As smartphone demand explodes, especially in the midmarket, securing sufficient volumes of key components at keen prices is the biggest secret to success. Nokia used to be the king of the supply chain and recently Apple and Samsung have usurped its crown with their growing scale and increasingly integrated platforms. The chipmakers, too, can gain huge competitive advantage once they have massive scale, and both Qualcomm and Intel are flexing their muscles as they prepare to go head-to-head in mobile.
Touchscreens have been subject to shortages for a couple of years, leading smartphone makers to invest heavily in securing their supplies. The advent of tablets worsened the problem, and now touchscreen laptops will add further to pressure on stocks ‘ and opportunities for the display makers. To ensure its PC partners are not squeezed by tablet newcomers, Intel is paying four Taiwanese manufacturers to ensure availability of displays.
Intel has signed up TPK Holding, Wintek, HannsTouch and Cando over the past month. Under the deals, these suppliers will provide an agreed number of screens to PC makers specified by Intel. The OEMs will pay for the displays they use, but if there is unused capacity, Intel will pay for that, removing the manufacturers’ risk even if the PC makers fall short of their targets ‘ and keeping non-allies of Intel out of the front rank in these manufacturers’ planning schedules.
The touch-enabled laptop and the ultrabook will be important to Intel, as they could temper the tablet’s impact on PC sales and ensure the survival of a form factor, and an ecosystem, which the chip giant dominates. According to IHS iSuppli analysts, tablets will see 42% annual growth between 2011 and 2016, versus 9% for notebooks (admittedly from a far larger base). But in 2015, tablets are expected to overtake laptops in new shipments.
The shares of traditional PC suppliers like Dell and HP have been under pressure, since they have failed to make a serious impact on current touchscreen formats. Despite their size, these vendors are minnows when it comes to negotiating for key components associated with mobile devices, such as touchscreens ‘ especially against Apple and Samsung, which control about half the smartphone/tablet space between them, and have established rising levels of control over their supply chains, Samsung via its own display operation, Apple through its venture with Sharp and Hon Hai.
Intel’s new move should ensure that its four partners prioritize PC makers rather than favouring Apple and Samsung, says Bloomberg. However, some analysts believe the problem of touch display shortages is easing. IDC’s Linn Huang says new, smaller suppliers have added to the competition for leaders Samsung and LG, and production is getting more efficient. ‘There are definitely more touchscreens being produced than there are being shipped in to customers hands,’ Huang said.
But Intel told Bloomberg: ‘We believe there’s going to be more demand than current forecasts’, especially as market growth shifts from phones to larger displays.
This development shows Apple and Intel deploying big weapons in a battle which both understand better than most, controlling a supply chain. Apple CEO Tim Cook, the architect of his firm’s own well regarded chain, has said that Apple will spend $3.9bn over two years on components and will invest heavily to secure supplies of key parts. It even buys the most modern manufacturing equipment and instals it in the plants of its contractors.
And Qualcomm has been suffering the effects of miscalculating the demand. As it struggles to overcome shortages of its flagship new processors, the company is reported to have signed deals with two new foundry partners, United Microelectronics (UMC) and Samsung.
Qualcomm recently warned that its results would be hit, at least until the fourth quarter of this year, by the failure of its main foundry, TSMC, to achieve full capacity for chips made in the new 28nm process ‘ including Snapdragon S4 processors and 3G/4G basebands.
According to Taiwan Economic News, UMC of Taiwan will start supplying the products in the fourth quarter and could achieve between 20% and 33% of the volumes supplied by TSMC. The chips have already been taped out and verified in a UMC 28nm CMOS process.
There were no details of timing for the Samsung deal, but a Qualcomm relationship would be a major boost for the Korean firm, which has been working hard to expand its foundry activities. It is poised to lose some of the manufacturing of Apple’s A4/A5 processor to TSMC, as the iPhone maker looks to reduce its supply chain reliance on its smartphone rival. Samsung also competes with Qualcomm on the applications processor side, but the looming shortages of key mobile components mean that firms are forced to sleep with uncomfortable bedfellows.
According to EETimes, UMC last week announced that it had licensed 20nm CMOS process technology from IBM to enhance its manufacturing roadmap and attract new customers. Qualcomm CEO Paul Jacobs said, in the wake of the Snapdragon supply crisis, that he would consider many options to address the shortages. He told Bloomberg he would not even rule out owning a manufacturing plant, or ‘writing big checks’ from the firm’s cash mountain to ensure access to the necessary capacity. ‘If that’s what it took in the future, I wouldn’t say no to that,’ Jacobs said, though he was clear that reversing its fabless model would be a last resort. Building its own plant was ‘not something that’s high on our list of things that we want to do. But I wouldn’t rule it out completely,’ he added.
Analysts were more favourable to Qualcomm using upfront payments to ensure supply from partners, described by MKM analyst Daniel Berenbaum as a ‘judicious use of cash’, than building a fab and therefore changing its whole business model to address what may be only a short term problem. However, Intel has been making capital out of its own advantage in a time of shortages ‘ having its own advanced manufacturing plants and full control over its processes and supply.
Jacobs said 28nm supply was improving and Qualcomm may be able to provide enough chips to match demand for phones by the end of the year, but he conceded some customers will have to delay the planned introductions of some phones.