Inventory 'to stay lean in 2010'

Global semiconductor suppliers are expected to maintain lean stockpiles in the first quarter of 2010 in order to maintain profitability amid uncertain economic conditions, according to iSuppli.

The analyst firm said days of inventory (DOI) among semiconductor suppliers are expected to decline to 68.3 at the end of the first quarter, down from 68.5 for the fourth quarter of 2009. With DOI already 2.9 per cent below the historical average in the fourth quarter, first-quarter inventories are expected to be 6.9 per cent less than the norm. While inventory in the first quarter will remain at about equilibrium level with demand, stockpiles will be at very low levels—even bordering on shortages for a few specific devices.

“Despite a very poor 2009 for the semiconductor industry, chip suppliers managed their inventories deftly during the year, reducing DOI by 18.2 per cent from the end of the fourth quarter of 2008 to the conclusion of the third quarter of 2009,” said Carlo Ciriello, an analyst with iSuppli. “With inventories having been brought down to equilibrium, these companies are expected to continue to manage stockpile levels expertly. The key for semiconductor suppliers in 2010 will be to capture revenue opportunities without double booking or overstocking. Those suppliers that successfully manage lead times and read the tea leaves of demand will reap the benefits of rising revenue and expanding market share.”
 
Although the inventory level at the end of the fourth quarter was less than the historical average, DOI among semiconductor suppliers actually rose slightly during the period, up 2.7 per cent from 66.7 for the third quarter.

“Most semiconductor suppliers in the fourth quarter engaged in inventory restocking efforts,” Ciriello said. “However, these represent modest replenishments—and iSuppli does not detect any indications of an inventory snap-back to the inflated levels of 2008. The increase in inventory was needed to ensure adequate supply during the high-demand period in the fourth quarter driven by the Christmas selling season.”
 
DOI throughout 2010 is expected to stabilise at close to the 70-day level. Semiconductor suppliers are set to keep inventory at equilibrium with demand during all four quarters of the year.

On a dollar basis, inventories are expected to rise moderately in the second, third and fourth quarters. However, these increases will be cautious as suppliers strive to maintain stable lead times and try to place upward pressure on average selling prices and margins.

This continued tight management of inventories will help the semiconductor industry to attain double-digit percentage growth in 2010. After a decline of 12.4 per cent in 2009, worldwide semiconductor revenue is set to rise by 15.4 per cent in 2010, iSuppli predicts.
 
While no widespread shortages are expected, there could be limited availability of NAND flash in 2010. However, this shortfall is expected mainly to be driven by strong demand.

“If Apple even comes in close to its forecasted run-rate, there will definitely be shortages of NAND flash in 2010,” Ciriello warned.

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