An era of high inventory

Colley Hwang, DIGITIMES, Taipei 0


Since the beginning of 2022, we've seen weakening end market demand. The global notebok market increased from 158 million units in 2019 to 246 million units in 2021, and it's natural that the market may not continue to expand in 2022. According to DIGITIMES Research's latest report, global smartphone shipments in the first quarter of 2022 reached 319 million units, down 7.2% annually, and the annual growth rate for the whole of 2022 is likely to be only 3.1%.

China's handset sales have been dropping. The Russia-Ukraine was has been disrupting the market. Shouldn't companies lower their inventories, further adjust production, and wait for out-of-stock parts to return to normalcy?

The reality is that memory and non-memory sales behaviors are different in the semiconductor space. When memory prices are high, the end products will respond by adjusting the memory capacity loaded, so whenever demand slows down, memory prices will respond quickly. News of memory prices dropping in the coming quarter is a general reflection of the actual market demand. Memory use is also divided into mobile cmmunication, computer and datacenter applications. We understand that the construction of data centers has not stopped, so we can still expect some business opportunities in the short term.

However, non-memory semiconductor products, such as logic chips and controler ICs, are basically indispensable. There is a wide array of end products, and makers have to consider the demand situations not just in the computer, handset, industrial computer (IPC) and server sectors, but also the car industry, which has been hit by component shortages and therefore will not lower their component inventories.

The COVID lockdowns in China have hit hard many makers. For manufacturers companies in Shanghai, such as TSMC's 8-inch plant in Songjiang, and SMIC and Hua Hong Semiconductor in Pudong, production, transportation, and warehousing operations are bound to be affected, and whoever has inventory will survive the challenges.

The year 2021 was a happy one for components distributors, most of whom had handsome profits. But the profit increased mainly because of increases in revenue, rather than increases in their product value. Generally speaking, upstream makers will contribute a portion of their profits to channel operators who play more of a "box mover" role. However, in the past few years, channel operators have enhanced their efficiency through technical improvements and smart logistics, which has helped improve their profitability.

But, does the value of the distributors stop there? In the future, the market will be diversified, and it will be difficult for the original manufacturers to cover everything. With the rise of the emerging markets in ASEAN and South Asia, as long as the channel operators in Taiwan can contribute to the local manufacturers in the emerging markets, and as long as they can make improvements in smart logistics and data ccllection, they will see important opportunities in the next few years.

Colley Hwang, president of DIGITIMES Asia, is a tech industry analyst with more than three decades of experience under his belt. He has written several books about the trends and developments of the tech industry, including Asian Edge: On the Frontline of the ICT World published in 2019, and Disconnected ICT Supply Chain: New Power Plays Unfolding published in 2020.