Prices for most electronic components will likely fall in the second quarter due to continued weak demand. Semiconductor and passives manufacturers expect demand will be sluggish through the quarter, and are concerned that demand may not pick up until late in the fourth quarter.

With demand being weak, capacity will be more than ample for months. Although some electronic component factories have been shut down, capacity utilization rates are around 63%. That means if demand picks up, suppliers should be able to accommodate the increase in business.

However, there could be price increases in the fourth quarter for certain parts. In 1999 and 2000, the unpredicted spike in cell phone demand resulted in shortages and higher prices for flash memory and tantalum capacitors. That could happen again if new 3G phones (expected to ship later in the year) are widely accepted in the marketplace.

Some component manufacturers expect a significant uptick in computer shipments in the second half of the year. They point out that businesses last upgraded their computers in 1999 because of concerns over Y2K issues. Businesses often upgrade their computers every three years so they are now due for another upgrade.

A significant increase in computer shipments could cause tightness in supply for a variety of components, including memory ICs, and lead to higher prices. However, computer upgrades could be delayed because of the sluggish economy.