SAN FRANCISCO—Contract manufacturers are facing a challenging supply imbalance characterized by tight inventories of components and a glut of raw materials as part shortages have created a "traffic pileup" in the global electronics supply chain, according to a report by market research firm iSuppli Corp.
A snapshot of inventory at five of the larger electronic manufacturing service (EMS) providers showed that components and raw materials accounted for nearly 70 percent of total inventories during the first quarter of 2010, the latest date for which quarterly data is available, iSuppli (El Segundo, Calif.) said. In comparison, work-in-process goods made up about 17 percent of inventories, while finished goods comprised less than 15 percent, according to the firm's analysis.
Finished goods were at their lowest level since the fourth quarter of 2008—and the imbalance is likely to persist, according to Thomas Dinges, iSuppli EMS and ODM analyst.
"ISuppli believes that the current trend—in which electronics inventories are being weighed down by an overwhelmingly large percentage of raw materials—will continue for some time to come, given that more product in kits are waiting to be finished," Dinges said, in a statement.
Judging from various earnings calls as well as numerous conversations taking place in the industry,
semiconductor companies are citing extended lead times and parts shortages as a major problem, Dinges said.
Limes have worsened for a wide range of semiconductor discrete devices, running as much as 100 percent longer than for the same period last year, according to iSuppli. The shortest lead times—at 10 weeks as of July—are for connectors, up from five weeks in July 2009, the firm said. The longest lead times are for rectifiers and small signal discretes, now running at 20 weeks—a full five months compared to 10 weeks last year at this time, iSuppli said.
Dinges said that many supply chain industry contacts to whom iSuppli has spoken do not believe the situation is likely to improve until later in the year—even if demand softens in the near term. The difficulties, he said, arise from a combination of seasonality factors and the slow pace in bringing about increased production capacity.
"Given that many suppliers were shuttered during the last years because of financial distress, the shortages have resulted in supply bottlenecks in industries," Dinges said. "Such shortages—in both parts and raw materials—will only add to the strain of EMS and ODM providers, even if they were to train their efforts at simply maintaining current levels of inventory velocity."
When and where growth opportunities come it will be worth noting where the "industry" could not fully exploit the chance because of its inability to sufficiently produce and even more noteworthy where various competitors have competetive product but are unable to produce enough volume... not for lack of willingness to invest but lack of supplies and/or tools of production.
While EMS guys cant make early commitments and long term order entries, for sure they would be the worsely effected ones, especially at these days, where many semicon goes to allocation. Big brothers get the pies remaining crumbs ever fulfills EMS,ODM demand. Despite they are lucky ones who are backed by big brother to whom they produce, who can push hard on semicon fellows.
We saw the peak at Q2, perhaps Q3 will be higher than expected however for sure at Q3 things will be more calm