SAN FRANCISCO—Semiconductor vendors' chip inventory levels remain at low levels
despite a small increase in the first quarter of the year, according to market
research firm iSuppli Corp.
Global semiconductor inventory amounted to $25.73 billion in the first
quarter, up 1 percent compared with the fourth quarter of 2009 and up by a
fraction of a percent compared with the first quarter of 2009, according to iSuppli (El Segundo, Calif.). Inventory in the
second quarter is forecasted to rise 3.3 percent to $26.6 billion, continuing
the slow upward movement that began at the start of this year, iSuppli said.
When measured in terms of days of inventory (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," Ciriello said.
At 69 days in the first quarter, DOI rose by 3.2 percent from 66.8 days
during the fourth quarter of 2009, iSuppli said. Such a DOI figure might give a
false impression that restocking is occurring, but the DOI is inflated because
of near-record-high gross margins, iSuppli said.
By using both reported revenue and inventory value in the first quarter, and
then adjusting cost of goods sold via the long-term average gross margin, DOI
actually measures 20 percent lower than the seasonal average, according to
calculations by iSuppli analysts.
"While inventories at present are not actually 20 percent lean, the adjusted
calculation indicates that current DOI levels, as reported in company financial
reports, are misleadingly elevated and that in reality, chip makers and other
participants in the chain are shorter on supply than is widely perceived,"
image to enlarge.
iSuppli data also show that except for a modest increase in the third quarter
of 2009 and the rise of values beginning this year, inventory dollars have
consistently declined since the third quarter of 2008, the firm said. The
current inventory figures also indicate that stockpiles were not replenished in
the first quarter and that device manufacturers continue to operate on
"hand-to-mouth," just-in-time fulfillment schedules, according to iSuppli.
Given the current leanness of inventory, lead times have extended throughout
the supply chain, iSuppli noted. 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, the firm said.
ISuppli said double ordering appears to be common, especially among upstream
suppliers. Many companies tracked by iSuppli report book-to-bill ratios
dangerously in excess of 1:1, suggesting inflated demand, the firm said. But
despite the difficulty of gauging whether double orders will be put into
production—let alone become an inventory problem—the semiconductor industry
remains bullish on the revenue outlook for both the current quarter and the full
year, impling that double ordering will not damage the ongoing recovery by the
chip market, iSuppli said.
ISuppli analysts believe that 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, the firm said.
ISuppli is offering Ciriello's
latest report on chip inventories for sale through the firm's website.