If ever OEMs had to learn a lesson in managing the supply chain, the widespread flat-panel-display shortage has given them an advanced degree.
Having adjusted to a life of allocation, OEMs are keeping pace with market demand by swapping the largest panels for smaller versions, and increasing their demand visibility. As a result, systems makers have prevented major problems on the outbound side and have avoided the postponement of incoming component orders. And component suppliers, in confirming the OEM accounts, said they haven't been negatively affected.
"The shortage situation has been troublesome but not catastrophic," said Ted F. Callahan Jr., procurement manager for displays, power, and batteries at Compaq Computer Corp., Houston. "We are continuing to meet demand, but what we are seeing is mix issues. There is not the utopic mix of displays we would like to see. There are some product segments that have limited availability, but at the same time we have not pushed out orders of other components."
On the other hand, analysts at International Data Corp (IDC)., Framingham, Mass., said they believe notebook PC growth has been constrained 3% to 4% by the LCD shortage alone.
And Bob Brown, president and chief operating officer of Toshiba America Electronics Components Inc., said the figure is closer to 10%. Analyst Bruce Stephen of IDC concurred. "The impact on low-end notebook PCs is the worst," he said. "There's definitely concern, and I'd agree with Mr. Brown that the gating factor is LCD availability in notebooks."
Generally, though, since OEMs have been living with the scant supply predicament for some time, many have offset the impact by offering alternatives to customers and working diligently on demand planning and forecasting, some executives said.
"Forecasting is the name of the game," Compaq's Callahan added. "We knew for quite some time that a shortage was coming, so we worked very carefully on our long-term forecasting."
Callahan said demand for notebooks, which rely mostly on flat-panel displays, has been strong in both the commercial and consumer space, but that the consumer side is actually better than previously projected. To meet demand, OEMs are asking customers to accept a different size or type of panel. Some of the users may accept the substitutes, others may opt to wait the extra few days, or up to two weeks, to get the systems they want, noted Mark Fihn, senior strategic commodity manager for LCDs at Dell Computer Corp., Round Rock, Texas.
"When there are no shortages, customers can get a computer in three to five days. With some configurations and popular models, the LCD shortage has delayed that to up to two weeks," Fihn said.
However, Fihn also noted that even without constraints on the FPD market, lead times to customers may have stretched a bit in recent months, particularly in July, which is a busy month for Dell. "Demand continues to exceed expectations, and even in an unconstrained LCD environment, lead times may have been extended anyway," he said. "July will be our biggest month ever."
Nevertheless, the LCD shortage has prevented notebook PCs from breaking the sub-$1,000 barrier, the highest-volume segment. Research firm PC Data Inc., Reston, Va., estimated that more than 70% of retail and mail-order desktop PCs shipped in the United States this June cost less than $1,000.
"Since the LCD percentage of the notebook cost, which is a substantial portion of the total cost, is not falling, that could have a dampening effect on demand," said Vadim Zlotnikov, an analyst at Sanford C. Bernstein & Co. Inc., New York. The top 5 notebook-PC OEMs shipped an estimated 4.3 million units in the second quarter, down from 4.5 million units in the first quarter, according to IDC.
On the supply side, both Callahan and Fihn said they were keeping their suppliers abreast of the circumstances through electronic-data interchange (EDI) updates and regular forecasts, but have not had the need to postpone orders for other computer components in the wake of an FPD shortfall.
Executives at IBM's Storage Systems Division and graphics-chip makers ATI Technologies Inc. and NeoMagic Corp. said the LCD shortage hasn't affected their sales.
Still, balancing the supply of all components is an ongoing problem. IDC's Stephen said he expects LCD prices to stabilize by the end of the year. Early in 2000, additional LCD capacity may come on line even as the supply of other components falls, Compaq's Callahan said. The ongoing worry is that OEMs will double- and triple-book, creating an atmosphere of demand that could vanish overnight.