Slight dip, inventory correction hits IC industry

Demand for flash memory, DRAMs and microprocessors have eased in recent weeks, but logic and SRAM products remain in tight supply and on allocation, according to an e-mail newsletter from Smith & Associates, an independent distributor in Houston.

At the same time, several chip makers, including Amkor, Exar, ISSI, Sipex, and Trident, this week separately lowered their quarterly forecasts despite what appears to be a robust IC recovery. For example, the three-month average of worldwide semiconductor sales rose to $17.32 billion in May, up 36.9 percent from the same figure in May 2003, the Semiconductor Industry Association (SIA) reported Friday (July 2) (see July 2 story).

These companies, however, blamed their disappointing quarterly forecasts on a variety of factors, including seasonal issues, a weakness in the wireless market, and an inability to obtain enough wafers from silicon foundries.

Other factors may be in play. "Taken together, these announcements may imply that an inventory correction may be underway," said Cristina Osmena, an analyst with Jefferies & Co., a New York investment banking firm, in a report issued on Friday (July 2).

Osmena also believes that the financial pre-announcements indicate that other supply-chain forces are in play as well:
*Potential inventory workdown at various networking and wireless OEMs.

*Slower demand experienced at distribution partners.

*Slightly better availability of foundry capacity for trailing edge technologies such as analog or 0.18-micron CMOS processes.

Lower forecasts ahead?

There are other problematic issues, especially in wireless. For example, hit by a sudden slowdown in the wireless sector, chip-packaging giant Amkor Technology Inc. on Thursday (July 1) said it has raised prices for select products and reduced its earnings forecast for the second quarter of 2004.

"In discussions offline with the company, we learned that customers using advanced packages ship fewer wafers to Amkor than they had previously forecasted," Osmena said. "The lower than expected revenue came, in particular, from softer than expected wafer shipments for processing of chips used in cellular phones. Some key customers in this area for Amkor include ADI, Texas Instruments, and RF Micro Devices."

Wireline also appears to have some issues in the inventory--at a time when the industry is supposedly in the recovery mode. Exar Corp., for one, this week lowered its June quarter revenue guidance, due to inventory workdowns at three networking OEMs and a surprise decline in sales of UARTs into the distribution channel, according to Osmena.

The company's primary distribution partner is Future Electronics. "Based on our discussions, the company's distribution partner experienced an increased availability of product in mid-to-late May," according to the report. "This has affected orders into chip suppliers like Exar. Seasonality in UART demand typically takes place at year-end when the distribution channel attempts to clear inventories."

Meanwhile, many chip makers are having problems in terms of obtaining enough wafers from their foundry partners. For example, specialty memory-chip maker Integrated Silicon Solution Inc. (ISSI) late Thursday (July 1) said that it had reduced its forecast for the quarter, due in part to a shortfall of wafers from its foundry partners, notably China's Semiconductor Manufacturing International Corp. (SMIC).

Analog-chip maker Sipex Corp. this week lowered June quarter revenue guidance, due to "manufacturing ramp issues of a low-volume BiCMOS process at manufacturing partner, Polar Fab," according to Osmena.

Sipex also failed in terms of end of quarter price negotiations with Asian distribution partners. "Asian distributiors, however, have experienced a slowdown in the month of June. Sell-through at these Asian distributors has apparently been flat in June," she said.

Parts and more parts

On the product front, meanwhile, DRAMs, flash, and processors have been hit by the summer doldrums. "Demand (for flash memory) remains healthy worldwide, but prices have declined recently as supply concerns for most configurations have eased," according to an e-mail newsletter from Smith & Associates.

"Although requirements for low-voltage and non-standard package types are more frequent, 16MB 5V TSOP flash remains hot. Production of low-voltage flash in 64-256MB densities has not yet caught up with demand, but pricing for these parts remains flat," according to the newsletter. "Buying interest on 1 to 2GB NAND flash has been weaker than expected and these parts are still plentiful in Asia."

It's a mixed bag for DRAMs and SRAMs. "DRAM has been hit by the traditional summer slowdown, causing demand to weaken considerably. Prices have declined over the past 4 to 5 weeks, and Smith traders expect this sector to remain weak until September," according to the report.

"SRAM, on the other hand, is highly allocated. Smith traders are seeing robust demand across all brands, densities, and configurations. Some reports suggest that 95 percent of worldwide SRAM production is allocated through Q3 of this year," according to the report. "OEMs or distributors who have not secured product for this period will likely face 12 to 16-week lead times at a minimum."

Other parts are on tight supply. "Logic devices continue to receive considerable attention on the open market," according to the newsletter. "Both TI and National Semiconductor remain on heavy allocation, and series 74 logic is tight across the board. Availability is also short on Philips logic, and inquiries for older Motorola part numbers have been frequent. Activity remains steady across the board on Maxim, Analog Devices, Linear Technology, and Xilinx parts."