Component shortages becoming critical

From...

June 26, 2000
Web posted at: 10:34 a.m. EDT (1434 GMT)

by Martyn Williams and Terho Uimonen

(IDG) -- It looks like a long hot summer is in store as shortages of components in several key sectors begin to make their presence felt and electronics companies are forced to scour the world for vital spare parts and, in some cases, push back product launch plans.

Nowhere is this being felt more than in the computer memory and LCD (liquid crystal display) markets.

The recent price trend of computer memory tells the story. The spot price of a 64M-bit SDRAM (synchronous dynamic random access memory) chip is around $8.50 per chip at present from a low of just over $4.50 per chip in February, according to the American IC Exchange (AICE), an online marketplace for memory and other commodity chips.

To be sure, the prices are still way off the highs of $20 per chip seen last year, but the pricing trend is clearly up.

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The bad news for users is that this all adds up to higher end-prices for systems and devices, and a solution could be a year or more away.

With plants now operating at maximum capacity the only way to increase the number of chips coming onto the market is to build new factories and that can't be done overnight. Additionally, chip industry executives worry that even with the new capacity, it may not be enough to keep up with the faster expanding demand.

"Our total wafer capacity is limited," said Keichi Shimakura, associate senior vice president at NEC, one of the world's largest semiconductor manufacturers. "We are investing in new technology and new plants but maybe it won't be enough to catch up."

The root of the problem can be traced to several factors, said Shimakura. First, the number of devices that require memory chips is multiplying as cellular telephones, digital audio players, PDAs (personal digital assistants) and digital televisions all begin to become more common. The amount of memory being put into existing devices is also increasing.

"From now until 2001 the actual personal computer base will expand by 20 percent but the amount of memory in PCs is getting bigger so bit growth (growth in terms of actual memory bits) will be 70 percent," said Shimakura. "From the fiscal second quarter (the period from June to August) the memory shortage is clear."

Other executives in the industry agree with Shimakura.

"The DRAM industry is going into a shortage," predicted Farhad Tabrizi, vice president of strategic marketing and product planning at South Korean memory supplier Hyundai Electronics Industries, speaking at a seminar in Taipei. The company is one of the world's largest suppliers of memory chips.

For PC makers this all adds up to bad news. Shortages of DRAM chips, which are used as main memory in PCs may further compound the woes of vendors who already are reeling from chip giant Intel's inability to supply sufficient volumes of its high-end Pentium III processors. The tight processor supply situation is likely to remain into the second half of this year, an Intel spokesman said earlier this month.

With demand growing faster than supply the result will not just be higher prices. Some companies will find themselves unable to buy components at any price and this will delay product launches and supply to consumers.

One of the areas where this is being particularly heavily felt is in the mobile telephone sector. New applications such as wireless Internet are requiring new handsets that pack evermore chips and technologies.

As a result mobile phone handset makers are scrambling to secure critical components, including flash memory chips, according to Kurt Hellström, president of Stockholm-based L.M. Ericsson Telephone, the world's third-largest handset supplier.

"There is a component dilemma," said Hellström, in response to a question by IDG News Service at a press conference in Taipei.

Flash memory chips are not the only mobile phone components in short supply, "there are others," admitted Hellström. "This is because sales forecasts are revised up all the time," he said, noting that sales of handsets in 2000 now are expected to reach more than 420 million units, up from recent predictions of 400 million units.

The frequent upward revisions cause problems for the already stretched component suppliers, who often are unable to crank up production without sufficient lead times, said Hellström.

A shortage of LCDs and the chips that control them led Nintendo to postpone sales of its much-anticipated Game Boy Advanced handheld console by six months to the end of the year. Sharp, which supplied the company with LCDs, will have a new factory in operation later this year to supply the company with the much needed devices.

"Everyone in the industry is out fighting for screens," said William Holtzman, a vice president for international business with Handspring, a Mountain View, California-based PDA vendor. His company is managing to keep supply steady, he said, "but it's a challenge." Some of the problems, at least in the computer memory market, may lie with the same companies that are suffering as a result of them, according to AICE.

Top-tier device manufacturers continue to place orders for modules based on 64M-bit DRAM chips while the memory makers are switching production to higher-density 128M-bit devices. The resulting imbalance in supply and demand suggests that the top-tier buyers are expecting a supply crunch, the online chip broker said in a statement.

AICE expects the situation to continue for another 12 months to 18 months, with peaks during the back-to-school and Christmas seasons.

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Memory card shortage hits PS2 shipments
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Chipmakers agree: Flash-memory shortage has begun
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Hitachi debuts high capacity memory cards
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Fujitsu, AMD to boost flash memory chip production
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Trivium brightens up LCD screens
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New chips to enable high-res, flicker-free monitors
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American IC Exchange (AICE)
NEC
Ericsson

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