Wednesday September 29 5:23 PM ET Quake Disrupts Semiconductor Supply

Quake Disrupts Semiconductor Supply

By MICHAEL WHITE AP Business Writer

LOS ANGELES (AP) - The earthquake that devastated areas of Taiwan is sending tremors through the toy and personal computer industries, which both rely on Taiwanese semiconductors for products ranging from personal computers to interactive Furby dolls.

For the most part, Christmas sales are unlikely to be affected because most retailers already have stocked holiday goods. Personal computers might be an exception, analysts said.

A prolonged disruption in the supply of memory chips and other computer circuitry could push PC prices up or force manufacturers to give shoppers less for their money.

Most of Taiwan's semiconductor plants were spared serious structural damage when the 7.6 magnitude earthquake struck on Sept. 21. But the jolt knocked out power for more than a week, and some sensitive equipment used in etching circuits onto silicon wafers was damaged or thrown out of alignment.

A plant that manufactures chips used in Hasbro's popular Furby dolls was knocked out of commission. So were factories that manufacture technology to work with Advanced Micro Devices chips - a leading low-cost alternative to Intel Corp. (Nasdaq:INTC - news) semiconductors.

AMD executives were still unsure when the plants might be back in production.

``We're gathering information. It's still an incomplete picture,'' said spokesman Scott Allen. ``We're potentially looking at an interruption in supply. Past that I don't think I can supply further detail.''

Allen declined to comment on how the disruption might affect revenues, saying federal securities regulations prohibited the company from discussing its financial performance immediately before the scheduled release of third-quarter results next Wednesday.

Apple Computer Inc. (Nasdaq:AAPL - news) gets chips for its iBook and Powerbook portable computers in Taiwan. There was no structural damage to the factories, said spokeswoman Rhona Hamilton.

``We don't see any immediate impact on our business, but it's too early to fully assess the situation,'' she read from a company statement.

Taiwan accounts for about 10 percent of semiconductors used worldwide, plus about 60 percent of the motherboards, the main circuit board for chips, analysts said. Taiwan also is a key supplier of memory chips, flat-panel screens used in notebook computers, small microprocessors used in toys and other consumer electronics, and core-logic chipsets, the chips that link the processor to the rest of the computer.

``This an important moment because Taiwan has become an important part of overall semiconductor production and the massive nature of this quake,'' said Jim Handy, an analyst with Dataquest Inc. ``The biggest problem right now is nobody knows how much damage is done.''

Some companies, however, already were warning investors that the earthquake may hurt revenues.

Genesis Microchip, the Canadian maker of semiconductors for flat-panel screens and home theater equipment, said in a statement that earnings in third and fourth quarters may be down. Genesis shares fell 11 percent Wednesday, or by $2.121/2 to $16.50 on the Nasdaq Stock Market.

``The bottom line is we believe there will be some short-term negative impact on our business as a result of the earthquake,'' said Paul M. Russo, the company's chairman and chief executive officer.

Taiwan Semiconductor Manufacturer Co. announced that it expects to lose $88.2 million in sales. Insurance will cover about $57 million of the loss, the company said in a statement. Taiwan Semiconductor shares rose 5 percent, or by $1.50, to $31 on the New York Stock Exchange Wednesday.

Power was restored on Monday to the plant that makes chips for Furbies, handheld electronic games and other toys. Executives there also were still assessing the quake's impact, said Lana Simon, a spokeswoman for Tiger Electronics Inc., the Chicago-based Hasbro subsidiary that makes Furbies.

The quake was not expected to affect the availability of Furby dolls during the Christmas sales season, she said.

The quake could have some impact on the availability of low-end personal computers, those prices in the $500 to $1,000 range, during the Christmas season if Taiwan plants are slow to get back into full production, Handy said. That could push retail prices up. A more likely scenario would be for manufacturers to offer less and keep prices down. That might mean less advanced graphics capabilities or smaller monitors, Handy said.

``Personal computers tend to stay within margins of prices,'' he said. ``If (chip) prices were to skyrocket, features of the PC wouldn't grow at the rate they have been growing.''     

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