With the key holiday season beginning to loom on the horizon, the toy world is scrambling for electronic components -- now a crucial element in many toys. Chip producers, facing an explosion in demand for semiconductors used in hi-tech gadgets such as cell phones and other wireless hand-held devices, have been unable to meet demand and in many cases, it has been the toy makers who have been losing out.

For frantic shoppers come mistletoe season, this might mean a smaller selection than usual of toys that talk, blink or sing, since some of the toys that need such chips might not hit store shelves until after Christmas, analysts say.

``What may be affected is that we won't see the full range or potential of toys given the shortage of chips,'' said Terri Bartlett, communications director at Toy Manufacturers of America, a U.S. toy maker trade association.

For toy makers, this is already starting to threaten profits.

The world's largest toy maker, Mattel Inc., for instance, sailed through its first and second quarters of the year when toy sales are always at their lowest after the mad rush of the holidays, said spokeswoman Lisa Marie Bongiovanni. But as it entered the third quarter, it found itself in a quandary when its suppliers said it would take double the time normally needed to supply semiconductors, wreaking havoc on its production schedule, she said.

``All of a sudden, our chip vendors didn't have the chips we needed,'' Bongiovanni said.

Usually, the Barbie doll maker orders the chips 30 to 45 days before they are needed, but as the company was readying itself for the big holiday season, chip vendors said the delivery time would take closer to 90 days.

``We calculate on a specific timeline, and all of a sudden it's doubled,'' said Bongiovanni. ``How do you fit that into your production schedule?''

The shortage, which mainly affected Mattel's preschool and infant toys division, led to its disclosure earlier this month that it would lose roughly $100 million in sales in the second half of the year.

THE TECHIE-TOY INDUSTRY

The worldwide electronic chip shortage can be painful for the toy industry since these days an entire smorgasbord of products, from fluffy dolls to sophisticated computer games, use these components. Each year, the percentage of toys that have some form of technological enhancement increases, said Bartlett.

Last month, Hasbro Inc., the maker of Pokemon toys, also said the chip shortage could hurt the company's performance in the second half of the year and affect the introduction of new products during that period.

Close on the heels of Mattel's announcement, Hong Kong-based Radica Games Ltd., a maker of handheld games, said in the middle of this month that the chip shortage would also ``jeopardize'' its shipments for the rest of the year.

And smaller companies are likely to be hit more because they lack the scale and leverage that top toy makers such as Mattel and Hasbro have, said U.S. Bancorp Piper Jaffray analyst Tony Gikas.

WORKING WITH SUPPLIERS KEY

Both Hasbro and Mattel say that the chip shortage could not have been fully anticipated, given the spurt in demand for cell phones, wireless devices and other hi-tech products.

``We know the toy industry very well, but it's difficult for us to predict what the cell phone industry is doing,'' said Bongiovanni.

But Kissel said she was surprised that toy makers had not secured enough chips since there was a chip supply shock late last year that affected at least Hasbro.

Toy makers should also be working much closer with chip manufacturers to ensure a steady supply, analysts say.

``They obviously have a weak link in their supply chain,'' said Merrill Lynch analyst Hayley Kissel, who sees the chip shortage as an issue that toy makers will have to deal with for at least another year to a year and a half. They need to work with suppliers, she said.

``Or we can hope that the handset industry dies.''

Source: Reuters

[Posted 8/28/2000]