Components Crunch Hits Vendors
The vendors, who all requested anonymity, operate in different market segments, yet all say the same thing: It's been harder to get the components they have needed in the required timescales, and that's caused them some headaches. None, though, said they had lost any business as a result, though some suggested that others had.
The reasons for the components crunch, it would seem, are many and varied. A number of issues seem to have behaved like London buses –- there were none in sight for months and now they've all turned up at the same time.
So what has been causing the equipment vendors sleepless nights?
A senior executive at one access equipment vendor says he has had to knock some heads together to ensure he gets what he needs on time, but adds that some supply problems have been caused by the gaming world.
He says there has been "a general shortage of memory due to the huge pull in demand from Microsoft Corp. (Nasdaq: MSFT)'s Xbox 360," which launched late in 2005 but has still to hit the shops in markets such as India, "and Sony Corp. (NYSE: SNE)'s impending Playstation 3," which is due to launch in November this year in time for the Christmas consumer splurge.
The demand from Microsoft and Sony has also caused a shortage of the "raw material used for chip packaging," claims the executive.
He adds that these, and other, factors affecting the components industry have hit some of the more aggressive and fast-growing equipment companies the hardest.
One optical equipment firm says sheer weight of demand has caused some problems. Carriers have been investing in their networks, resulting in higher run rates, sales, and revenues for the components companies and the equipment firms.
According to Infonetics Research Inc. , sales of optical equipment were up 10 percent year over year in the first quarter of 2006. The same company predicts the annual value of the market will increase by 14 percent between 2005 and 2009 to $12.3 billion.
Another analyst firm, Communications Industry Researchers Inc. , estimates the market for optical components for telecom gear will grow from $1.5 billion in 2006 to $6.6 billion in 2011.
There has been a notable impact on the component supply chain in the past few months, according to one executive, who cites speculative reports that some major vendors have had problems fulfilling contracts. "Some big vendors have had trouble sourcing optical components, such as lasers, and that's affected their ability to win business."
An executive from the optical vendor says growth in demand for its systems has caused a squeeze in its supply chain. "We have had issues with component supplies... we have been getting longer lead times on some components. I hadn't heard that memory was such an issue but I know that some optical components have been."
He suggests that an increase in demand for pluggable optics -– hot-swappable modules that can be replaced without having to replace the line card -– as opposed to fixed optics for short-reach systems could be an issue as the components vendors adapt to meet a "big swing" in demand.
The source says his company has had to put additional operational processes in place to mitigate the impact -– "it is a pain but we are managing it," he adds.
Components vendor JDSU (Nasdaq: JDSU; Toronto: JDU) confirms the trend. A spokesman for the company says JDSU is "seeing a shift from fixed [SFF - small form factor] to pluggable SFP/XFP [small form factor pluggable] transceivers." It also believes there will be a shift from fixed wavelength transceivers to tunable wavelength transceivers.
Another problem affecting component supply has been the shift of production by some companies to Asian facilities, according to another optical equipment vendor executive.
"That caused a blip in the supply chain and that blip has lasted longer than expected. Some companies have had trouble getting their Asian production facilities to work as well as they had hoped for," says the executive, hinting that Bookham Inc. (Nasdaq: BKHM; London: BHM) and Avanex Corp. (Nasdaq: AVNX) have had some difficulties. (See Bookham Ships More Jobs to China, Bookham, Avanex Shore Up, and Avanex Trudges Along.)
Both Bookham and Avanex declined to respond to questions regarding components supply issues, while JDSU said it could talk only about market trends and increasing demand, but not customer lead times, ahead of its next quarterly results.
— Ray Le Maistre, International News Editor, Light Reading