Shortage Scare Causes Small-Audio Concern

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Audio buyers might not get much of a break in the fourth quarter from their scramble to find adequate supplies of small audio products.

Retailers probably won't be able to get all of the headphone CD players they would like through the remainder of the year, suppliers told TWICE. And although tight shelf-system and CD-boombox supplies have begun to loosen up because of slowing growth at retail, supplies could tighten again as fourth-quarter demand kicks in, some suppliers warned.

Supplies of all three categories have been constrained by shortages of key components, mainly surface-mount devices used in the rapidly growing wireless phone market, but supplies of CD laser mechanisms and DRAM have also been tight, suppliers said.

At least two manufacturers, Philips and Kenwood, speculated that some companies have consciously chosen not to ramp up production in personal CD, CD boomboxes and shelf systems in order to husband components for more profitable categories.

In the headphone CD category, supplies have been the tightest because the component shortages have been exacerbated by exceptionally strong growth that has exceeded manufacturer forecasts since the beginning of the year. At the factory level, sales are up 45 percent in units and 37 percent in dollars through June, Consumer Electronics Association statistics show.

"Portable CD has been affected the most because of strong growth, and all retailers are looking for more," said Aiwa marketing general manager Eileen Toomey. "We're getting across-the-board increased purchase orders, I suspect because other manufacturers aren't delivering."

The shortages might be coming mainly from secondary brands that can't afford to pay for rising chips prices, she said. Because manufacturers are boosting production, and because "dealers have protected themselves," Toomey expects only "some slight shortages" in the fourth quarter.

Philips senior VP Andy Mintz was less optimistic. Personal CD supplies "will not improve this year," he claimed. And retailers haven't been able to stockpile inventory as a cushion, because "they're selling through everything."

Retailers, Mintz continued, "are struggling to get all they need. It appears vendors are telling retailers the maximum they can supply, and the retailers are adjusting." Retailers have adjusted, in part, by advertising the category less often in the past few months.

Philips was able to deliver the headphone CD volume that it forecast in late 1999 but hasn't been able to exceed that amount because of unanticipated demand, Mintz said.

Panasonic assistant general manager Reid Sullivan said his company boosted headphone CD production. Thanks largely to manufacturing a large portion of its own components, including portable CD mechanisms, he said, "we have been able to cover for other manufacturers."

In shelf systems, "some pretty serious shortage situations by some manufacturers" are helping Panasonic shipments go "way over budget," said Sullivan.

Some of the shelf-system shortages, Philips and Aiwa agreed, were created early this year when retailers front-loaded their inventories because of component-shortage fears. Suppliers couldn't keep up because of component-supply constraints. Supplies are looser now, the suppliers said, because retail-level shelf-system sales have begun to grow more slowly, and retailers are working through their inventories.

Although shelf-system sales growth lost momentum in June and July, "we expect the business to bounce back for Christmas," Mintz said, adding that Philips "plans to keep dealers in a good situation in the fourth quarter."

Panasonic, however, can't make the same promise. "When the fall demand crunch comes, because of other manufacturers' shortages and because we're picking up market share, we might not be fully able to meet demand 100 percent," said Sullivan. "But we'll still be significantly over budget and over last year's sales."

For its part, Aiwa said it has been filling all shelf-system orders since the beginning of the year, although it had "a delay or two on new items not related to component shortages," Toomey said.

Kenwood sales and marketing VP Bob Law said strong demand for new Kenwood shelf systems, coupled with component shortages, has crimped its ability to ship everything that dealers want, but he noted, "It's not nearly as much of a problem as it is in car audio."

Factory-level shelf-system sales through June are up 11 percent in units and single digits in dollars, CEA statistics show.

As for CD-boombox supplies, a stunning sales turnaround in the first half, coupled with tight component supplies, crimped CD-boombox supplies earlier in the year, Mintz said, but supplies have since loosened because sell-through slowed during the summer at some national chains.

Aiwa also said supplies are in good shape, although Panasonic reported "some" continuing shortages from select suppliers other than Panasonic.

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