Qualcomm Snapdragon S4 processors for tablets and smartphones are in short supply due to a lack of manufacturing capacity available to make those chips.
Snapdragon processors are used in a wide range of smartphones and tablets and are also being targeted at devices using Microsoft's upcoming Windows 8 OS. The latest dual-core Snapdragon S4 chips are found in smartphones announced this year by HTC and tablets announced by companies such as Lenovo.
"Demand for S4 chipsets exceeds supply," said Steve Mollenkopf, president and chief operating officer at Qualcomm, during a conference call to discuss the company's financial results. More than 370 Snapdragon devices are available in the market, and more than 400 are being developed, of which 150 designs are based on the S4.
Qualcomm designs the chips, which are then contracted out to third parties for manufacturing. The contract manufacturers have had challenges ramping up the new manufacturing technology used to make S4 chips.
The chip shortage comes as demand for smartphones and tablets rises, and as the company pours more resources into pushing S4 into tablets and laptops for Windows 8. The company is developing a quad-core S4 chip for thin and light 4G LTE laptops based on Windows 8.
Customers are disappointed with the S4 supply constraints, said Paul Jacobs, Qualcomm CEO, on the conference call.
"We've got some really good systems in the road map," Jacobs said. "We're making the investments needed to improve the supply."
The S4 is based on the ARM architecture and includes a 3G/4G radio and graphics cores. Microsoft is working with Qualcomm, Nvidia and Texas Instruments to make Windows on ARM devices.
The shortage of S4 chips may have a small impact on the prices of smartphones and tablets, and it may also affect Qualcomm's launch of Windows on ARM devices, said Nathan Brookwood, principal analyst at Insight 64.
Qualcomm may shift some S4 chips intended for phones toward tablets, or vice versa, depending on demand. But the shortage is a sign that S4 chips are in demand, which is good news.
The shortage has forced some Qualcomm licensees to look at S4 alternatives, Mollenkopf said. Some of Qualcomm's competitors include Nvidia, which offers the Tegra 3 processor, and Texas Instruments, with its OMAP chips. Qualcomm expects supply to be constrained until the December quarter and to become normal by next year.
The S4 chips are made using the 28-nanometre process, which is the latest manufacturing technology for ARM chips. Previous Snapdragons were made using the 40nm process, but the newer, 28nm S4 chips are faster and more power-efficient.
Qualcomm does not produce its own chips, but gets them made from contract manufacturers such as TSMC (Taiwan Semiconductor Manufacturing Co.). However, TSMC has had trouble ramping up chip production on the 28nm process, according to a news report in the Taipei Times this morning.
Qualcomm is working closely with TSMC but is also looking at alternate contract manufacturers for a consistent supply of S4 chips, company executives said. TSMC competitors UMC and GlobalFoundries are now ramping up their own 28nm manufacturing processes.
There is also heavy demand for 28nm chips outside smartphones, Insight 64's Brookwood said. Graphics cards from Advanced Micro Devices and Nvidia are made using the process, which could complicate the supply environment, Brookwood said.
Nvidia in particular has been grousing about the 28nm chip supply, Brookwood said. But for Qualcomm, moving a design to another foundry would take at least six to nine months.
Qualcomm is also the primary supplier for chips for Windows Phone devices from HTC, Nokia and other phone makers. Those phones primarily use single-core Snapdragon S2 chips, and Qualcomm does not have a supply problem with those chips, which are made with an earlier process.
In the second fiscal quarter of 2012, ended March 25, Qualcomm reported net income of $2.23 billion, growing 123% compared with the same quarter in the previous year. The company's revenue was $4.94 billion, up 28% year over year. The company's shipments of MSM chipsets, which includes Snapdragon, totaled 152 million units, growing 29% year over year.