A little while back, Qualcomm (NASDAQ:QCOM) formally announced its latest premium smartphone platform, known as the Snapdragon 835. The Snapdragon 835 offers performance, power, and feature improvements over the company's prior-generation Snapdragon 820/821 processors by both architectural enhancements as well as a transition to Samsung's (NASDAQOTH:SSNLF) 10-nanometer LPE manufacturing tech.

Qualcomm's 800-series processors generally dominate the market for high-end merchant mobile applications processors, and that's not likely to change anytime soon. So, it's natural to expect that demand for the Snapdragon 835 will be good.

A render of a Qualcomm Snapdragon chip.

Image source: Qualcomm.

Per Qualcomm, in prepared comments made on its April 19 earnings call, demand for the Snapdragon 835 exceeds supply.

Supply issues hitting Snapdragon 835

Qualcomm CFO George Davis said that the company is "seeing strong demand exceeding supply" with respect to the Snapdragon 835.

Although the "strong demand" portion of it is encouraging, it's not the only driver of Qualcomm's inability to reach a supply-and-demand balance for these new chips. 

The executive said the company's "growth in operating margin relative to demand in the quarter is being limited by [Qualcomm's] ability to ramp volumes at 10-nanometer."

In other words, Qualcomm appears to be unable to get ahold of the 10-nanometer wafers required to meet its own customers' demands. 

Davis went on to say that the company expects the supply-demand situation to "begin to normalize in the fiscal fourth quarter."

That's a quarter away from the current one, and note his use of the word "begin." 

Clearly 10-nanometer yield issues

Prior to the launch of the Snapdragon 835, there were rumblings about potential 10-nanometer yield issues in DIGITIMES. Indeed, back in March, DIGITIMES said that "yield rates for Samsung's 10nm process technology have been low, affecting production for its own Exynos 8895 and Qualcomm's Snapdragon 835," citing industry sources.

Since yield rates are apparently low, and since Qualcomm is having Samsung build its chips, it's natural to expect that Samsung will consume much of the current production capacity in support of the Galaxy S8/S8+ smartphones (in the form of either Qualcomm-designed, Samsung-built Snapdragon 835s or Samsung-designed-and-built Exynos 8895 chips).

Only when yield rates (and therefore supply) improve would I expect other smartphone manufacturers to have access to significant quantities of Snapdragon 835 chips.

Things should be better next time

The current 10-nanometer technology Samsung is producing is known as 10-nanometer LPE, where LPE stands for "low power early." After 10-nanometer LPE, Samsung says it's planning to move a technology called 10-nanometer LPP, or "low power plus," into production.

This should be a performance-enhanced version of the currently in-production 10-nanometer LPE technology, and it should therefore benefit from the yield learning Samsung goes through as it produces the Snapdragon 835/Exynos 8895.

My guess is that the successor to the Snapdragon 835 will be manufactured using 10-nanometer LPP, and Qualcomm (as well as its non-Samsung partners) won't have to deal with the teething issues associated with trying to build chips on a new, immature manufacturing technology.

Indeed, I suspect Samsung really needed additional time to try to get yields up on the technology before starting to manufacture products for mass production, but since the company's Galaxy S8/S8+ schedule depended on getting 10-nanometer chips into production, it truly had no choice.

Perhaps, going forward, the contract chipmakers will slow down the pace at which they transition to fundamentally new technologies and will instead opt to optimize older-generation technologies further to meet the needs of major mobile customers.

Ashraf Eassa owns shares of Qualcomm. The Motley Fool owns shares of and recommends Qualcomm. The Motley Fool has a disclosure policy.