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iSupply reports tight supply chain
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Thursday, June 24, 2010
Despite a small increase in Q1, semiconductor inventories remain lean and at extremely low levels, according to a report from iSuppli Corp this week. Further, DOI (days of inventory) "appear to be significantly less than company financial reports indicate," according to the market research company.
Global semiconductor inventory reached $25.73 billion in Q1, up by a 1% from $25.48 billion in the previous quarter and up by only 0.2% from Q1 2009, data showed. Inventory in Q2 is forecasted to rise 3.3% to $26.6 billion, iSuppli said.
"When measured in terms of DOI, chip supplier stockpiles for the 10 semiconductor product categories tracked by iSuppli appear to be within the range of normal seasonal equilibrium," said Carlo Ciriello, analyst for financial services at iSuppli, in a statement. "However, iSuppli believes these numbers are misleading and that the supply chain is actually leaner than current levels indicate."
At 69 days in Q1, DOI rose by 3.2% from 66.8 days during Q4. However, the gain is a "false" one. Noting that restocking is occurring, iSuppli said that the DOI is inflated because of near-record-high gross margins. When evaluating DOI using both reported revenue and inventory value in Q1, and then adjusting COGS (cost of goods sold) via the long-term average gross margin, DOI measured 20% lower than the seasonal average, iSuppli analysis indicated.
"While inventories at present are not actually 20% lean, the adjusted calculation indicates that current DOI levels, as reported in company financial reports, are misleadingly elevated and that in reality, chipmakers and other participants in the [electronics supply] chain are shorter on supply than is widely perceived," Ciriello said.
ISuppli continued to report that, except for a modest increase in Q3 2009 and the rise of values beginning this year, inventory dollars have consistently declined since Q3 2008. Further, iSuppli said that current inventory figures indicate that stockpiles were not replenished in Q1 and that device manufacturers continue to operate on "hand-to-mouth, just-in-time fulfillment schedules."
"Given the current leanness of inventory, lead times have extended throughout the supply chain. Among semiconductor suppliers, capacity is straining to keep up with downstream demand, resulting not only in long lead times but also in shortages for many commodity components. Nonetheless, as iSuppli has consistently maintained, semiconductor suppliers are committed to controlling their side of the supply/demand equation by keeping inventory at agile, lean, and manageable levels," iSuppli said.
The company also pointed out that double ordering appears common, especially among upstream suppliers. Despite that, however, the semiconductor industry remains bullish on the revenue outlook for both the current quarter and the full year. This implies that double ordering will not damage the ongoing recovery now being enjoyed by the market, according to iSuppli.
"The industry must maintain prudent inventory management if it is to avoid a rapid shift toward oversupply in the event that macroeconomic factors weaken end demand," iSuppli warned.
By: DocMemory
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