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High chip inventory burdens IC suppliers

Posted: 30 Jan 2013 ?? ?Print Version ?Bookmark and Share

Keywords:chip inventory? semiconductor supplier? Ultrabook? tablets? NAND?

According to the latest data from IHS, chip inventory held by semiconductor suppliers reached disturbingly high levels in 3Q12 amid weak market conditions. Total semiconductor revenue dropped by 0.7 per cent sequentially during 4Q12. The poor results came after inventory amounted to 49.3 per cent of total semiconductor revenue in 3Q12more elevated than at any point since 1Q06, added the market research firm.

Chip stockpiles among semiconductor suppliers had actually gone down in 2H11, showing a promising drawdown. But then inventories steadily ticked up again after that, reaching 47.5 per cent of total revenue in Q2 before hitting the current peak in Q3.

"The uncomfortably high level of inventory among semiconductor manufacturers of nearly all stripes is a result of key demand drivers failing to materialize," said Sharon Stiefel, analyst for semiconductor market intelligence at IHS. "Demand for semiconductor devices has typically come from new products that consumers feel compelled to purchase. But going into the holiday season last year, no such new products marshalled enough impetus to overcome consumer fears about lingering economic woes. Two months prior to Christmas, consumer purchases of electronics had grown by only 0.7 per cent, the worst performance since 2008."

Also contributing to depressed conditions was the poor performance of the industry's data processing segment, traditionally the largest user of semiconductors. In fact, mobile PCs were projected to decline in 2012 when final figures are tallied, toppled from dominance by media tablets. Ultrabooks and other ultrathin PCs, meanwhile, did not produce the demand for semiconductors originally expected as the year progressed.

Despite the collective rise in inventory stockpiles, some semiconductor segments performed better than others. For instance, with feature-rich smartphones and tablets taking the place of traditional PCs among consumers and eroding PC market share, the devices were anticipated to provide the strongest demand in 4Q12. As a result, semiconductor revenue for the wireless segment was expected to climb almost four per cent. Semiconductor sectors benefiting from the tremendous growth of handsets and tablets included logic, analogue and NAND flash memory, with those semiconductor channels refilling following strong shipments even into the beginning of this year.

1Q13 likely will see growth in the industrial and automotive electronics segments. Other semiconductor markets, for their part, will overcome the seasonal decline normally expected at this time of year and then start to rebound around Q2 or Q3.

Such assumptions, however, rest on the even larger factor of the global economy, currently a volatile variable itself with no set outcome. If global economic forecasts perform according to positive expectations, semiconductor revenue could grow by four per cent in Q2 and by a very solid nine per cent in Q3. However, if demand evaporates, semiconductor suppliers will find themselves in a deplorable oversupply situation, which would then lead to inventory write-downs throughout the year.

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