Chip Shortage Puts Damper On Smartphone Shipments, Supply Slim Through Holidays

Chip Shortage Puts Damper On Smartphone Shipments, Supply Slim Through HolidaysAs the surge for smartphones continue, the vital parts necessary to produce them are running short according to new reports.

Chip makers rolled back production during the latter half of 2009 due to the recession and are now finding themselves playing catch up as hot new devices hit the market in droves.  Beyond smartphones, it’s also affecting wireless carriers — some of which are seeing delays in improving their networks — and could even raise computer prices.

Luckily, the problem isn’t an across-the-board shortage of chips, but rather problems with certain components here and there.  If just one of the 20 to 30 critical chips that go into smartphones is unavailable, the whole production line screeches to a halt.  The problem stems from the fact that chips that go into smartphones compete for production capacity with other chips at the gigantic factories run by contract manufacturers.

When sales went down dramatically during the first half of 2009, manufacturers scaled back production significantly to ease the burden.  Although sales sprang back later in the year, factories are still having trouble scaling up production fast enough.  The chip factories, or “foundries,” are running at 96 percent capacity, up from 56 percent at the depth of the recession.

Although production is again picking up steam, it will undoubtedly affect the holiday shopping season as new smartphones continue to hit the market.  Sprint, for instance, couldn’t satisfy demand for the HTC EVO 4G and Motorola said shortages of a wide range of chips, from memory to camera sensors to touch-screen controllers, are contributing to problems supplying enough of the new Droid X phones to Verizon Wireless.