February 13, 2001 2:50 pm EST

By Franklin Paul NEW YORK (Reuters) - By the looks of TechnoPLAY, the vibrant technology gaming pavilion at the 2001 Toy Fair, one would never know that last summer a shortage of chips dampened the spark of the electronic game industry.

Though the lively section of the American International Toy Fair occupies only a portion of the Jacob Javitz convention center here, the showcase of gadgets buzzes with products for interactive learning, communication and multimedia applications.

Just 8 months ago, leading toy companies Hasbro Inc. (HAS.N) and Mattel Inc. (MAT.N) warned that more than $100 million would be lost amid competition for semiconductors, sparked by explosive demand for wireless handheld devices such as mobile phones.

The deficit left companies without the brains to their creations, and forced them to tweak production schedules, pushing the unveiling of some 2000 toys into 2001.

"What happened last year, was that people waited to order chips because they didn't want to sit on all of the components, and the cell phone industry was booming," explained Chris Byrne, editor of The Toy Report, an industry newsletter.

In the past, the technological needs of the toy industry was for the most part limited to chips that were obsolete for other consumer electronics uses.

But that was before the days of super-powered toys such as Sony Corp.'s (6758.T) PlayStation game console, progressive educational toys, a litter of intelligent robotic pets, and even personal digital assistants for elementary schoolers.

"Now the toys have gotten so much more sophisticated that the toys companies are in competition with cell phone, the PDA companies, and everybody for the same chips," he said.

Thankfully for the industry, a slump in cell phone growth, slack demand for personal computers, and better planning has relieved the pressure on toy makers.

TOYMAKERS SAY CHIP CHALLENGE IS PAST

Undaunted by last summer's setbacks, toy companies such as Hasbro, whose Tiger Electronics unit is set to unveil a $200 robot dog named I-Cybie, say they have shaken off the chill of the chip situation.

"Of course there are other things that can happen (regarding chip supply), but right now as we sit today we look pretty good," Alan Hassenfeld, Hasbro chairman and chief executive, told analysts on Feb. 8 in an earnings conference call.

A Hasbro spokesman further explained that the company now realizes it must identify its needs earlier, and speed up its purchasing decisions.

Other toy makers echo such sentiment and strategy. Interactive learning company VTech Holdings Ltd. (0303.HK), whose new offerings at Toy Fair include a robot device name "Me-Mo-Mo," said it made adjustments and become more flexible with its shipments to key retailers.

"Based on meetings (with retailers) we placed orders earlier, which we anticipate will eliminate or mitigate any chip shortages for the coming season," a company spokeswoman told Reuters.

Mattel, maker of Barbie Dolls, last year said that its infant and preschool lines were hardest hit by the shortage. Mattel spokeswoman Lisa Marie Bongiovanni said it responded by ramping up buying procedures and finding more efficient uses for its chips.

"We have accelerated our chip procurement process, centralized communications with vendors and will forecast our needs in advance and will order to longer lead times," she said. "We will also be addressing design flexibility in our products to make chips more interchangeable when possible."

That's good news for buyers at this year's Toy Show, who will be looking for provocative electronic toys, many of which are on display in the TechnoPLAY pavilion. While dolls, plush toys and board games will always rank as children's favorites, experts say the tech toys are hot because they mirror the technological nature of today's society.

"We live in a world that is powered by technology," Byrne said "It is only natural that our toys will reflect that world. Kids are exposed to technology from the day they are born, and they take to it very naturally."

And as the demand grows, toy makers will follow with supply, as they have in recent years when electronic toys such as Furby and Tickle Me Elmo were top sellers.

"In general, while perhaps they are more cautious about the way they order chips and plan product lines, (the chip supply issue) doesn't change dramatically any manufacturer's plans to make products with chips," said Melissa Williams, an analyst with Gerard Klauer Mattison & Co.

http://www.iwon.com/home/technology/tech_article/0,2109,99276|technology|02-13-2001::14:53|reuters,00.html

-- Doris (nocents@bellsouth.net), February 16, 2001