NEW YORK - The seemingly recession-proof smartphone is suffering from a side effect of the rough economy: Manufacturers simply can't build enough of the gadgets because chip makers that rolled back production last year are now scrambling to play catch-up.
The chip shortage means Apple Inc.'s rivals are having trouble making enough phones to compete with the iPhone, a problem expected to persist through the holidays. It's also affecting wireless carriers, some of which are seeing delays in improving their networks, and it could even raise computer prices.
There isn't an across-the-board shortage of chips, but if just one of the 20 to 30 critical chips that go into a smartphone is unavailable, the whole production line screeches to a halt.
Sprint Nextel Corp., for instance, couldn't satisfy demand for HTC Corp.'s EVO 4G, the first phone to use a faster "4G" network, in parts of the country.
The chips that go into smartphones compete for production capacity with other chips at the gigantic factories. Makers of a vast array of electronics, from TVs to data-center switches, also depend on the factories.
The chip-making industry had a tough start to 2009. February sales were only $14.2 billion, down 30 percent from the year before, according to the Semiconductor Industry Association.
Although sales sprang back later in the year, manufacturers were spooked and reined in investment in chip factories. Capital spending plunged 41 percent to $25.9 billion in 2009, after dropping 31 percent the year before, according to research firm Gartner Inc.
Now the factories are 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, according to the SIA.
Gartner predicts worldwide investment in the chip industry zooming 84 percent this year to $47.5 billion.
While investment is recovering, it takes months to set up new production lines and upgrade existing ones. That's why executives see shortages lasting until next year. Research firm iSuppli warns that prices for PCs could rise this year because of short supplies of memory chips. The prices for these commodity chips are highly volatile.
by Peter Svensson Associated Press August 20, 2010 04:34 PM
Smartphone makers see chip shortage
