Bloomberg News

Qualcomm Weighs Writing ‘Big Checks’ to Ensure Chip Access

June 28, 2012

Qualcomm Inc. Chief Executive Officer Paul Jacobs, girding against a shortage of chips, said he wouldn’t rule out owning a manufacturing plant or tapping the company’s cash pile to ensure access to needed parts.

Qualcomm is weighing different business arrangements with its suppliers and would consider “writing big checks,” Jacobs said yesterday at a briefing in San Diego, where the company is based.

“If that’s what it took in the future, I wouldn’t say no to that,” Jacobs said. Qualcomm would prefer to keep relying on other companies to make its chips, rather than building plants, he 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.”

Qualcomm is the biggest in a growing group of chip companies that focus on designing chips and leave the manufacturing to other companies, usually so-called foundries in Asia. As smartphone demand surges, parts suppliers are struggling to keep up. That has prompted electronics makers such as Apple Inc. (AAPL:US) to use cash payments to the tune of hundreds of millions of dollars to secure their quota.

“The gut reaction of investors to Qualcomm building a fab would be negative -- it would be changing their business model,” said Daniel Berenbaum, an analyst at MKM Partners LLC. Using upfront payments to lock down supply from existing partners would be a “judicious use of cash,” he said.

Higher Orders

Qualcomm said earlier this year that earnings growth will be constrained because it can’t get enough chips from Taiwan Semiconductor Manufacturing Co. The company had received more orders than anticipated for chips made with the most advanced manufacturing processes.

Jacobs said that while supply is improving and Qualcomm may be able to provide enough chips to match demand for phones by the end of the year, some customers will miss planned introductions of phones -- even as fresh orders for those chips roll in.

Jacobs also said yesterday that devices powered by Qualcomm’s Snapdragon processors will be available later this year, when Microsoft Corp. (MSFT:US) releases its Windows RT software. Snapdragon will run some of the thinnest and lightest computers available, he said.

Qualcomm is one of three chip companies partnering with Microsoft to develop devices using processors based on ARM Holdings Plc (ARM) technology. Microsoft is enabling ARM-based chips, which dominate mobile phones and are the heart of Apple’s iPad, in a computer operating system for the first time.

ARM Tablets

Nvidia Corp. (NVDA:US) and Texas Instruments Inc. (TXN:US) are also working with Microsoft to deliver ARM-based computers and tablets. Intel Corp. and Advanced Micro Devices Inc. (AMD:US), whose processors have traditionally run Windows computers, are working on a similar Microsoft touch-screen operating system.

Windows 8, for Intel and AMD chips, and Windows RT, for ARM-based chips, are Microsoft’s first computer operating systems designed for touch displays.

Qualcomm (QCOM:US) declined 0.9 percent to $54.41 at 9:36 a.m. in New York. Through yesterday, the shares were little changed this year.

Google Inc. yesterday said it will use a Tegra processor from Nvidia for its Nexus tablet computer based on an updated version of the Android software. That followed Microsoft’s choice of Tegra for its Surface tablet.

Qualcomm’s Jacobs said those decisions came before Qualcomm released an update to Snapdragon. That chip, with two processing cores, outperforms Tegra, which has four, he said.

Dual Core

“It was a timing thing,” he said. “Our dual core is better than their quad core.”

“Nvidia will let its design wins speak for themselves,” said Hector Marinez, a spokesman for the Santa Clara, California-based company.

Qualcomm is restructuring to form a parent company, which will include corporate operations and most of its patent portfolio, as well as a wholly owned subsidiary to operate research and development and run its products, services and semiconductor businesses, the company said in a statement today.

“Our internal reorganization will provide even greater protection for our industry-leading intellectual property portfolio as our products and services businesses seek to accelerate innovation and deliver our products to market quickly,” Jacobs said in the statement.

To contact the reporter on this story: Ian King in San Francisco at ianking@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net


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