NEW YORK -- The seemingly recession-proof smart phone is suffering from a side effect of the rough economy -- manufacturers simply can't build enough of the gadgets because chip-makers that rolled back production last year are now scrambling to play catch-up.
The chip shortage means Apple's rivals are having trouble making enough phones to compete with the iPhone, a problem expected to persist through the holidays. It's also affecting wireless carriers, some of which are seeing delays in improving their networks, and it could even raise computer prices.
There isn't an across-the-board shortage of chips, but rather problems with certain components here and there. If just one of the 20 to 30 critical chips that go into a smart phone is unavailable, the whole production line screeches to a halt.
Sprint Nextel, for instance, couldn't satisfy demand for HTC's EVO 4G, the first phone to use a faster "4G" network, in parts of the country. Motorola said shortages of a wide range of chips, from memory to camera sensors to touch-screen controllers, are contributing to problems supplying enough of the new Droid X phones to Verizon Wireless.
The carrier's online store reports a two-week wait for shipping orders.
The chips that go into smart phones compete for production capacity with other chips at the gigantic factories run by contract manufacturers such as Taiwan Semiconductor Manufacturing and United Microelectronics.
The chip-making industry had a tough start to 2009. February sales were $14.2 billion, down 30 percent from the year before, according to the Semiconductor Industry Association.
Although sales sprang back later in the year, manufacturers were spooked and reined in investment in chip factories. Capital spending plunged 41 percent to $25.9 billion in 2009, after dropping 31 percent the year before, according to research firm Gartner Inc. Total chip production capacity shrank.
Now the factories are having trouble scaling up production fast enough. The chip factories are running at 96 percent capacity, up from 56 percent at the depth of the recession, according to the SIA.
Gartner predicts worldwide investment in the chip industry zooming 84 percent this year, to $47.5 billion. That forecast is up from March, when it looked for a 56 percent increase.
While investment is recovering, it takes months to set up new production lines and upgrade existing ones. That's why executives see shortages lasting until next year.
Linley Gwennap, president of the research firm The Linley Group, also sees caution in the industry because the global economic recovery is starting to look quite tentative.
"Even where companies are facing shortages, they're saying 'Nah, I'm not sure I want to invest right now, because demand could turn down any minute.' That makes for a very difficult environment," he said.
"In normal times, companies would be hiring, investing in more equipment and factories and trying to increase supply, but these aren't normal times."
Though consumers may have to wait for new phones, they're unlikely to notice price increases. Phone prices are heavily subsidized by carriers, and competition in the industry means it's likely that someone in the supply chain will absorb higher prices for the chips.