Smartphone Supply Chain Disruptions Poised to Be 'New Norm'

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NEW YORK ( TheStreet) -- Investors may have to start getting used to smartphone supply disruptions as demand surges and smartphone makers strain to accelerate output while integrating increasingly sophisticated components.

In less than a year, smartphone leaders Samsung Electronics and Apple as well as various Chinese competitors have been hard hit with inventory challenges.

In China, manufacturers have had to scramble to appease consumers' voracious demand for cutting-edge smartphone devices, particularly features such as five-inch 1080p high-definition screens. Samsung's blockbuster Galaxy Note 2 carries these screens, prompting suppliers to ramp up their production lines. Of course, they've often fallen short meeting difficult targets.

Other components in short supply have included the 12-megapixel cameras, 16GB internal storage chips and DRAM chips. In this environment, Coolpad Chinese handset vendor Yulong and rising stars OPPO and Xiaomi in China, made clear in March that their suppliers were having a hard time keeping up.

The most popular components for Android smartphone manufacturers are the five-inch 1080p hi-definition screens, 12-megapixel cameras, 16GB internal storage chips and DRAM chips, according to David Yang, an industry analyst at Santa Monica, Calif.-based market research firm IBISWorld.

David Walker, a technology analyst at Boston-based Trillium Asset Management LLC, which manages about $1.3 billion, including Apple shares, said of the production of smartphones that "I hope it's the supply crunches not the new norm, but these are very complex machines. It hurts your brand. It has hurt Apple. There is a cost to multiple when people think you can't execute."

Last month, Taiwan's Android-based HTC One delayed the full rollout of the product because its cutting-edge Ultrapixel camera sensor couldn't be manufactured quickly enough. The HTC Butterfly device that beat iPhone sales in Japan during its first week on the market last December also had problems filling orders due to component shortages.

Last September, Apple shares slumped even though it managed to sell more than 5 million iPhone 5s in three days as the company ran into supply shortages complicated by rioting at a factory of 2,000 workers at Foxconn's Taiyuan plant. Just last week, Sprint fell in New York as the mobile-phone operator and peer T-Mobile said they had to delay the introduction of Samsung's Galaxy S4 due to inventory challenges at the Korean electronics manufacturer.

Walker said that Samsung is trying to bring 4G baseband processor technologies in-house as part of its efforts to bolster its control over the supply chain, but remains a generation behind Qualcomm in mastering this key, but extremely complicated smartphone capability. At the same time, Qualcomm lacks its own factories and must outsource the manufacture of its chipsets to contract chip manufacturers such has Taiwan Semiconductor Manufacturing (TSMC), who may not be able to achieve optimal yields on such complex devices especially on short notice.