Why Qualcomm’s supply issues are ‘in the rear view’ during a global chip shortage

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  • Qualcomm is more optimistic about global chip shortages than many of its semiconductor rivals.
  • Qualcomm CEO Cristiano Amon says that’s because the company planned a reduction earlier this year and was able to sell off multiple factories for the three different parts.
  • Qualcomm also said that when smartphone makers do not get enough secondary parts, they prefer to use the most advanced and most expensive Qualcomm processors.

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Qualcomm stock rose more than 12% on Thursday, a day after reporting its September quarter earnings, which not only beat Wall Street’s expectation but also included bullish guidance for the December quarter.

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The reason for the strong guidance is that Qualcomm, a major semiconductor company, is more optimistic about global chip shortages than many of its rivals. For example, Apple says a chip shortage will cost it more than $6 billion in the December quarter.

Qualcomm CEO Cristiano Amon said on Wednesday that he expects its own supply issues to materialize by the end of December and that the company will have enough supply to meet demand by the second half of next year.

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This is sooner than predictions about the end of global chip shortages from Intel, which predicts the shortage will last through 2023, and closer to the forecast from AMD, which says challenges related to chip supply will be in the second half of 2022. Will last till half year.

“We were cautious on Qualcomm prior to the supply issues, but now they are fading behind the scenes,” Goldman Sachs analyst Rod Hall wrote in a note on Wednesday.

Amon said Qualcomm’s ability to grow chip revenue by 56% during the global shortage was a result of the company’s moves from earlier this year, and new capacity from suppliers planned months and years ago is starting to come online.

“The supply works exactly as we had planned,” Amon told Businesshala on Thursday. “The scale helps, we addressed the issue early … we made the capacity plans and it’s working exactly as we planned.”

Here’s why Qualcomm was able to navigate the ongoing chip shortage and why it’s optimistic about next year.

multiple suppliers

Qualcomm’s largest personal line of business is in systems-on-a-chip, or SoC, which combines central processing with cellular connectivity, and is the most expensive and most important component in Android smartphones. Almost every top-tier Android smartphone uses the Qualcomm Snapdragon chip.

Amon said sales of handset chips grew 56 per cent year-on-year in the September quarter.

These chips are manufactured using leading node processes, or the most advanced and capital intensive chip manufacturing techniques. Leading node processes create smaller transistors, which can be packed tightly together, creating faster chips that use less power and therefore more desirable smartphones.

It turns out, Qualcomm has been able to manufacture its processors using two different foundries, or chip factories. Currently, Samsung and TSMC are operating the most advanced leading node, called 5-nanometer, so Qualcomm is buying from both.

“We’re one of the few companies that has the ability to do multi-sourcing on a leading node, and we’ve done a lot with our roadmap,” Amon said in April.

This is in comparison to companies like Apple, which rely on one supplier — TSMC — for their own SoCs.

On Wednesday, Amon credited double sourcing as a key reason he was able to increase sales of the chip, and said the company had three separate parts on sale that were coming from two sources.

“We act quickly, we’ve done a lot of things, multi-sourcing, capacity expansion, and we’ve said we expect to see a material improvement in our supply at the end of the calendar year,” Amon said on a call Wednesday. ” analyst

Match Issues and Growing Upmarket

However, other executives said last month that the main issue is not with the flagship node chips, but with less-advanced but still essential chips, such as display or power chips.

The CEOs of both Intel and AMD have called this a “match set” issue, where PC makers “may have a CPU, but you don’t have an LCD, or you don’t have Wi-Fi,” says Intel CEO Pat Gelsinger. As said in an interview last month.

Qualcomm CFO Akash Palkiwala said that while Qualcomm supplies more smartphone makers than PC original equipment makers, it is facing the same issues.

“We are certainly seeing some mismatched parts in some of our customers in the short term,” Palkiwala said. “But you should think about the ones that are really timing issues.”

Qualcomm executives said that when smartphone makers don’t have enough parts, they prefer more expensive models. Premium phones use Qualcomm’s most advanced processors, which cost more, and the company has been able to “allocate” its supply capacity to prioritize more profitable chips.

Qualcomm said unit sales for premium devices with the most advanced Qualcomm chips grew 21% in the September quarter.

“We are really focusing on premium and high-end units, and hence when our customers have a supply mismatch, they supply premium in really high-end equipment,” Palkiwala said. factor” for Qualcomm in the short term.

Qualcomm says it still has a supply crunch, and while the company will still “ship more” if it can do more, it sees global chip shortages going according to its plans.

“We really have constraints across the board and you have to figure out how demand would play out if there was supply across the industry,” Palkiwala said. “But we feel very comfortable that the overall supply picture is going exactly as we had planned.”


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