Qualcomm Chip Shortage Could Set Back iPhone 5 Rollout

Qualcomm is facing supply issues in meeting the demand for smartphone chips which will continue throughout the rest of the year, according to Reuters.

"At this stage we cannot secure enough supply to meet the increasing demand we are experiencing," Chief Executive Paul Jacobs told analysts during a conference call.

Stacy Rasgon, Bernstein analyst, claims the shortage of chips could lead to a slowdown in the launch of advanced LTE phones since the chips which are in short supply are the ones used in producing high-speed LTE-based smartphones. Qualcomm is looking at alternative suppliers, and plans to increase its operating expenses up to 23 per cent.

"Demand went so far ahead of availability that we have decided to start spending more money to get more supply as soon as possible," Bill Keitel, Chief Financial Officer told Reuters. "Any time we can't make a customer totally happy I'm going to worry. You don't want to give a customer a reason to go elsewhere." The shortage is costing "tens of millions" extra, he added.

Bernstein analyst Stacy Rasgon said Qualcomm's forecast for third quarter chip shipments of 144 million to 152 million also fell below his expectation for 157 million.

But while investors were disappointed by the current quarter numbers, they were relieved that the problem is not related to any weakening in end-customer demand, analysts said.

"Given that it's supply related and not demand related the shares will rally back," said Canaccord Genuity analyst Michael Walkley, who expects a "nice recovery" for Qualcomm by the end of the calendar year 2012.

One of the hig profile phones that might be affected is the next iPhone, commonly referred to as the iPhone 5.

However, one analyst believes the Qualcomm chip shortage will not affect the shipping of the iPhone 5. Gene Munster, Senior Research Analyst of Piper Jaffray, expects the iPhone 5 to not only come with a revolutionary newly-designed body but will also support LTE and use the Qualcomm 28nm baseband modem.

With the new iPad making an impact in certain countries due to its LTE capabilities, Apple is expected to include this feature in its upcoming iPhone too. Qualcomm's baseband chips were also used for the iPhone 4 and iPhone 4S models.

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