Easing chipset shortage should relieve PC market

November 4, 2005 —

A shortage of computer chipsets 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, ensuring the vital part does not hurt PC sales during the important holiday buying season.

The global PC industry ran into a shortage of computer chipsets, which regulate the flow of data between the CPU (central processing unit) 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 chipset shortfall, users would have bought even more computers over the past several months. But now the supply of chipsets is rising, just as the traditional computer buying season wanes, and that should mean shortages of the vital PC part are nearly over.

"Chipset 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 chipsets 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 chipset 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 percent compared to the same time last year, according to IDC, a much faster pace than the 13 percent growth rate the market researcher had expected.

U.S. chip giant Intel Corp., which has taken the brunt of industry ire over the chipset shortage, says a dearth of chipsets for low-end PCs could remain a problem through December, but that it has met demand for chipsets used in notebook PCs and servers over the past few months. The company believes the chipset 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 chipsets because its factories were already full of orders for higher-margin products. The manufacturer has been battling to keep up with chipset demand for much of the year.

To make up for Intel's shortfall, Taiwanese chipset 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 chipset supplier Silicon Integrated Systems Corp. The company expects its chipset output to rise as much as 30 percent in the fourth quarter compared to the third quarter.

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

The company believes the chipset 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 chipset supplier, will increase chipset output by up to 10 percent 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 chipset 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 chipset 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 chipset shortage has been good for Advanced Micro Devices Inc. (AMD), since the shortfall is only in Intel architecture chipsets. 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 say 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 chief executive officer, in a conference call with analysts. He pointed out that speedy sales of the company's notebook chip, Turion, had nothing to do with a the Intel chipset shortage.

IDG News Service