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News > Technology
Chip woes worse?
October 7, 1999: 3:02 p.m. ET

Taiwan earthquake could affect chip and PC supplies during holidays
By Staff Writer John Frederick Moore
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NEW YORK (CNNfn) - While most technology firms are downplaying the long-term effects from the recent earthquake in Taiwan, some industry experts say the tremors may have done more damage to computer chip foundries than originally thought, causing production disruptions that could affect PC supplies during the holiday shopping season.
     Taiwan's factories produce about two-thirds of the world integrated chips, and the Sept. 21 earthquake resulted in power outages at those facilities.
     With power restored to the region, some analysts and industry experts have tried to put a positive spin on whatever long-term effects the September quake will have on chip supplies.
     George Scalise, president of the Semiconductor Industry Association (SIA), told CNNfn that Taiwan chip factories are working to get back to full production capacity.
     "The information we have now says that the major foundries out there are ramping back up again and they had no damage to their facility or their equipment," Scalise said.
     "They're perhaps approaching 75 percent or better by now. The consensus building is that there maybe a limitation to the upside in the quarter but it's not likely to get to the point where it's going to bring the numbers below what the analyst expectations are."
    
Prognosis negative

     But Danny Lam, director of Fisher-Holstein Inc., a semiconductor research firm, said such optimism is unfounded. The first significant damage reports have just come out of the region, Lam said, and they indicate that the situation is much worse than originally expected.
     "Taiwan is operating at about 50 percent capacity on average," Lam said. "My first worries concern a shortage of graphics chipsets."
     ATI Technologies (ATYT), a Canadian maker of chips that enhance the graphics performance of PCs, denied rumors that it has told computer makers to expect delays of up to six weeks for graphics components.
     "Six weeks sounds extreme, and we haven't been telling the channel that at all," said Jo-Anne Chang, an ATI spokeswoman. "The situation [in Taiwan] has changed since the earthquake occurred and it changes every day. We can't give assurances 100 percent either way, but all of us have to deal with the issue."
    
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     Whatever delays do occur are likely to hurt the third-tier PC makers first, with blue-chip players such as IBM (IBM) and Compaq Computer Corp. (CPQ) the last to suffer, since chip makers will take care of their top customers first.
     "Dell is a preferred customer of our supply base," Tom Meredith, Dell Computer Corp. (DELL) chief financial officer, told CNNfn. "That gives us a great deal of leverage. We're hopeful that there will be a full flow of materials this quarter and next. We're guardedly optimistic, but there are no guarantees."
     Despite Dell's upbeat pronouncements, BancBoston Robertson Stephens downgraded the company's stock to "long-term attractive" from "buy," anticipating slower-than-expected growth because of the Taiwan earthquake.
     Another top PC maker feeling the sting is Hewlett-Packard Co. (HWP). Carly Fiorina, the company's new chief executive, said last week that HP's fourth-quarter sales growth would come in at the low end of the expected range due to delays in the supply chain because of the Taiwan earthquake.
     On Wednesday, Advanced Micro Devices Inc. (AMD) said the earthquake has stymied sales of its high-end Athlon chips, which the company is banking on to give it a leg up in its war with Intel Corp. (INTC) and restore the firm to profitability.
     AMD said it had produced 350,000 Athlon motherboards, about 150,000 less than it normally expects during first-quarter production of a new product.
     W.J. Sanders, AMD chief executive, said the company hopes to meet its goal of shipping 1 million Athlon processors in the fourth quarter, but he added that AMD is "heavily dependent" on the situation in Taiwan.
     A shortage of chips in the fourth quarter could result in major problems for the computer industry heading into the all-important holiday shopping season.
     "We're talking about inventory that would have shipped in the last month and would have appeared in PCs shipping around Thanksgiving," said Lam of f Fisher-Holstein. "You're running smack into the holiday shopping season."
     PC makers, however, are hesitant to say there will be a shortage of computers on retail shelves.
     "It's really too early to tell," said Ann McGrath, a Hewlett-Packard spokeswoman. "At this point, everybody's still assessing the impact."Back to top

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.