Qualcomm doesn't shut door on producing its own chips

Qualcomm (NASDAQ:QCOM) CEO Paul Jacobs left open the possibility that the chipset maker might run its own silicon fabrication plant, or fab, or make use of its cash pile to keep up with demand. However, it is unlikely that Qualcomm will start running a fab any time soon.

Qualcomm is looking at different business options with suppliers and consider "writing big checks," Jacobs said at the company's Uplinq conference in San Diego, according to Bloomberg. Qualcomm had said in April that it was facing supply constraints on meeting customer demand for chips that would force it to boost operating expenses. "If that's what it took in the future, I wouldn't say no to that," Jacobs said. "It's not something that's high on our list of things that we want to do. But I wouldn't rule it out completely."

Jacobs said right now Qualcomm prefers to let its suppliers, such as Taiwan Semiconductor Manufacturing Co., actually produce chipsets. "Right now our inclination is to retain the model we have," he said, according to Forbes. "When you have a fab you have to spend a lot of management cycles on keeping that fab full."

However, Jacobs did not rule out the idea of Qualcomm owning a fab entirely. "We have people inside the company who have built fabs, who have worked on the process technologies, and we have the core competencies inside to do it," he said.

Qualcomm had reported shortages of its most advanced 28-nanometer chips, used in some high-end smartphones. Jacobs said Wednesday that while supply is improving and Qualcomm may be able to deliver enough silicon to support customers' demands, some smartphones will have to be delayed to do the supply constraints.

The supply issue cuts to the heart of Qualcomm's predicament as the world's largest maker of mobile phone chipsets. The company works with dozens of OEMs but the increased demand for smartphone sis putting intense pressure on its suppliers. Although owning a fab might help ease that, it would be an extremely expensive proposition.

Jim McGregor, an analyst with Tirias Research, said that it would likely cost Qualcomm $15 billion to $20 billion to set up and maintain its own fab, including the infrastructure, equipment and process technologies to continually shrink the size of chips.

It would not be cheap unless you could just take over somebody's fab," he told FierceWireless. "It would be much better for them to invest as a third party."

Separately, Qualcomm said that it is creating a new corporate structure to help it protect its intellectual property, particularly for 3G and 4G patents.

Under the new structure, the parent company, Qualcomm Incorporated, will include the Qualcomm Technology Licensing Division and corporate functions, as well as most of Qualcomm's patent portfolio. Additionally, there will be a new wholly owned subsidiary, Qualcomm Technologies Inc., which will operate all of Qualcomm's research and development activities, as well as product and services businesses, including its semiconductor business, or QCT.

For more:
- see this Bloomberg article
- see this Forbes article
- see this release
- see this Dow Jones Newswires article

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