More IC design houses could be forced to recognize inventory losses if macro headwinds last beyond the second quarter of 2023 and drive end clients to extend their conservative shipment pull-in strategies into the second half of 2023, according to industry sources.
Most IC designers remain optimistic about the progress of inventory depletion and believe they can still manage to clear inventories one way or another. But some Taiwanese fabless chipmakers including DDI vendor FocalTech Systems have completed advance-recognition of inventory losses, and some international vendors have also recognized losses in advance due to the cyclicality of their products, the sources said.
As tech spec upgrades stay on a normal track despite sluggish sales, the market is likely to skip the demand for a certain generation of products, resulting in stagnant sales, the sources said. This is why US chipmakers usually quickly roll out new processors once a certain generation of CPUs or GPUs suffers stagnant demand, leading to increasing difficulty in destocking the latter offerings, the sources continued.
Some Taiwanese vendors of power management ICs (PMIC) or those focusing on niche-market chips noted their products have long life cycles of several years, with some even lasting 10 years, and virtually have no need to worry about inventory losses.
But most local IC designers focus on consumer chips, and their sales will be more subject to market variables, the sources said, stressing that if sluggish demand lingers through 2023 phasing out some old-specs products in the terminal markets, then the risk of recognizing inventory losses would be emerging.
FocalTech has recently announced its recognition of a huge inventory loss of NT$2.5 billion (US$81.83 million), with the loss mainly associated with handset-use LCD TDDIs, whose sales volume and value have plunged due partly to weak market demand and partly to Chinese handset vendors stepping up incorporating AMOLED DDIs to stimulate sales.
Apparently, this is inevitable move for FocalTech to write off the inventory loss amid the mounting penetration of OLED DDIs and the growing elimination wave of LCD TDDIs, the sources said.
Article translated by Willis Ke
