For most of the year, much of the mobile and tech supply chain has been subjected to one big bottleneck. That bottleneck has a name: Taiwan Semiconductor Manufacturing (NYSE: TSM).
The newest manufacturing process which most chip makers that rely on third-party contract manufacturers are migrating to is based on 28-nanometer process technology. As the largest contract manufacturer with a nearly 50% market share, any holdups at TSMC are bound to ripple throughout the market.
All that and a bag of chips
These shortfalls are hurting chip makers like NVIDIA (Nasdaq: NVDA), whose newest Kepler graphics architecture is built using 28-nanometer, and Qualcomm (Nasdaq: QCOM), whose latest batch of baseband modems and Snapdragon application processors use the same process.
TSMC Chairman Morris Chang recently said that the company's supply of 28-nanometer chips will likely continue to fall below market demand in the third quarter, but it continues to expand production and should get closer to a good balance in the fourth quarter. Demand will hopefully be satisfied in 2013. Chang admitted that the company didn't accurately forecast demand for these chips, so it's now playing catch-up with production capacity.
|
Process technology |
Percent of total wafer revenues |
|---|---|
| 28-nanometer | 5% |
| 40-nanometer | 32% |
| 65-nanometer | 26% |
Source: First-quarter earnings press release.
In the first quarter, 28-nanometer production accounted for just 5% of sales. The company expects that figure to rise to over 20% by the fourth quarter.
Paul Jacobs: Captain Obvious
These supply constraints are putting an interesting spin on the mobile processor rivalry between NVIDIA and Qualcomm.
Qualcomm's latest Snapdragon S4 chip features integrated 4G LTE, Bluetooth, and WiFi baked directly into the chip, and is built on 28-nanometer technology. Just about every original-equipment manufacturer wants to get their hands on this chip for inclusion in their newest gadgets, but there's simply not enough to go around. Qualcomm CEO Paul Jacobs recently told Reuters that the company expects supply to improve toward the tail end of the year, adding, "The goal is to get enough supply for everyone." Well, duh.
For some OEMs, that might have to settle for less. They might turn to NVIDIA for its quad-core Tegra 3, which lucked out by using 40-nanometer technology and is thus unaffected by the constraints. Indeed, some OEMs are hedging their bets by doing exactly that. For example, HTC's newest One X model has two different variants, an international version with a Tegra 3 and a domestic one with an S4.
The scarcity of the latest Snapdragons are giving NVIDIA a leg up as it tries to steal more mobile processor share from its larger rival.
Back to the Mac
TSMC may also be indirectly holding back Apple (Nasdaq: AAPL), as Apple isn't a direct customer. Those newest baseband modems from Qualcomm are widely expected to serve up 4G LTE data speeds in the next-generation iPhone, and Apple is going to need millions of the chips.
The Mac maker just unveiled its latest MacBook Pro models, which feature those discrete GPUs from NVIDIA in the higher-end offerings. The brand new MacBook Pro with Retina display is already seeing shipping times slip to three to four weeks, as there obviously aren't enough to go around. These supply shortages are likely either resulting from these NVIDIA chips or the display itself.
Intel: "I told you so."
Halfway across the world, Intel (Nasdaq: INTC) is laughing all the way to the bank and patting itself on the back for its focus on vertical integration and keeping its chip foundries while other chip makers transitioned en masse to fabless or fab-lite models.
Chip King Kong's mobile-bound Medfield Atom processor is built on a 32-nanometer process, while its newest PC-bound Ivy Bridge chips use 22-nanometer.
Is it 2013 yet?
This shows a major downside to the fabless model. Having so much of the semiconductor industry rely on just a handful of suppliers puts a damper on sales when the manufacturers sorely miss the mark with demand forecasts, as TSMC's Chang concedes was the case here. The top three contract manufacturers combined comprised nearly 73% of the market, so it doesn't take a lot to hold back everyone else. Next year can't come soon enough for these chip makers.
If TSMC's holdups end up causing iPhone shortages, that could be a major risk for Cupertino. It's definitely one of several risk factors that current or prospective shareholders should consider, but there are plenty of opportunities for Apple, too. Every company mentioned here is looking to cash in on the next big thing in computing. Grab this free report to get up to speed.
