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Summary:

A handful of the hottest smartphones are at risk of losing fizzle due to supply issues, and the overall problem is likely to get worse, not better. Ashok Kumar agrees, telling me that consumer technology products are gaining complexity faster than some supply chains can handle.

A handful of the hottest smartphones are at risk of losing their sizzle due to supply issues, and the overall problem is likely to get worse, not better. The most recent issue is a lack of handset displays, causing HTC to announce a switch from AMOLED screens to SuperLCD on two of the phones it builds, for example. But such component swaps are just stop-gap measures; they don’t address the long-term issue. The real problem is that technology product cycles are starting to outpace parts suppliers’ abilities to quickly produce new components.

Ashok Kumar, managing director and senior technology analyst at Rodman & Renshaw, agrees that this is a potential problem for mobile technology, where products are maturing at increasingly fast rates. “Shrinking product cycles combined with increasing product complexity are bringing a perfect storm” to this supply-chain challenge, he said. If the technology maturity cycle and the supply-chain production cycles aren’t running in tandem, how can a parts supplier keep up with wave after wave of new products?

Part of the issue, Kumar told me, is consolidation among players that supply inventories of key mobile device components. Supply chain risks, Kumar said, increase when just a few main companies provide certain specific components. When fewer manufacturers produce a particular product component, a shortage becomes a much larger issue, introducing choke points into the overall product assembly.

One band-aid solution is to alter the product at some point during its life-cycle, which is starting to happen. LG and Samsung, for example, build the bulk of smartphone displays currently used for handsets and iPads alike. Verizon hasn’t stocked HTC’s Droid Incredible for several weeks, reportedly due to a lack of Samsung AMOLED screens. As a result, HTC will build the phone with a substitute LCD screen from Sony. Samsung is expected to invest $2.1 billion in a new AMOLED assembly line, but it won’t be ready until July 2011, illustrating the differential between technology cycles and production timelines.

I’m sure this type of swap has happened before, but I don’t recall such an action in the smartphone market. And from a customer perspective, this adds a new wrinkle to the situation; the product originally advertised — and reviewed — with certain specifications or features has changed. HTC claims that Sony’s Super LCD panel is comparable to the original AMOLED display on the Incredible, but potential buyers may wonder if that’s true. Most consumers don’t care about LCD or OLED displays of course, but once they hear about a change in the display, it could lead them to purchase an alternative device or further scrutinize the product.

More importantly, though, substitutions don’t address future supply constraints. It takes time and money to build new production lines or to make changes to existing lines for large scale production. By the time Samsung’s new AMOLED plant is online, for example, there could be newer and better screen technologies in demand by the Apples, HTCs and Motorolas of the world. And given how quickly mobile technology products are changing, such a scenario of component obsolescence is a real possibility for parts suppliers.

The supply-chain side of the problem is only half of the issue, however. The other side — which component suppliers have little control over — is the accelerating pace of device innovation and the consumer demand such advanced mobile technology brings. For example, in the high-end smartphone space, the current crop of devices really arrived with the first 1 GHz Qualcomm Snapdragon processors in late 2009. Once the CPU became more capable, handset makers started to mature other functions and features: higher resolution cameras with high-definition video recording, larger screens for a better visual experience and faster 3G or 4G radios bringing the web even faster to our handset. As a result, the top-end smartphones of today look nothing like those of just 9 months ago because of the rapid technology cycle, and component manufacturers are being stretched thin as they try to keep up.

This pace of mobile product advancement isn’t expected to slow either, as the smartphone market is ramping up for growth, putting increased pressure on the supply-chain to try and keep up. Top-tier parts manufacturers of today need to adapt or risk losing their market dominance. If the supply chain doesn’t adapt to the technology development cycle, consumers will have fewer products to choose from, or the products that are available aren’t as ground-breaking as prior models. And that would the be worst situation for everyone involved — the smartphones of 2011 would only be as advanced as the parts of 2009.

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  1. HTC has specifically said it will continue using AMOLED screens in the Incredible.

    1. Kevin C. Tofel J Wednesday, July 28, 2010

      See? The rapid smartphone pace is so fast, I can’t even keep up without confusing one of the many HTC models. ;) HTC has said the Desire and Nexus One would get the Sony SuperLCD – good catch that I’ll address in the post. Thx!

  2. Random Passer-by Wednesday, July 28, 2010

    What I’m really impressed by is that Ashok Kumar of Rodman & Renshaw knows so much! He’s in every other piece on GigaOM.

  3. Harold Wellington IV Wednesday, July 28, 2010

    This fast pace of innovation explains why the Nexus One phone is already a dinosaur relegated to the scrap heap.
    I personally would be embarrassed to be seen in public with that eyesore. Just saying.

