Qualcomm sees upside even as chips go from shortage to glut

Qualcomm will unveil its latest high-end smartphone chip Tuesday, as it — along with the rest of the industry — grapples with a rapid about-face in the semiconductor market, from unprecedented shortage to incipient glut of both devices and key components.

Why it matters: Every player in the chip industry has to deliver the latest and greatest to avoid losing share to rivals. At the same, the makers of phones and PCs now have weeks worth of inventory of existing products, as the economic slowdown pinches consumers.

Driving the news: Qualcomm is holding an event on Maui this week aiming to convince journalists and analysts that its latest Snapdragon 8 chip has the power to take on the latest offerings from Apple and Google.

• Meanwhile, most of the PC and phone industry — Qualcomm included — has warned Wall Street that the traditionally strong last quarter of the year will be far weaker than originally thought, with a glut of inventory putting a further damper on what is already a dramatically weaker outlook for consumer spending.
• Chipmakers AMD and Intel have offered similarly gloomy forecasts, as has Microsoft.

What they're saying: "Everything that has consumer exposure is suffering," Qualcomm CEO Cristiano Amon told Axios ahead of the company event.

Between the lines: After experiencing chip shortages over the past two years, many companies decided it was better to break from past tradition and keep more inventory.

• But as demand slows, that inventory moves more slowly too. What was once a week's worth of products might now be more like two weeks' worth.
• That leaves many makers of PCs and smartphones with more unsold devices and raw components than they want — and many will want to work through both before placing new orders.

Yes, but: Even as Qualcomm faces a substantially weaker outlook for its core business of supplying chips for smartphones, it sees some advantages.

• The company is benefitting from its efforts to diversify beyond phones, as demand for chips that go in cars and industrial devices remains strong, Amon said.

Qualcomm also announced during its recent earnings that it expects to supply the lion's share of modem chips for next year's iPhone models, after earlier predicting it might only be in 20% of devices.

• Amon said that will probably go to zero during the following year, as Apple shifts to its own modem chips. But it will keep supplying the communications component if the iPhone maker wants it. "If they need it, they know where to find us," he said.

Disclosure: Reporting for this article took place at Qualcomm's Snapdragon Tech Summit in Maui, where I am moderating a video interview on Thursday. Qualcomm paid for my travel-related costs.