Inventories held by semiconductor suppliers in the second quarter of 2011 swelled to levels not seen since the start of the last downturn in early 2008, raising concerns over the near-term outlook for the chip market, according to IHS iSuppli.
Global semiconductor stockpiles at the end of the second quarter stood at an unusually elevated 83.4 days of inventory (DOI) – a level exceeding even the last record high of 83.1 DOI seen in the first quarter of 2008, IHS indicated. The second-quarter inventory DOI represents a fairly large jump of 3.5 days from 79.9 days in the first quarter, and is the first time in 12 consecutive quarters that DOI has tipped over the 80-day mark.
The inventory level in the second quarter was 11% above the historical seasonal average usually recorded for the period, IHS said. This is close to the 11.1% oversupply seen in the first quarter of 2008, right at the start of a two-year downturn in the semiconductor industry, the firm observed.
"For the semiconductor industry, wading into such potentially troubling territory - reminiscent of the dark days leading into the recession – could herald the beginning of a critical inventory adjustment period," said Sharon Stiefel, semiconductor analyst at IHS. "The correction is likely to take place during the next few quarters and will not be completed until mid-2012. As such, it will involve suppliers making a prolonged reduction in their inventory levels to avoid dangerous oversupply situations."
Semiconductor revenue projections for the third quarter are being scaled back as various indicators point to a stalling economy, according to IHS. For instance, US GDP growth in 2011 now is expected to amount to a mere 1.7%, down sharply from 3% in 2010.
IHS also has revised its semiconductor revenue forecast to 2.9% growth in 2011, down from the 4.6% annual growth rate projected previously, and a steep plunge from the 32.4% growth recorded in 2010.
For many semiconductor companies, the projections for flat sequential revenue made during their second quarter earnings calls reflect the decreased supply chain visibility that suppliers are experiencing at this time based on slowing end demand, IHS said. Many, in fact, also have lowered their third-quarter revenue guidance in mid-quarter announcements as a response to the deteriorating global economic outlook.
In the segment representing analog suppliers, for instance, manufacturers are being extra-cautious to ratchet down inventory as analog DOI at the end of the second quarter stood at an even higher 92.5 days compared to the rest of the semiconductor industry, IHS pointed out.
Third quarter dip
DOI is preliminarily estimated to have declined by more than 2% in the third quarter to 81.3 days as semiconductor suppliers recalibrate inventory to reflect the ongoing reduction in demand, IHS said. And unlike the past, suppliers now have reduced capacity utilization to cope with downsized markets while still maintaining flexible production capacity in case unexpected orders materialize.
Sequential growth of 4.8% is predicted for the industry in the third quarter notwithstanding the ongoing economic turmoil, IHS indicated. Strong performances are expected from the semiconductor sectors serving the data processing and wireless communication categories, which should help offset declines in other end markets.
Article translated by Jessie Shen
