Easing chip-set shortage should relieve PC market

A shortage of computer chip sets that has taken the blame for everything from slowing the momentum of brisk global PC sales to delaying the adoption of new memory chip technologies should be nearly over, component makers and analysts say, so it won't hurt PC sales during the important holiday buying season.

The global PC industry ran into a shortage of computer chip sets, which regulate the flow of data between the CPU and other chips like memory and graphics, in the middle of the year as users snapped up new PCs at an unexpectedly brisk pace.

PC component makers complain that without the chip-set shortfall, users would have bought even more computers over the past several months. But now the supply of chip sets is rising, just as the traditional computer buying season wanes, and that should mean shortages of the vital PC part are nearly over.

"Chip-set makers have been able to increase production, so that should help take care of the problem. And since PC demand is quite seasonal, demand for chip sets this year will gradually decrease in November, after peaking in October," says James Huang, a semiconductor analyst at SinoPac Securities Corp. in Taipei.

A number of chip set suppliers say they've been able to increase output, which should help meet demand even if consumers continue to buy PCs at a zippy pace throughout the month of November. Between July and the end of September, worldwide PC shipments increased by more than 17% compared with the same time last year, according to IDC, a much faster pace than the 13% growth rate the market researcher had expected.

U.S. chip giant Intel Corp., which has taken the brunt of industry ire over the chip-set shortage, says that a dearth of chip sets for low-end PCs could remain a problem through December but that it has met demand for chip sets used in notebook PCs and servers over the past few months. The company believes the chip-set shortage may not abate until early next year, said Barbara Grimes, an Intel representative in Hong Kong.

In August, the world's largest chip maker said stronger-than-expected PC demand had forced it to reduce production of certain kinds of chip sets because its factories were already full of orders for higher-margin products. The manufacturer has been battling to keep up with chip-set demand for much of the year.

To make up for Intel's shortfall, Taiwanese chip-set suppliers have been increasing output.

"We were able to plan our production, so the fourth-quarter shortage shouldn't be as serious as the third quarter," says Jessie Lee, a representative of Taiwanese chip-set supplier Silicon Integrated Systems Corp. The company expects its chip-set output to rise as much as 30% in the fourth quarter compared with the third quarter.

It takes about three months to finish a computer chip set, so companies have to carefully plan production schedules. They don't want to be left with a huge inventory of unsold chip sets, but they also want to sell as many as possible.

The company believes the chip-set shortage has been a drag on PC sales, and expects strong demand for PCs to continue past the traditional peak month of October, Lee said.

Via Technologies Inc., another Taiwanese chip set supplier, will increase chip set output by up to 10% in the current quarter compared to the third quarter, according to Amy Liao, a spokeswoman for the company. She said the company was able to raise chip set prices in October because of the shortage and expects to maintain higher prices due to increased manufacturing costs.

Taiwanese makers of computer motherboards, a circuit board that holds and connects most of the vital chips and other components inside a PC, have been among the most vocal complainers about the chip-set shortage.

Motherboard companies have not been able to fill all of their orders due to the shortage, but they largely expect the shortage to dissipate as demand weakens after the normal peak months of September and October, according to a representative of Asustek Computer Inc., the world's largest motherboard supplier.

In addition, motherboard makers and research analysts, like Goldman Sachs technology industry watcher Henry King have argued that the chip-set shortage has been good for Advanced Micro Devices Inc., since the shortfall is only in Intel architecture chip sets. But during its third-quarter investor conference last month, AMD rejected the idea its gains over the past few months have been a byproduct of Intel troubles and said its own brisk sales come from a strong product lineup.

"In the space where they haven't announced any sort of shortage or issues is where we performed the best," said Hector Ruiz, AMD's chairman, president and CEO, in a conference call with analysts. He pointed out that speedy sales of the company's notebook chip, Turion, had nothing to do with the Intel chip-set shortage.

Copyright © 2005 IDG Communications, Inc.

7 inconvenient truths about the hybrid work trend
Shop Tech Products at Amazon