The surge in demand for
) popular 28 nanometer Snapdragon S4 processors has induced the
company to expand its supplier base by adding another chip
United Microelectronics Corp.
) to produce Snapdragon S4 processors.
United Microelectronics is expected to manufacture approximately
3,000-5,000 wafers a month, thereby meeting 20% to 30% of chipset
requirements of Qualcomm.
Last month, Qualcomm teamed up with the world's leading chip
manufacturer, Taiwan Semiconductor Manufacturing Company (TSMC) in
order to accelerate the supply of chipsets. However, TSMC failed to
properly estimate the demand for chips in 2012, thus resulting in
lower production of processors. So to mitigate the shortage of
chips, Qualcomm not only joined hands with UMC but also selected
Samsung Electronics to further boost its S4 processor supply.
The popularity of Snapdragon S4 dual-core processors is always
on the rise as they are mainly used in high-end smartphones and
tablets. They also support LTE technology, better graphics, high
network speed and increased battery life, which make them more
popular among top smartphone manufacturers.
As per Qualcomm management, more than 370 smartphones/tablets
are slated to release in the upcoming months and will be using
Qualcomm's Snapdragon processors, out of which more than 150 will
be using dual-core S4 chips.
According to Gartner research firm, tablet device sales are
expected to increase by nearly 98% to 119 million units by the end
of fiscal 2012. So keeping in mind the surge in demand for
Snapdragon S4 processors, Qualcomm is continuously looking for
different option in order to protect sales.
Apart from increasing their supplier base, they are also
planning to temporarily substitute the S4 processors with the
Fusion 2 chips, which is less complicated to manufacture compared
to S4 processors. Moreover, the company may set up new plants to
develop chips or may acquire any chip making company as it has a
huge cash balance of nearly $26.5 billion mostly invested in
On the downside, we believe that increasing supplier base will
expand its operating expenses in the near term. Moreover, we
believe that stiff competition from
) Tegra 3 quad-core processors may put additional pressure on
Qualcomm's market share in 2012 as they might lose certain wireless
equipment manufacturers due to shortage of chipsets.
We maintain our long-term Neutral recommendation for Qualcomm.
Currently, it has a Zacks #3 Rank, implying a short-term Hold
rating on the stock.
NVIDIA CORP (NVDA): Free Stock Analysis Report
QUALCOMM INC (QCOM): Free Stock Analysis Report
UTD MICROELECTR (UMC): Free Stock Analysis
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