Materials and Cost Benchmarking

Semiconductor Inventory Declines at Larger Scale than Projected

18 March 2013

Giant chipmaker Intel led a clutch of semiconductor suppliers that saw big inventory reductions in the final quarter of 2012, when overall chip stockpiles trended down more steeply than expected, according to an IHS iSuppli Supply Chain Inventory market brief from information and analytics provider IHS.

Among semiconductor suppliers that experienced lower inventory levels between the third and fourth quarters last year, the percentage of decrease ranged from 5 percent to 25 percent, resulting in chip stockpile value of $60 million to nearly $600 million being shaved off in the companies affected And while inventory climbed in some companies during the same period, the spread was smaller, with the value of the increase worth slightly north of $40 million to approximately $250 million.

In the end, Days of Inventory (DOI) for semiconductor suppliers declined 5 percent-higher than the 1.5 percent initially forecast. Meanwhile, inventory value in dollar terms fell more than 10 percent-much larger than the originally projected 3 percent. The earlier numbers were based on anticipated reduction of capacity utilization to draw down inventories in response to declining orders during the second half of 2012, but weaker-than-expected demand had the effect of raising the final numbers.

As in all previous forecasts, memory suppliers are excluded from DOI and inventory value calculations because they report results much later than any other group in the semiconductor supply chain. The rest of the companies covered effectively straddle the breadth of the semiconductor chain, including those engaged in the wireless, automotive, data processing and industrial segments.

All told, many companies cited weak end-market demand as an important reason for the change in inventory levels. Those that enjoyed lower chip stockpiles came to do so because of a purposeful reduction, while those that saw a rise in chip inventories blamed it on unexpected softness in demand.

The largest decrease in inventory value during the period belonged to Intel, down $585 million from the third quarter or 11 percent, as it deployed aggressive tactics and redirected both space and equipment to 14-nanometer lithography.

AMD and STMicroelectronics also experienced large inventory declines of $182 million and $131 million, respectively, or 25 percent and 9 percent. In the case of AMD, inventory shrank in microprocessors as a result of an amended wafer supply agreement with GlobalFoundries for reduced stockpiles. For its part, STMicroelectronics cut utilization rates after exiting its money-losing joint venture with Ericsson.

Two other chip suppliers had notable inventory drawdowns: Texas Instruments, down $91 million or 5 percent, due to weak end-market demand for its chips; and ON Semiconductor, down $63 million or 10 percent, as it burned bridge inventory and coped with reduced revenue.

Among inventory gainers, most faulted low seasonality and an uncertain global economy for a rise in chip stockpiles. Companies in this group included MediaTek, up $58 million or 14 percent; NXP Semiconductors, up $44 million or 7 percent; and Infineon Technologies, up $43 million or 6 percent.

The one exception among gainers that could boast of strong performance and link that to an increase in chip levels was Qualcomm, up $247 million or 24 percent. Given the strong market acceptance of its wireless chips in products like the Apple iPhone and iPad, Qualcomm is ramping up production and inventories in order to meet demand.

Moving forward, semiconductor suppliers will be positioning their inventories in the first quarter this year to prepare for anticipated demand. Inventories are expected to rise in response to slightly positive global economic indicators as well as favorable semiconductor and end-equipment forecasts-unless major swings occur once more from the larger suppliers that could then end up skewing the industry.

Read More >> Semiconductor Inventories Trending Down More Than Expected in Q4 2012

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