As Taiwan's electronics industry enjoys its biggest boom since 2000, shortages of everything from display panels to electricity threaten to curb growth and bite into profit margins.
Many manufacturers of key components are under-equipped to meet surging demand, having been reluctant to increase production capacity during the slow recovery that followed the downturn of 2001.
That means parts such as liquid crystal displays (LCD) are in short supply and rising in price, pushing up manufacturing costs for Taiwan's computer makers.
But the industry, which produces more than half of the world's laptop PCs, is unable to pass those costs on to consumers because of sharp price competition.
"You have to keep the same price to keep momentum going," said Campbell Kan, chief officer of laptop products for Acer Inc, Taiwan's top computer firm.
He said the company was on track to nearly double laptop shipments to 3.5 million units this year, but profitability was under threat.
"If you have to sacrifice margins, that could happen. This is the last thing we would do. Certainly we hope we wouldn't do it," he told Reuters at this week's Computex computer trade show in Taipei.
The world's number one contract maker of laptops, Quanta Computer Inc, saw gross margin drop to 5.7 percent in the first quarter from 6.8 percent a year ago.
Prices of 15-inch (38 cm) LCD panels, a standard for laptops and desktop monitors, jumped to US $220 in the first quarter from $175 a year earlier, and show only slight signs of softening.
While LCD makers such as Samsung Electronics Co Ltd are aggressively adding capacity, demand increases each time the price drops as consumers snap up flat-screen televisions.
"More (LCD capacity) is coming out in the third quarter, but that is also when demand rises," as electronics firms stock up to meet pre-Christmas demand, said Merrill Lynch analyst Tony Tseng.
"We can only say that margin pressure does not seem to be getting any worse right now, but it is not getting any better," he said.
Tseng rates shares in Taiwan's laptop makers a "buy" for now due to their relatively low valuations, but is less upbeat about the longer term.
Market research firm Gartner Dataquest is also considering adding LCD availability as a limiting factor for its forecast that PC production will grow 14 percent in 2004, said Andrew Philips, managing vice president of the company.
Even mundane items like printed circuit boards and rechargeable batteries may rise in price as supplies run short, analysts and executives say.
Shortages also extend to the most basic requirement for manufacturing - electricity - for the many Taiwan companies that base their production facilities in mainland China.
China's power generation has failed to keep up with economic growth and many industrial regions are suffering from electricity rationing.
BenQ Corp, Taiwan's largest maker of mobile phones and personal computer peripherals, said its sprawling facility in east China's Suzhou had not faced any power problems, but the government had forced some component makers to shut down on certain days of the week.
"Our suppliers are having problems," said BenQ Chairman K.Y. Lee.
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