India may continue to face chip crunch for mobile devices for 6 more months

Leading global chip design and manufacturing companies say that India will continue to face a shortage of chips for mobile devices for at least another six months. This will hit the affordable 4G segment phones particularly hard as they use a lot of low-priced high nanometer chips which are in even more short supply.
 
Reliance Jio yesterday announced that it was postponing the launch of its 4G smart phone to sometime before Diwali and cited chip shortage as an issue. Mukesh Ambani had announced in the last AGM that the phone would be launched on September 10. The company was expected to offer a low-cost 4G phone at a sub-Rs 5000 price in collaboration with Google. 
 
“Our estimate is that the chip shortage will go on for another six months. And it will be more pronounced for 4G phones at the lower end of the market. That is because they use a lot of high nanometer chips of 40 and above, whose production has been affected the most, as capacity has been shifted to the more cutting-edge low nanometer chips below 14, going down to 10 and even 6,” says the CEO of a global chip company.
 
Chipmakers say affordable 4G phones (under Rs 10,000) use a large percentage of higher nanometer chips compared to the mid and upper-end phones. But because of the surge in demand for high-end phones, fab plants have shifted to making lower nanometer chips which provide better margins and higher revenues (their sticker price is higher).

Hence, the shortage of chips is not that pronounced in 5G phones whose numbers are increasing globally, and are expected to hit over 600 million by the year end. Qualcomm estimated that by the end of 2021, 5G phones will constitute 60-70 per cent of India's smart phone market.
 
Says Pankaj Mohindroo, chairman of the Indian Cellular and Electronics Association, “Indian mobile device players are suffering more than anyone else as they do not get priority.” The consolidation in the mobile device manufacturing space to four to five players globally has resulted in their dominating the market, and getting priority from chipmakers because of their long-term contracts and large volumes.
 
Indian mobile device manufacturers admit that the challenges are significant. “We are getting only 50 per cent of our chip requirement. For the rest, we have to look to the grey market where there is a premium of 15 per cent to 20 per cent. The margins are already very low,” says the chairman of a leading domestic mobile phone manufacturer.   
 
The chip shortage is not limited only to the chipset (the nerve of the phone), which are designed and offered by players like Qualcomm and  Medi Tek. There are many other processors needed in a phone (chips and processors account for around 25 per cent to 35 per cent of the cost of a mobile device), such as for running its power management system, display, or even to power the charger. These are made by players like NXP Semiconductors, Texas Instruments, Hynix (memory), Renesas, amongst others, and they, too, are facing shortages.