Qualcomm adds China’s SMIC to supply chain


Reduces vulnerability to shortages by extending contract to cover 28nm Snapdragon, in blow to TSMC

In 2012, the vulnerability of the highly concentrated smartphone supply chain to component shortages was highlighted when Qualcomm was unable to secure sufficient quantities of its then-new 28nm Snapdragon 4 processors from foundry TSMC. The US firm bounced back quickly, but the problem hit its results for a couple of quarters and led to reports of negotiations with other foundries. Perhaps with all that in mind, it has announced a significant expansion of its relationship with Chinese manufacturer SMIC, which already makes low level components, but will now take on some of the 28nm Snapdragon work.

This is hardly an unexpected move, but will nevertheless be a blow to TSMC, which gets about 22% of its sales from Qualcomm. The US giant’s volumes are rising, so its long-term Taiwanese partner may not see a decline in the units it makes for Qualcomm, but any erosion of its share of the high end chip production will be worrying – especially as the beneficiary is not one of its traditional rivals such as GlobalFoundries or Samsung, but from the up-and-coming Chinese chipmaking sector.

For Qualcomm, the rise of Chinese manufacturers able to adopt new processes and support premium components will be a relief, giving it greater access to capacity and better negotiating power. SMIC currently makes some power management and connectivity chips for Qualcomm but is seeking to push its product mix upmarket, after two consecutive quarters of falling profits. TSMC is actually a minority shareholder in SMIC, the result of settling a trade secrets lawsuit it brought back in 2009.

Qualcomm said in its statement that the new deal “will help accelerate SMIC’s 28nm process maturity and capacity, and will also make SMIC one of the first semiconductor foundries in China to offer production locally for some of Qualcomm Technologies’ latest Snapdragon processors on 28nm node.”

Going forward, SMIC will also extend its capabilities in key process technologies like 3DIC and RF front end wafer manufacturing. It is essential that Qualcomm can drive the roadmaps of its foundry partners since, as a fabless provider, it does not have the same level of control over its processes, or ability to innovate, as Intel.

“This marks a significant milestone on the readiness and competitiveness of SMIC’s 28nm process technologies,” said Tzu-Yin Chiu, CEO of the Chinese firm. “With Qualcomm Technologies’ support, we are confident that our 28nm technologies will become one of the most important growth drivers for the company. We expect that the 28nm product life cycle longevity will exceed previous nodes, which will help better position SMIC to service the needs of Qualcomm Technologies, as well as others.”

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Caroline has been analyzing and reporting in the hi-tech industries since 1986 and has a huge wealth of experience of technology trends and how they impact on business models. She started her career as a journalist, specializing in enterprise and carrier networks and in silicon technologies. She spent much of her journalistic career at VNU Business Publishing, then Europe’s largest producer of technology publications and information services . She was publishing director for the launch of VNU’s pan-European online content services, and then European editorial director. She then made the move from publishing into technology market analysis and consulting, and in 2002 co-founded Rethink Technology Research with Peter White. Rethink specializes in trends and business models for wireless, converged and quad play operators round the world and the technologies that support them. Caroline’s role is to head up the wireless side of the business, leading the creation of research, newsletters and consulting services focused on mobile platforms and operator models. In this role, she has become a highly recognized authority on 4G systems such as LTE and WiMAX, and a prolific speaker at industry events. Consulting and research clients come from major mobile operators, the wireless supply chain and financial institutions.