Qualcomm has a nice problem to have: too much demand for its Snapdragon and 4G LTE baseband parts. How Qualcomm realigns its manufacturing strategy around this problem will determine whether or not they can breakaway from the ARM camp and go toe to toe with Intel. Last week Malcolm Penn claimed TSMC was too big to fail. Really? The World’s Monetary authorities truly can backstop any bank they want by running the printing presses but there are no backstops if for example an earthquake rips through Taiwan or if trade barriers pop up around a world fighting off weak economic conditions. This and other reasons make it interesting that Qualcomm last week has reportedly signed an agreement with Global Foundries to manufacture 28nm production.
They say that too much success can breed contempt. Lately we have watched as every major semiconductor firm (sans Intel) adopted ARM’s architecture for the Mobile Tsunami Market. Then with the exception of Samsung (and Apple), everyone headed to TSMC for their 28nm production. As TSMC tried to satisfy everyone and enlarge their family, they naturally had to short an existing customer: thus the Qualcomm dilemma. If Qualcomm stays with TSMC then they will need to pony up $5B for their own guaranteed fab and supply. Paul Jacobs, the CEO of Qualcomm acknowledged this in a recent BusinessWeek article. However owning a fab or investing in Capex to guarantee destiny results in stock P/E compression in Wall Street's Playbook and Qualcomm wants to avoid being denied the "Darling" Status.
Perhaps there is another model.
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