Qualcomm: We can't make enough chips to meet demand

Qualcomm (NASDAQ:QCOM) once again posted record earnings and revenue in its fiscal second quarter, but the chipset giant also said it is facing constraints on meeting customer demand for chips that will force it to boost operating expenses.

Qualcomm CEO Paul Jacobs


For the quarter, Qaulcomm's net income more than doubled to $2.23 billion, though the company noted that during the quarter it also booked a $1.93 billion payment from AT&T (NYSE:T) for the sale of its 700 MHz MediaFLO spectrum. Meanwhile, Qualcomm's revenues surged 28 percent in the quarter to $4.94 billion. Qualcomm shipped 152 million MSM chipset units, up 29 percent from the year-ago period.

Despite the sterling results, the threat of supply constraints hovered over the company's earnings. Like other chipset makers, Qualcomm relies heavily on foundries in Taiwan, including Taiwan Semiconductor Manufacturing Company, to fabricate its chips.

"Although the manufacturing yields are progressing per expectation, there's a shortage of 28-nanometer capacity," Qualcomm CEO Paul Jacobs said during the company's earnings conference call, according to a Seeking Alpha transcript. "And at this stage, we cannot secure enough supply to meet the increasing demand we're experiencing. We're working closely with our partners to bring additional capacity online."

Jacobs said that "there are just not enough machines" in TSMC's factories to produce all of the requested 28-nanometer chips, but that the company expects to see "significant" improvement in supply issues by its December quarter. "Chasing supply is our biggest issue," Jacobs told the Wall Street Journal in an interview. "Customers don't like not getting what they asked for, that's for sure."

The shortfall could impact supplies of Qualcomm's MSM8960 S4 Snapdragon chipsets, which power many high-end smartphones, including LTE devices. However, Qualcomm may be able to cut the shortfall off in the next few quarters, which should brighten the company's prospects. "Given that it's supply related and not demand related the shares will rally back," Canaccord Genuity analyst Michael Walkley told Reuters. Walkley expects a "nice recovery" for Qualcomm by the end of the calendar year 2012.

For more:
- see this release
- see this Seeking Alpha transcript
- see this WSJ article (sub. req.)
- see this Bloomberg article
- see this Reuters article

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