Market Insight

Vertical integration strategy at handset OEMs rattles semiconductor suppliers

August 19, 2015  | Subscribers Only

Wayne Lam Wayne Lam Principal Analyst, Mobile Devices & Networks

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Along with its earnings for the third fiscal quarter 2015, Qualcomm announced a strategic realignment plan which included a reduction in spending of $1.4 billion. Of the total spending reduction, $1.1 billion will come largely from cutbacks in research and development (R&D) and selling, general and administrative (SG&A) expenses as well as other non-product related costs. Qualcomm has seen some unique challenges in its business environment over the past several months such as regulatory investigations and settlements and weaker than expected demand for the company’s latest iteration of ultra-premium smartphone chipsets. While each mobile handset semiconductor supplier faces a set of unique challenges, vertical integration of handset OEMs and the maturity of the smartphone market are two major factors beyond their control. While the smartphone market’s maturity is inevitable an increase in vertical integration among OEMs has the potential to disrupt business conditions at affected suppliers. How has this vertical integration approach evolved with different OEMs and are some chipset vendors more exposed to this strategy than others?

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