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Steering clear of commodification

Some companies, such as Texas Instruments, are moreover trying to edge away from some of the more commodified chipsets used in ordinary not-so-smart handsets. (TI, unlike Qualcomm, manufactures most of its own chips.) That's a tough move right now too, says Levy.

"The handset supply chain is particularly vulnerable [to economic upheaval]," Levy tells Betanews, thanks to "the necessarily large investments in fabrication technology. Lead times for assembly lines are long, and capital investment in them is deep. Suppliers don't easily walk away from such long-lead, significant investments, and they don't easily repurpose them for other customers with similar needs. Even if this were feasible, it's not as if there are other buyers waiting in the wings. Everyone up and down the supply chain runs the risk of significant discomfort as this forced resizing works its way through the system like an oversized tidal wave. There will be wreckage as a result."

And then there's R&D. Though companies know that they've got to believe that things will get better, and need to have new ideas in the pipeline when they do, bad times can lead to a death-spiral of cuts and irrelevance. That's especially true for your next smartphone -- or for the next generations of would-be iPhone and Android killers, anyway.

Levy notes that it's not just one company that needs to keep money flowing to R&D right now. "Continued innovation relies heavily on consistent R&D funding throughout the supply chain. Such funding, unfortunately, is increasingly threatened the longer a given company faces declining revenues and bottom line losses. So if suppliers can't fund development of next-generation offerings because they're being buffeted by dropping customer orders, those same customers will be hampered in their ability to bring relevant offerings to market. Everyone along the supply chain may as well fold up their tents and go home.

"This conundrum is especially challenging for smartphone makers, whose offerings have an already-short and ever-shrinking shelf life," he continues. "If they go to market with yesterday's news, they may as well be giving their wares away in a flea market and kissing their brand equity goodbye. But as their suppliers weaken and slow down their ability to fill the supply chain with the unique components required by every new generation, handset vendors could find themselves unable to move ahead with their own plans. It's a bad-news situation for everyone if things continue to languish much beyond mid-year."

The situation's even more dangerous if economic trouble leads to the kneecapping of high-profile projects. Levy points out that a great many companies are already walking a thin line -- and that when a lot of eyes are on you, a line like that turns into a highwire.

In Qualcomm's case, that high-profile project would be Snapdragon, its greatly anticipated new platform. Qualcomm's hopes for the chipset are high. A graphical Linux OS with plenty of apps, instant-on and always-on tech location awareness, all destined for new not-quite-phone devices with phone-like price points -- everyone's hard at work, and company execs say that they hope to pull some of the best parts of smartphones as we know them into what they call "pocketable" gadgets. It's "a new computing paradigm; the market will decide if that's a new class of device or not."

But Snapdragon, the company is saying, will still be ramping up this year, not contributing to revenues. Qualcomm sounds extremely committed, but what happens now?

"The smartest companies in the mobile phone space adjust the pace of new product development to match anticipated market demand," says Levy. But "shelving a high-profile project often makes it difficult if not impossible to retain the talent that got you there in the first place, and that will be critical to restarting the initiative when market conditions are more favorable."

Program slowdowns are preferable to outright cancellations, he adds, since investments in new technologies are often transferable into other products. For instance, Apple's work on multitouch tech -- whatever its patent status -- likely would likely have found a home even if the company had never brought the iPhone to market.

But not every project can be saved. "Unfortunately, so many players are so close to the financial line that they often don't have any choice in the matter. When you have to kill a project outright as a condition of saving the company, you act first and ask questions later. It's hardly where you'd like to be, of course, but no one ever said recessions had to be pretty."

So...panic, don't panic, go to ground, what's a smart company to do now?

Levy notes that some good firms will fail now, and that organizational smarts aren't always enough. "But if this downturn has taught us anything, intelligence often isn't enough to ensure future competitiveness and survival...We're still going to see some really smart organizations fail for reasons that might have taken down any company, regardless of circumstance."

And yet it's not time to retreat to the caves, he says, and history -- yes, even the history of That Great 1930s D-Word Mess -- gives him cause for optimism.

"Some of the most disruptive technologies of all time found their footing during times of great economic distress," he says. "For example, the automotive industry really came into its own largely because of the Great Depression, while the commercialized Internet hit critical mass largely on the back slope of the early-90s downturn. An economy devoid of me-too offerings isn't such a bad thing. I, for one, look forward to seeing what the surviving pack of leaner, meaner, hungrier handset vendors -- and their suppliers -- have in store for us when the dust settles."