Qualcomm scrambles for new chip capacity
Third quarter forecasts disappoint as firm admits its foundries cannot meet demand for 28nm processors
Published: 19 April, 2012
Qualcomm disappointed the markets with its third quarter forecasts as its outsourced manufacturing model, usually a source of pride, backfired amid shortages.
The firm's share price slid by as much as 7.4% on CEO Paul Jacobs' admission, in an interview following the fiscal Q2 results announcement, that Qualcomm needed to source additional sources of supply. Of course, many would see this as a nice problem to have, indicating the scale of demand for the US giant's mobile chips, but analysts worried that it demonstrated a concerning lack of control over the supply chain. "Qualcomm has some of the best designs on the planet, but they don't have control of their manufacturing," Piper Jaffray analyst Gus Richard told Bloomberg. "These guys killed it in design wins and they need a lot of volume. They can't get that volume."
Jacobs insisted the shortfall was down to heavy demand for 28nm offerings like Snapdragon S4, and not manufacturing problems and said output would meet demand by the fourth quarter. "It's painful not to be able to supply all of the chips your customers ask for," he said, noting that the shortages would affect revenue potential for the next two quarters. CFO Bill Keitel added: "The rest of this year would have been a lot stronger if not for our inability to get the product to some of our customers. You've got to make your customers happy every day. It worries me when we don't."
The San Diego firm said it was engaging with "several alternative sources", which were not identified, but candidates would presumably include Globalfoundries, UMC and Samsung. Qualcomm's main foundry is TSMC in Taiwan, whose CEO Morris Chang said on Tuesday that the firm had experienced issues with transitioning to the 28nm process. He claimed that, "with capacity coming online, I do believe the worst is behind us" and that the difficulties had related to capacity not, as rumored, to poor yields. The transition has also been reported to have delayed Apple's plans to extend the manufacturing of its iPhone processors to TSMC, as a second source alongside Samsung, and to have affected Qualcomm rival Nvidia.
With supply constraints in mind, Qualcomm issued a muted forecast for its current third quarter, saying that sales would be between $4.45bn and $4.85bn, when analyst consensus had looked for $4.81bn. That would be a sequential decline of between 2% and 10% but an increase of 23% to 24% on the year-ago period. Net income guidance of 67 cents to 73 cents per share fell short of market predictions of 77 cents. However, for the fiscal year 2012, Qualcomm maintained its guidance of a sales increase of 25% to 32% to reach between 18.7bn and $19.7bn, and it increased its estimates for annual earnings to a range of $3.61 to $3.76, indicating its confidence that it can sort out its supply problems for the fourth quarter.
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