Too much of a good thing can be a very bad thing.
Camera chip designer OmniVision Technologies
Apple's manufacturing partners have ordered up to 20% more camera chips than they did last year, leaving OmniVision between a rock and a hard place. Being a fabless chip designer, the company depends on third-party chip foundries like Taiwan Semiconductor Manufacturing
TSMC is a giant and probably could produce enough chips to fill OmniVision's demands -- but OmniVision is a pretty small fish in a big pond. TSMC isn't likely to make bigger customers like Broadcom
This is good and bad for OmniVision. It's always nice to sell more product than expected, but OmniVision believes -- and I agree -- that "the ability to … produce and deliver reliable products in large quantities [in a timely manner] is a key competitive differentiator." The chips are manufactured in the Far East, and then typically shipped out to Asian gadget manufacturing shops like Foxconn. Then the finished products need to be schlepped over the Pacific on a boat, which takes a long time.
And it's not like Dell and company can easily turn around and drop in a replacement chip from competitors like Samsung or Sony
So OmniVision's reputation is on the line, which could be bad news for future orders. You don't design a gadget around chips you're not sure will be available when you need 'em. The shortage should be over by mid-November, but that's a tight squeeze in front of the holiday shopping season.
Did OmniVision just show off how popular its technologies have become, or did the company lose the trust of its customers? I'm a little verklempt -- talk amongst yourselves.
Fool contributor Anders Bylund owns shares in Taiwan Semiconductor, but he holds no other position in any of the companies discussed here. Apple and NVIDIA are Motley Fool Stock Advisor selections. Dell is a Motley Fool Inside Value recommendation. Try any of our Foolish newsletters today, free for 30 days. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.