For Qualcomm Inc., CDMA is a double-edged sword.
Although the company has enjoyed a significant amount of prosperity in its efforts to expand the CDMA industry, its success seems to cut both ways as Qualcomm is now in the midst of a chip shortage due to overzealous market demand. Indeed, Qualcomm’s supply constraints may give rival CDMA chip suppliers a chance to break the company’s stranglehold on the market it helped create.
“The biggest risk to (Qualcomm’s) dominance has been the shortages of late which may give phone makers a reason to support a secondary source of CDMA chipsets,” wrote Albert Lin of American Technology Research in a recent note.
Indeed, Lin said the situation may go so far as to cut into CDMA carriers’ revenues as customers look elsewhere for new phones. Further, the shortages may even give struggling Qualcomm opponent Nokia Corp. a leg up in the CDMA marketplace. Nokia uses CDMA chips from Texas Instruments.
Qualcomm, which controls about 88 percent of the CDMA chipset market, said in its second-quarter filings that it “recently experienced supply constraints, which resulted in our inability to meet certain orders to our suppliers.” Qualcomm said it is coming up short on integrated circuits for its MSM CDMA chipsets, which run phones from the likes of Motorola Inc., Samsung Electronics Co. Ltd., LG Electronics Co. Ltd. and others. Qualcomm said IBM Corp., Taiwan Semiconductor Manufacturing Co. and United Microelectronics make its baseband integrated circuits, and that IBM, Motorola and Texas Instruments supply its radio frequency and analog integrated circuits.
Qualcomm said it began to experience shortages at the beginning of this year, and that by late March demand far outstripped supply. However, the company said that its chip suppliers have begun to catch up with the growing demand.
In order to shore up its chip supplies, Qualcomm said it plans to purchase additional production capacity from its existing suppliers and would seek out additional suppliers. The company also said it could score extra supplies due to its previously announced plans to transition from RF and mixed signal technology to RF Complementary Metal Oxide Semiconductor technology. Qualcomm said RF CMOS is a low-cost, high-volume, digital process technology used in various digital computer microchips, and that using the technology would provide price-competitive, reliable products.
As Qualcomm struggles to increase its chip supply, rival CDMA chip suppliers like Samsung, Texas Instruments, VIA Telecom, Holley Communications and EoNex Technologies Inc. may reap the rewards. TI in particular may see the most benefit, said Allen Leibovitch, program manager for wireless semiconductors with research and consulting firm IDC.
TI “does pose a viable alternative to Qualcomm,” he said.
TI and STMicroelectronics build Nokia’s CDMA chips, and have recently begun offering the chips out to other customers. CDMA phone makers looking to protect their supply of CDMA chips may consider TI’s offering, Leibovitch said. Other CDMA chip suppliers like Samsung could also see a boost.
However, Leibovitch said, Qualcomm’s chip shortages likely won’t result in a significant shakeup.
“I’m skeptical that it will change the overall makeup of the market,” he said.
AmTech’s Lin said the shortages could have several minor impacts, from higher CDMA phone prices to increased interest in higher-end phones, which in some cases use different chips. Lin said Qualcomm’s shortages appear to be affecting its lower-end chips, the MSM5000 family, rather than the higher-end MSM6000 family.
Qualcomm is not the only company to suffer shortages in the past year. Motorola blamed component shortages on its failure to ship several high-end phones for the December shopping season. Siemens too said it has suffered shortages. Even video-game company Nintendo, which plans to sell a dual-screen handheld video-game device next year, said it has encountered LCD screen shortages, according to Reuters.
Interestingly, Qualcomm’s chip shortage doesn’t seem to have affected its outlook. Shortly after it discussed its shortages in its second-quarter filings, the company raised its sales expectations for the rest of this year and next year. Qualcomm said it expects to sell 34-35 million MSM chips in the third quarter, instead of the 33-35 million it previously expected. Qualcomm said the increase would be in part due to faster migration to its MSM6000 chips.
