Semiconductor inventory and revenue won't see an increase until the second quarter when demand returns and fuels growth, according to an IHS iSuppli Supply Chain Inventory market brief from information and analytics provider IHS.
Revenue within the semiconductor supply chain is forecast to rise 3.7 percent in the April to June period this year, following a marginal 0.1 percent uptick in the fourth quarter last year and a seasonal retreat of 3.3 percent in the first quarter of 2013.
The projected revenue increase for the second quarter is in line with a healthy bump expected in the days of inventory (DOI) measure used to track chip inventory quantities. An increase in DOI can be caused by weak economic conditions, resulting in non-moving, stagnant stockpiles, similar to what occurred in several months last year. However, the projected rise of inventory in the second quarter of 2013 will be due to growing demand for electronic products, leading companies to stock up on semiconductors in order to provide adequate chip supply to electronics manufacturers, benefiting semiconductor suppliers in the process.
The DOI measure could also go the other way, decreasing because of a deliberate reduction in output and inventory by suppliers responding to weak demand. Such was the case in the fourth quarter, when chip stockpiles based on DOI retreated on many fronts.
For companies reducing inventory during the fourth quarter, comments from their management during investor calls indicated that suppliers deliberately reduced capacity utilization at that time in response to declining orders throughout the second half of last year. Orders apparently had bottomed out by the end of the year, prompting semiconductor suppliers to control chip output so as not to add to already existing chip inventory in the channel. The DOI declines ranged from a low 1.3 percent for memory chip suppliers and similar single-digit-percentage decreases for segments like analog, discrete and storage; to double-digit-percentage retreats in the PC distribution and microprocessor segments.
The largest DOI decline, at 29 percent, occurred in the handset segment. Here, however, the decrease in chip stockpiles was due to strong demand from handset manufacturers for semiconductors in order to produce finished products, derived from the continued strength of mobile handsets in the wireless sector.
In contrast to the general inventory downturn, two segments posted DOI increases: the foundry segment, up 11.7 percent sequentially; and the fabless sector, up 4.8 percent. The two segments experienced a rise in inventory because they provide leading-edge technology in supplying chips to their customers-to the wireless segment in particular. Thus, the increased DOI for the two segments can be looked on as a positive, not a negative indicator in this case.
Based on inventory movements pegged to weak demand, semiconductor revenue declined across most major market segments, including data processing, automotive, consumer, wired and industrial. Revenue gains, however, were made by the wireless end markets, up 10 percent on the quarter.
All told, the anemic demand situation that was the bane of semiconductor suppliers in the fourth quarter is about to change, moving toward a more positive direction. As the new year unfolded, the negative factors that had held back demand in 2012 appeared to lose potency, especially as orders began to return. As a result, inventories will begin to rise once more in the first half this year, IHS iSuppli predicts, particularly among customers and distributors of original equipment manufacturers where inventories are perceived to have reached very lean levels.
Depending on the lead times required for production to meet end demand, semiconductor suppliers will then ramp up production accordingly. Overall semiconductor suppliers, as well as analog and distribution inventories, will increase in the first quarter, with the supply chain then preparing for an upturn in orders for the second and third quarters this year.
If all goes well, the sequential revenue increase in the third quarter could be as high as 7.5 percent.
Read More >> Semiconductor Supply Chain Looks to Second Quarter for Demand to Return
