May 23, 2000 12:48 PM PDT

Memory, screen shortages limit Palm production

Palm confirmed today that shortages of its popular handheld computers have developed due to tight supplies of key parts.

The problem is related to the production of cellular phones, which contain the same memory and LCD screen parts used to make Palm devices, the company said.

"We're manufacturing and shipping every day, but it's 'dads and grads' season right now, and it's tougher for people to get their hands on Palms right now," said a Palm representative, noting that the company had announced flash memory and LCD supply problems with their third-quarter results.

"The cell phone explosion has really hurt our ability to get as many LCDs as we'd like, and we're watching the flash memory too. It's in a bit of tight supply," the representative said. The situation, which equally affects all the Palm products, is likely to stretch on for "a few months," but should have no immediate pricing implications.

The flash memory chips used in cell phones, handheld computers and other portable devices have become one of the fastest growing segments of the semiconductor industry. Some analysts have cited flash memory availability the deciding factor in near-term growth of cell phones, MP3 music players and other hot mobile devices.

Intel said yesterday it plans to spend more than $2 billion over the next few years to expand flash memory production.

Supplies of LCD screens are a more chronic problem for the high-tech industry, blamed for everything from high prices for laptop computers to delays in the release of Nintendo's new Game Boy.

Palms are back-ordered at retailers and Circuit City, among others, while its online store won't have some models in stock for several weeks, according to a report in USA Today.

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Palm shortages apparently haven't hit all areas of the retail market, however. Matt Sargent, who tracks the handheld retail market for research firm ARS, said he is not aware of any shortages, and no retail stores have reported difficulties getting devices from Palm.

"I haven't heard anything about it," Sargent said.

Palm is working on procuring the necessary components, according to chief financial officer Judy Bruner. The handheld company is working on procuring parts "in bulk" and should have the situation alleviated by the start of the next fiscal quarter, June 1.

"There's no room for error in supply chains," said Ken Dulaney, a handheld analyst with Gartner Group. "We've gotten too good at supply chain management--inventory's a dirty word."

Still, the shortages may be the result of missteps by Palm, he said. "They missed the ball on this, and they've missed the ball on a couple of other things, including product developement," he said.

Palm has undergone almost constant upheaval over the past few years and is still readjusting to to the changes, Dulaney said, including the departures of founders Donna Dubinsky and Jeff Hawkins, who left a few years ago to launch start-up Handspring, and this year's spinoff from parent company 3Com.

"Those things preoccupy companies, even if they say they don't," he said.

3Com, the networking-equipment maker that owns 95 percent of Palm, plans to spin off its stake in the company to 3Com shareholders in July.

Bloomberg News contributed to this report.


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