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QCOM Looks to Solve Chipset Crisis

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In order to meet the rising demand for Qualcomm Inc’s (QCOM) popular Snapdragon S4 processors, the company has joined hands with Taiwan Semiconductor Manufacturing Company (:TSMC) and a few other third party chipset manufacturers to accelerate the supply of chipsets.

A few days back, Qualcomm announced that there will be a shortage of S4 chipsets in 2012. Therefore, in order to avoid the crisis, the company is looking for Fusion 2 chipsets that can be used in mid-range smartphones and tablets. The company is also trying to tie up with third party chipset manufacturers to solve the supply issue.

The popularity of Snapdragon S4 dual-core processors is always on the rise as they are mainly used in high-end smartphones and tablets. They also support LTE technology, better graphics, high network speed and increased battery life, which make them more popular among top smartphone manufacturers.

According to Qualcomm management, more than 370 smartphones/tablets are slated to be released in the upcoming months will be using Qualcomm’s Snapdragon processors, out of which more than 150 will be using the dual-core S4 chips.

As per the industry analysts, 70 million LTE-based smartphones are expected to be shipped during 2012. So we believe that the shortage of S4 processors will badly hurt many smartphone developers.

Samsung Electronics is one of the companies that will be most negatively affected because it currently holds a 57% share of the LTE-based smartphone market (as per Strategy Analytics market research firm) and almost all of its LTE-based devices use Qualcomm’s S4 chipsets. Asus (one of the leading Asian PC makers) also delayed the launch of its PadFone (combination of tablet and smartphone) citing shortage of Qualcomm’s S4 processor.

Even Nokia Corporation (NOK) had to put the launch of the LTE-based Nokia Lumia 900 smartphone in Europe on hold, having been impacted by the shortage in Qualcomm’s S4 processor in their newly developed Windows-based handsets.

Therefore, if Qualcomm is able to come out of the situation by outsourcing production to outside foundries and also substitute with Fusion 2 where possible, it may be able to protect sales. Of course costs would naturally go up, as indicated by management when they announced the shortage for the first time in April.

Currently, Qualcomm has a Zacks #3 Rank, implying a short-term Hold rating on the stock.

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