    1. Hmm… I still carry the Nexus One I bought. The “dinosaur” offers a high-res OLED screen, 1 GHz CPU and plenty of other still modern specs. Are the phones that have improved upon the basics offered by the Nexus One? Absolutely. But a dinosaur? Hardly.

      1. OMG KCT ! I thought you and your bud JK pride yourselves on staying on top of the latest in mobile tech including your personal phone(s). I am surprised you have decided to stay a step behind with your N1. Perhaps it would be best if you paid your nearest landfill a substantial fee just to take that old dog of a phone of your hands. If that is not possible than just find a way to “lose it or break it” so you have a valid excuse for the wifey that will enable you to successfully UPGRADE to a modern Android phone like the Droid-X, EVO, or a Galaxy-S. Certainly you must cringe whenever you have to expose the N1 in public and still be taken seriously as a mobile tech enthusiast. I mean come on man doesn’t your shiny new iPad deserve a better companion than the stale N1 ?
        Okay then, it is up to you of course but remember you are a role model for many in your audience and they look to you for a proper phone to choose and the one you roll with using your own cabbage says more than one of your positive reviews of a loaner phone. I always ask myself: WHAT WOULD KEVIN BUY ? before I make my next geeky gadget purchase so you need to at least use a device that can still be purchased. Aren’t your tired of looking at that bland AMOLED screen that becomes unbearable outdoors and wanna UPGRADE to the shiny bright wickedly colorful SUPER AMOLED display found in a Samsung Captivate for example. Also that Captivate is so fast it screams “BUY ME NOW”.
        It is time for the N1 to be converted into an eBay Special and the proceeds applied to your new Android puppy ! You can do this. Do us all a favor and Pull The Trigger on your next Android phone before you fall TWO steps behind and risk becoming totally detached from reality.

      2. Johnny Mac, thanks for the laugh first thing this morning. I needed it. :)

        Are there better phones than the Nexus One? Sure, depending on what you want or need in your handset. I really liked the large display of the Droid X. And I have both a Captivate and Galaxy S in house to test – both are sweet. But my Nexus One running Froyo is currently faster than all of those. When those handsets gain Froyo, that advantage is negated of course, but for now, my phone does the trick.

        You’ve also missed out on a very important point – I paid full price for the Nexus One ($529) so I could be contract-free and have unlimited everything on T-Mo for $79 a month. That’s a “feature” in and of itself to me. And every time I look to upgrade to a newer phone, I consider that feature.

        Another key aspect: I’ve flashed the ROM on my Nexus One at least 3 dozen times to tweak or gain new software functionality. That’s not something I can do (yet) as much with any other device out there. For now, I’m sticking with my Nexus One. You buy what you want and works for you. :)

    2. I wouldn’t call it an eyesore. The sad thing is that it’s the last only-stock Android phone that may ever grace our shores. Ever.

  4. “The real problem is that technology product cycles are starting to outpace parts suppliers’ abilities to quickly produce new components”

    IMO, the real problem is the frenetic pace of new smart phone introductions. When manufacturers feel the need to introduce new product ranges every quarter, at least one of the following is true:

    a) They believe customers need new phones every quarter
    b) They don’t trust / value their existing range to survive another quarter
    c) They fear being overrun by newbies springing from the blue with better products

    Which brings us to the question ..Do we need new phones as often as we need a haircut? And why?

    1. Kevin C. Tofel FTM Thursday, July 29, 2010

      Great point! As a self-proclaimed geek, I don’t mind the pace of innovation, but the masses probably could care less and would love to have their smartphone investment retain value for a year or two. It’s a competitive market with a vicious cycle right now — any handset-maker that slows down the pace of advancement in the short term runs the risk of falling behind in the long term. And I don’t see that changing anytime soon.

  5. John in Norway Thursday, July 29, 2010

    This still doesn’t explain why no one has been able to build a better phone than the Nokia E90!

    Screen usable in direct sunlight? – Check!
    Screen usable in bright light? – Check!
    Screen usable in indoors, under flourescent lights? – Check!
    Screen usable in a dark dungeon 5 miles below the ground? – Check!
    Screen usable in the bath? – Check! (inside a plastic bag)

    1. John, you missed a few words in your first sentence:

      “This still doesn’t explain why no one has been able to build a better phone (for me) than the Nokia E90!” ;)

      1. Sorry Kevin.

        “This still doesn’t explain why no one has been able to build a better phone (for you, Kevin – and me, by the way) than the Nokia E90!” :)

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