein, a technology consulting firm.

    That means supply shortages, starting in early November, of critical chipsets, graphics accelerators, and other components, analysts said.

    ATI Technologies and other graphic card makers responded to the shortage by raising prices, which PC makers will have to absorb or pass onto consumers.

    CD-ROM drives are another trouble spot, because a controller chip is not available, according to industry bulletins from the Taipei Computer Association, a trade and information group covering the island and the industry.

    Taiwan accounts for about 44 percent of CD-ROM production, according to TCA, which anticipates serious drive shortages because of the quake. CD-ROM prices had already spiked 10 percent following the quake.

    The quake also affected the availability of CD-R and CD-RW drives, which were already in short supply due to increased demand.

    By itself, the Taiwan crisis might be manageable, but an unexpected shortage of DRAM chips complicates an already difficult situation.

    Memory prices spiked in early September following a slow rise starting in June. Since, several memory makers have limited supplies to PC makers, said analysts.

    No one can yet assess the ultimate impact on the holiday memory supply, said analysts and PC makers, but they agreed shortages are likely to affect the availability of computers.

    "The vendors that have the heavier emphasis on the consumer market could feel some impact from it if they can't get enough product or can't sell to consumers when they want to buy PCs," said Shelly Olhava, analyst with International Data Corporation.. Apple Computer, Compaq, Dell Computer, Gateway, and Micron all potentially face trouble, she said.

    Consumer sales, for example, accounted for 15 percent of Compaq's total PC sales during the fourth quarter of 1998, typically its strongest of the year. The warning to retailers means potentially slower sales in one of Compaq's most successful and fastest growing business units.

    Compaq downplayed the quake's overall impact and its warning to retailers. "This does not represent a serious shortfall," said Compaq spokesman Alan Hodel. "We don't see any material impact on the quarter."

    Other PC makers are similarly affected. The top PC makers selling to consumers for the second quarter, on a worldwide basis, were Compaq, Packard Bell/NEC, Gateway, Hewlett-Packard, and IBM, according to IDC.

    Some companies, like Apple, could go either way, said PC Data analyst Stephen Baker. "Apple works with so few suppliers, depending on which are affected, they could be all right or they could face serious system shortages."

    Second- and third-tier PC makers, which don't carry the clout of bigger PC makers, are likely to be hit even harder, said analysts.

    Consumers can also expect to get less for the same money or pay higher prices overall, no matter whom they buy from. "Vendors could go two ways with this crisis: They could raise their prices or take the financial hit. Cutting configurations would also be a good short-term solution," said Olhava.

    One PC manufacturer, which asked not to be identified, said it would more likely cut configurations before raising prices. Consumers could see CD-RW drives, already in short supply, and Zip drives disappearing from higher-end systems but see prices stay level.

    PC makers are also expected to offer less memory for the same money, say, 64MB or 96MB instead of 128MB.

    The biggest impact may be the sub-$600 PC market, which could see prices climb or certain systems disappear altogether.

    Whatever PC manufacturers decide, they will have to act soon. "A good portion of the problems are manageable, but [they] have to make some tough decisions over the next couple of weeks," said Baker. "Now is the time they finalize their marketing materials for Christmas."

    Compaq apparently decided to act quickly rather than wait. But it may have had incentive. Sources close to the Taiwanese situation reported major buyers were briefed on Monday about its seriousness.

    "They didn't get good news," said Lam.