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Semicon industry cuts inventory

Posted: 26 Dec 2011 ?? ?Print Version ?Bookmark and Share

Keywords:inventory oversupply? semiconductor industry? stockpile?

According to IHS Inc., stockpiles from semiconductor suppliers fell in Q3, ending inventory accumulation for the last consecutive seven quarters. The industry went into self-correction mode in order to reduce oversupply, bringing the stockpiles Q3 at 81 days, down 2.5 percent from 83 days in Q2, as calculated by the Days of Inventory (DO I) measure.

The DOI level had continued to rise since 4Q09 when it stood at just 67 days!a time when stockpiles were low because demand had evaporated during the dark days of the recession. Since then, inventory DOI has been creeping up, partly to make up for depleted stocks, and also to cope with growing demand as strength returned to the supply chain. The Q3 DOI was worth about $36.96 billion, down from $37.29 billion in Q2.

IC supplier DOI

As calculated by the DOI measure, semiconductor stockpiles in Q3 stood at 81 days, down 2.5 percent from 83 days in Q2.

Semiconductor inventory levels are an important gauge of industry health, and the stockpile amount also indicates the confidence!or lack thereof!of the supply chain in its forthcoming prospects. Too little inventory suggests caution for possible hard times ahead as manufacturers expect demand to ratchet down. However, too much inventory is also a problem, fueling worrisome oversupply that forces down pricing.

For Q3, semiconductor suppliers began an inventory correction to alleviate an escalating oversupply situation on top of already inflated stockpiles. With the global economy all but stalled, and in the face of declining orders as well as decreased visibility, many semiconductor manufacturers opted to reduce capacity utilization. And with lead times now declining to normal levels after extended periods of waiting in the past, manufacturers were more confident about trimming bloated inventories this time around without fear of causing too much pain to the supply chain.

Despite the inventory cutback, DOI in Q3 rained elevated in absolute terms!the highest of the last 10 quarters, dating all the way back to 4Q08!suggesting that stockpiles are still quite high. Moreover, the percentage of oversupply during the period rose to12.1 percent, exceeding the 11.1 percent spike in oversupply during the 4Q08. As a result, expectations are that inventories will be trimmed further in 4Q11.

Among the various semiconductor sectors, inventory levels rose for handset OEMs, distributors and analog companies!all of which posted percentage gains in DOI. Stockpiles, however, fell for fabless, memory, foundry, PC OEMs, storage and electronic manufacturing services.

For handset manufacturers, inventories increased in Q3 as suppliers prepared for their seasonally busy end-of-year period. In comparison, inventory at pure-play foundries declined more strongly than expected!the result of a reduction in utilization rates.

Total DOI is projected to decline another 2.5 percent in Q4 to 79.3 days, IHS forecasted. Visibility continues to be murky in many sectors given the volatile world economy, and end demand remains difficult to predict.

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