A shortage of electronic components such as chips and displays threatens to derail a nascent recovery in Asia's technology sector spurred by China's stimulus plan.
At the Computex trade show in Taiwan this week, electronics companies including Acer and Asustek Computer will showcase their latest gadgets to tempt buyers wary of spending as a global recession pinches.
In the last few months, China's $600 billion stimulus spending has driven a recovery in Asia's tech sector, especially in Taiwan, as China moulds itself into an electronics consumer and not just an exporter.
But many tech companies, especially makers of memory chips and displays, have sharply trimmed output since late last year or were too cash-strapped to invest in new production equipment in the sector's downturn, leading to shortages of key components.
Tight supplies are creating a headache for many computer vendors, said Alex Huang, vice president of Taiwan's Mega International Securities.
So it remains a question mark if you ask me how strong the recovery will be in the next few months.
AU Optronics Corp, the world's No.3 maker of LCD panels for PCs and flat-screen TVs, said it has a shortage now and can only meet 70 percent of its orders even if it runs at full capacity in the next three months.
It's a double blow as many leading PC companies have seen their profit margins weaken as they sell more cheaper netbooks -- some of them small enough to slip into a purse.
As prices of displays and memory chips rise due to supply shortages while demand remains lukewarm, Merrill Lynch expects PC vendors to face more pressure on margins from this quarter.
Research firm IDC has forecast worldwide PC shipments will fall 4 percent this year.
A total of 1,712 exhibitors will attend the June 2-6 show in Taipei, slightly fewer than last year. Many Chinese buyers, including Lenovo Group and Sichuan Changhong Electric, will also shop for new gadgets at the show.
For us, China is a very important market, where growth will be faster than any other major market, said J.J. Wang, a vice president of Dutch NXP Semiconductor.
Mobility will be a key theme at the world's second biggest PC fair this year, and there is likely to be keen interest in super-thin, lightweight laptops designed to cut power consumption and save battery life.
Acer, Asustek and Microstar are betting on new-generation laptops, powered by Intel's new consumer ultra-low voltage (CULV) processors.
They expect slimmer laptops to fit the space between netbooks and traditional notebooks, pumping fresh life into the on-the-go computing world. However, they face an uphill climb.
Big PC vendors are jumping into the ultraportable segment, hoping to entice consumers to buy laptops such as Apple's ultra-thin MacBook Air at less than half the price but with better processing power, bigger screens and longer battery life than the netbooks.
CULV models will eat into a big part of the share in the traditional laptop market, and we definitely don't want to miss such an opportunity, said Sambora Chern, director of notebook PC sales department of Microstar International (MSI).
At Computex, Microstar will display the X-Slim line, powered by Intel's Core 2 processor and a shiny LED screen, which the company expects to help boost its 2009 total laptop shipments by 20-30 percent from last year.
Acer and Asustek, Taiwan's two most recognizable PC brands, will tout a line of touchscreen desktops and netbooks, and eco-friendly products for buyers who care about green energy and cost savings.
Up the production chain, Intel and AMD will showcase new processors and chipsets, while Intel will also promote WiMAX, a new mobile standard that can seamlessly handle video conferencing, TV viewing and ultra-fast data transmission.
(Additional reporting by Roger Tung, Editing by Anshuman Daga)