CNET también está disponible en español.

Ir a español

Don't show this again

Culture

Electronics companies search for spare parts

The yin and yang of the electronics industry have fallen out of balance, causing wide-ranging shortages of components that will likely last more than a year.

The yin and yang of the electronics industry have fallen out of balance, causing wide-ranging shortages of components that will likely last more than a year.

Capacitors, flash memory, liquid crystal displays (LCDs), computer microprocessors and many of the other parts that go inside personal computers and consumer devices are or soon will be in tight supply.

The shortages have crimped the supply of cell phones, MP3 players and high-end PCs. In the future, consumers may see the end of the price wars they've come to know and love, fewer choices or even price hikes, analysts say.

Although many factors are contributing to the shortages, one of the chief causes remains the high-risk nature of manufacturing. Semiconductor fabrication plants cost billions of dollars and take years to build. Demand can shift suddenly; a frenzy of plant construction in 1995 led to a three-year lull for memory makers and others.

Now, the opposite problem exists. Cell phone sales are expected to grow to 435 million units--more than 60 percent--this year, according to Texas Instruments. PC growth will be in the high teens again, while the handheld industry, which was in its conceptual stage during the last downturn, is gobbling up flash memory and other chips.

Unfortunately, component makers haven't had the willpower, let alone the money, to build plants to meet this demand.

"Components are not a high-margin business, so they got slaughtered in the downturn," said Danny Lam, an analyst with FHI Research.com. "So now there is no capacity."

Cell phones, which depend on digital signal processors and flash memory, have contributed the most to the shortages.

"First and foremost is flash memory," said financial analyst Chris Chaney of A.G. Edwards & Sons. "Second is capacitors, and third is flat panel displays."

Chaney said most of these cell phones come from the top three or four manufacturers, giving those companies major buying power.

"If they are trying to order an LCD, they're going to have a much easier time than, say, Palm," he added.

Palm said this week that shortages of LCDs and flash memory are slowing production, while Nintendo delayed the introduction of its next-generation Game Boy amid similar concerns.

Other parts are in short supply because of a paucity of raw minerals. Capacitors, a basic part of every electronic device, cost pennies but are tough to find because of a shortage of tantalum, a rare earth element. In the LCD market, the problem is a lack of glass-factory space combined with a shortage of drivers, the chips that allow monitors to communicate with computers, FHI's Lam said.

Some optical drives, such as rewritable CD units and DVD players, use RF amplifiers, also used in cell phones. Because the cell phone makers are getting the bulk of the allocations, the drive makers are having trouble meeting demand, said Dataquest analyst Mary Craig.

Canadian graphics chipmaker ATI Technologies yesterday warned it expects a loss in its May quarter partly because shortages of processors, DVD drives and capacitors are leading some of its customers in Europe to slow PC production.

"The momentum from the buyers is still there, so we're encouraged," said ATI president Dave Orton. "(But) for the next few months, we're still very cautious."

Flash memory, where supply is the tightest, has seen a flurry of investment from the vendors as well as deals from goods makers trying to guarantee supply.

Intel said this week that it plans to spend $2 billion over the next few years to boost its flash capacity, while rival Advanced Micro Devices said it will add a third flash memory plant in its joint venture with Fujitsu.

Intel is facing a shortage of Pentium processors. The company said it underinvested in its capacity to build these chips. As a result, computer makers have been strapped to find enough Pentium IIIs since October. The situation is expected to improve in the second half of the year, Intel executives have said, but the overall shortages will likely linger for 12 months.

In addition, investment activity today would not have effects until later. A.G. Edwards' Chaney estimates it takes two years from when a new plant is announced for it to reach full production and at least 18 months to get any products.

"The investment is coming; it's just kind of late," Chaney said.

The parts shortages appear to be fairly widespread. Earlier this month, Cisco chief executive John Chambers said his company is seeing increasing component shortages, and it may see a "tight market" for parts over the next two years.

Chaney said that while the shortages are real, he does not expect them to lead many companies to miss second-quarter earnings estimates. For companies that do come in below estimates, Chaney said the stocks could take a beating.

Companies that could be affected are the "fabless" semiconductor companies, which use foundry companies such as Taiwan Semiconductor Manufacturing or United Microelectronics to make their parts. Foundry companies are booked solid, which could put an effective ceiling on some of these companies.

In the flash memory market, for instance, Eric Rothdeutsch, an analyst at Merrill Lynch, said earlier this month that companies such as Intel, AMD and Atmel should be able to capitalize on the shortages because they have their own factories. Others may not be so lucky.

But Chaney and other analysts caution that the supply shortages could become an excuse for companies to explain away other problems.

Dataquest's Craig said that while there are shortages in the optical drive market, she doubts the problems are severe enough to cut overall PC production.