By Kim Yoo-chul
LG Electronics and Pantech are facing a bumpy road ahead in their attempts to make a comeback in the smartphone market as key chip supplier Qualcomm is struggling to meet their demands.
The two firms, as well as Samsung Electronics are paying ``billions of dollars’’ to Qualcomm in return for using its patented ``one-chip solution,’’ which integrates the functions of 3G, 4G, mobile application processor (AP) and telecom into one for their smartphones.
The Korean phone makers are loyal partners that provide large chunks of Qualcomm’s yearly revenue.
Qualcomm said it shipped 152 million MSM-dubbed chipsets last year, up 29 percent from 2010. But its MSM8960, the one-chip solution, is the problem.
``Although the manufacturing yields are progressing per expectation, there’s a shortage of 28-nanometer capacity,’’ Qualcomm CEO Paul Jacobs said.
``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 told investors of this rare admittance of a problem.
The shortfall looks enough to impact on the MSM8960 Snapdragon chipsets, which power Samsung’s Galaxy lines and LG Electronics’ Optimus-branded devices including premium long-term evolution (LTE) products.
From a Korean perspective, the shortage could lead to a slowdown in the launch of advanced smartphones since the chips, are used in speedier LTE smartphones.
But local firms have a different view on the shortage.
Samsung officials told The Korea Times that it is ``closely monitoring the situation.’’ But they stressed that the impact of the ``Qualcomm tsunami’’ should be limited as Samsung is increasingly using its own solutions for its Galaxy range.
Also, Samsung is a top-tier customer, meaning Qualcomm should supply its chipsets even under a ``heavy chip shortage,’’ said the Samsung officials.
``Samsung plans to release its Galaxy S III smartphone according to different specifications and different markets. For European consumers, it will use 3G and the company’s own quad-core mobile APs, while its own solution that combines LTE, 3G and quad-core mobile APs will be used for the Korean version. But only in the United States, will Samsung use Qualcomm chips,’’ said one Samsung executive asking not to be identified.
But Qualcomm’s second-tier customers including LG Electronics and Pantech are feeling uneasy about the ``bad news’’ from the San Diego-based chipmaker as it is their only lifeline in chips to manufacture LTE phones.
``The shortage of Qualcomm chips will have an impact on earnings of LG Electronics and Pantech in the second quarter of this year,’’ said Park Seong-min, an analyst at Kyobo Securities, Tuesday.
Spokesmen from LG Electronics said the company will release strategic smartphones using Qualcomm solutions next month as scheduled but admitted the possibility of cutting production temporarily.
``For LG Electronics, Qualcomm is the only answer because LG doesn’t have its own chip business. This is the same for Taiwan’s HTC and Pantech of South Korea,’’ said Park.
LG Electronics Chief Financial Officer Jeong Do-hyun is planning to talk about the issue to analysts, investors and reporters during the company’s first quarter earnings results report, set for April 25th at LG’s Yeouido headquarters, according to company officials.
LG has quite lofty goals. It wants to sell 80 million phones with 35 million being smartphones.
In order to boost profitability and regains its image as a cellphone powerhouse, LG Electronics aims to sell 8 million LTE smartphones by the end of this year, said LG’s mobile chief Park Jong-seok.
Seemingly, this isn’t ``false confidence. ``The company seems poised to deliver some far better smartphones to the market soon. But that plan may be stalled for a while,’’ said a fund manager from a U.S.-based investment bank in Seoul, asking not to be identified.
Pantech, Korea’s smallest mobile phone manufacturer, recently formed an alliance with Verizon Wireless of the United States to release its smartphones using Qualcomm’s Snapdragon S4 chipsets.
``Currently, Pantech doesn’t have any serious problems for Qualcomm chips, however, we have opened a worst-case scenario just in case,’’ said an unnamed Pantech official.