Qualcomm Resolves Chipset Crisis

Qualcomm Inc. ( QCOM - Analyst Report ) , the largest mobile chipset manufacturer in the world has almost solved its chipset supply issue as two of its biggest vendor has increased their productions. Resolving the chipset supply shortage will bring to an end a major problem for Qualcomm, as it struggles to meet with the rising demand of its popular Snapdragon S4 processor.

Three of its major suppliers, Samsung Electronics Co., Globalfoundries Inc. and Taiwan Semiconductor Manufacturing Company (TSMC) are all ramping up their production to meet the growing demand of smartphone chips.

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 the top smartphone manufacturers.

In mid-June, Qualcomm announced that there will be a shortage of S4 chipsets for the rest of 2012. In order to avoid the crisis, the company opted for some alternative chipsets called Fusion 2, which can be used in the mid-range smartphones and tablets. The company also collaborated with a third party chipset manufacturer, TSMC 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. Therefore, to mitigate the shortage of chips, Qualcomm not only joined hands with United Microelectronics Corp. ( UMC - Snapshot Report ) but also selected Samsung Electronics Co. to further boost its S4 processor supply.

According to research firm Gartner, tablet device sales are expected to increase by nearly 98% to 119 million units by the end of fiscal 2012. Solving the chipset issue will be a major boost for Qualcomm to meet the soaring demand from Apple Inc. ( AAPL - Analyst Report ) , HTC Corp. and Samsung Electronics Co.

Additionally, Qualcomm will be in a better position to compete with NVIDIA Corporation’s ( NVDA - Analyst Report ) Tegra 3 quad-core processors, which is a major competitor to its 28 nanometer S4 processor.

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.