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Rising inventory stockpiles in semiconductor supplies have given cause for concern in the past, however now the industry raises an eyebrow at Intel as the culprit for this current inventory glut. Find out why the global electronics industry on the whole is not worried about inventory excess as iSuppli’s latest semiconductor industry report dispels any inventory angst.
Inventory glut looms over electronics supply chain
Excess stockpiles of PC microprocessors and corelogic chipsets caused surplus semiconductor inventories in the global electronics supply chain to rise more than expected in the second quarter, according to new data from iSuppli Corp.’s Semiconductor Inventory Tracker service.
“Excess inventories have exceeded the worrying levels seen during the last semiconductor supply snafu in mid 2004. However, with most of the excess inventory restricted to PC- related chips, and mainly to a single supplier—Intel Corp.—the surplus stockpiles are not a major concern for the global electronics industry,” said Rosemary Farrell, an iSuppli analyst.
Excess semiconductor stockpiles in the global electronics supply chain rose to $2 billion in the second quarter, up 77.6 percent from $1.1 billion in the first quarter. iSuppli had predicted a more moderate rise to $1.3 billion. The graph opposite presents iSuppli’s quarterly estimate of surplus semiconductor inventory in the global electronics supply chain.
Inventory inside
At $2 billion, excess stockpiles are at their highest level since they swelled to $1.6 billion in the third quarter of 2004. This increase caused iSuppli to issue a yellow alert in 2004. However, iSuppli is not raising any alarm bells at this time. This is because the inventory rise in 2004 was a widespread phenomenon, while the current run-up in stockpiles mainly is limited to Intel.
Intel’s excess inventories of these parts carried over from the first quarter. However, the problem worsened in the second quarter when Intel instituted price cuts to clear out lingering inventory in advance of its new product launches. This triggered a price war with rival Advanced Micro Devices Inc. (AMD).
“With more reductions expected from Intel and AMD, customers have been placing smaller, more-frequent orders than normal in order to delay volume buys until they can get the best pricing,” Farrell said.
“Because of this, inventory will remain in Intel and AMD’s hands for a longer period than usual.”
Inventory is expected to begin to decline in the third quarter as sales of its new microprocessors and chipsets take off. However, the company’s surplus will linger into 2007, iSuppli predicts. Intel’s inventory problem was the major factor driving up semiconductor stockpiles.
Slim stockpiles elsewhere
Elsewhere in the semiconductor segment, some suppliers suffered exactly the opposite problem from Intel: inventory tightness.
Furthermore, there was tightness in standard-logic and analogue supply, although that was relegated to certain package types. Supply constraints in the back end have eased since the beginning of the year, but are persisting.The mix of shortages in the second quarter was not sufficient to offset the excess inventory.
Unlike 2004, there were no major order cancellations in June this year. This indicates that there is less likelihood of a second-half market downturn and that could lead to a further dramatic rise in excess inventories.
Inventory angst
Although the increases in stockpiles are explainable, it does not mean the supply chain does not have some anxiety. The June quarter closes just before true visibility to end demand for the rest of the year materializes, particularly for the PC segment.
And the second half of 2006 is expected to underperform compared to the normal seasonal pattern.
Although most suppliers’ forecasts for the year rely on normal second-half trends, any shortfall could cause chip inventories to build higher. But so far, expectations are cautiously positive.
