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CPU and component famine likely next year

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A UK distributor said today that the glut of PC components the industry has seen in 1998 will turn into a famine next year as a combination of circumstances begin to bite the market. Mark Davison, microprocessor manager at Datrontech, said that a lack of investment, coupled with increased demand for PCs, will lead to shortages not only in memory products, but in CPUs, motherboards and hard drives. He said: "Next year will see the biggest shortage of components we’ve ever seen. There's only a finite amount of production in the world and there are only so many CPUs that can be built. It takes time to build new fabs." He said that it won't just be processors that are affected. Motherboards are also likely to be in short supply. "Distribution customers buy the majority of brands from one of half a dozen vendors," he said. "They themselves have production capacity capped because of raw materials, chipsets and so forth. It's the same with hard drives." He claimed that semiconductor companies are closing fabs faster than they open them. "I haven’t seen any moves predicting an upturn," he said. "The majority of our customers buy from hand to mouth and perhaps they should think of a different business model." The shortage is likely to hit in mid-1999, said Davison. Practically every manufacturer of components had either slowed or otherwise constrained production this year, and the first three quarters were flat. Other factors likely to exacerbate this situation was increased demand from large corporations, and, later in 1999, smaller companies, eager to buy new kit to avoid any problems with the Y2K bug. An Intel representative said: "Big corporations will be buying new equipment in the first half of next year just to be on the safe side. In Q3, they'll consolidate with the equipment they have. Towards the end of next year, small companies will do the same thing." However, he claimed that it was unlikely that there would be constraints on CPU production. However, Intel is shutting Fab 6 in Arizona in Q1 1999, Fabs 7 and 9 in New Mexico in the year 2000, and Fab 5 in Q2/Q3 of 1999. Although Intel's stance is driven by its move to smaller die sizes, the company is known to have put a freeze on recruitment because of demand for its parts slowing earlier this year. It will not give figures on the number of parts it manufactures worldwide. While its competitors are ramping up their production of parts, if demand for PCs increases during next year, Davison’s predictions may well be true. Dataquest has already said it expects to see memory prices bounce back up in the middle of next year due to a similar combination of market forces. ® Click for more stories Click for story index

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