Notebook computer industry faces parts shortages

User demand and battery recalls have made conditions tough for notebook makers

Hot demand and a massive battery recall are causing shortages of key components for the notebook computer industry, analysts and companies say.

The worst case scenario for users is the likelihood of fewer deals for new notebook computers over the next five months because PC manufacturers are paying a premium for components and have to pass those higher costs down the PC supply chain. Users are also likely to see fewer discounts and other promotions, such as extra DRAM or a bigger hard disk drive (HDD).

What normally happens during a component shortage is that PC vendors will adjust the makeup of the notebook PC to find savings elsewhere and ensure a constant price for users. For example, using less DRAM (dynamic-RAM) memory in a laptop can reduce the cost a tad, to make up for a higher priced laptop battery.

This time is a little different because there are shortages of several key components.

Demand for new laptop computers is far greater than predicted so far this year, and companies are scrambling to keep up. At the same time, the industry is trying to cope with component shortages caused by other factors.

"We believe third-quarter notebook shipments could be better than our forecast as long as the component supply is sufficient," wrote Henry King, an analyst at Goldman Sachs (Asia) in a report issued Tuesday. Goldman raised its 2007 notebook computer shipment forecast to 77.9 million units from a previous estimate of 76.2 million.

All companies are facing a shortage of LCD (liquid crystal display) panels, the screen part of a laptop, while only smaller notebook computer makers are having trouble with shortages of batteries and HDDs, King wrote. The LCD supply for laptop makers has suffered this year due to brisk sales of LCD TVs, while the supply of small hard disk drives (HDDs) has dried up because they're used in both notebooks and digital music players such as iPods.

The recall of around 10 million laptop batteries tied to Sony has kept the vital parts in short supply since last year, according to a spokeswoman for Taiwan's Simplo Technology, the largest independent notebook battery maker in the world.

The company, which accounts for around a quarter of all notebook computer batteries, said it has been able to ensure a steady supply to all existing customers but is not taking on new clients because it's already making as many batteries as it can.

Another problem is that the notebook industry is in the midst of its busiest quarter of the year, a time when back-to-school sales herald a season of heavier demand for laptops that doesn't end until Christmas, according to DRAMeXchange Technology. And component shortages have been a nuisance since April, the market researcher said.

Hewlett-Packard, the number one PC vendor, believes it won't be affected by any shortages. "HP has long term contracts with suppliers, so we won't have any trouble," said Dennis Chen, vice president and general manager of HP's personal systems group, on the sidelines of a news conference in Taipei.

Big companies like HP have little to fear from the supply issues because parts-suppliers prefer their large, stable orders to the infrequent, small orders placed by smaller companies.

Quanta Computer, the world's biggest contract laptop computer maker, also doesn't foresee the shortage issue hurting its laptop production. The company maintains a close relationship with parts makers to ensure a stable supply of key components, a spokeswoman said. Quanta recently revised its 2007 notebook computer shipment target to 28 million units from 24 million previously, noting the overall market is stronger than expected.

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Dan Nystedt

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