IHS: Intel slashes inventory while Qualcomm bucks the trend
While Intel reduced its inventory by 11 percent in Q4 2012, Qualcomm did the reverse due to high market demand from Apple. The company increased levels by a hefty 24 percent
After reaching a worrisome high in the third quarter of 2012, global semiconductor inventories held by chip suppliers fell at a surprisingly fast rate in the fourth quarter.
This was led by dramatic reductions for behemoth Intel.
Days of Inventory (DOI) for semiconductor suppliers in the fourth quarter declined by 5 percent compared to the third quarter - higher than the 1.5 percent initially forecast, according to an IHS iSuppli "Supply Chain Inventory Market Brief" from information and analytics provider IHS. Meanwhile, inventory value in dollar terms fell almost 5 percent - larger than the originally projected 3 percent.
"Semiconductor companies reduced their inventories at a faster-than-expected rate in the fourth quarter as they moved to adjust to weakening demand," says Sharon Stiefel, analyst for semiconductor market intelligence at IHS. "Many chip suppliers demonstrated great agility in their reactions to the drop in demand. No. 1 semiconductor supplier Intel Corp. was the most aggressive, cutting its stockpiles by more than half a billion dollars - the largest decrease on a dollar basis of any chipmaker."
Cutting inventories down to size
Among semiconductor suppliers that reduced their inventory levels between the third and fourth quarters last year, the percentage of decrease ranged from 5 percent to 25 percent, resulting in chip stockpile value of $60 million to nearly $600 million being shaved off in the companies affected.
And while inventory climbed in some companies during the same period, the spread was smaller, with the value of the increase worth slightly north of $40 million to approximately $250 million.
In the table at the top of this article and the numbers cited here, memory suppliers are excluded from DOI and inventory value calculations because they report results much later than any other group in the semiconductor supply chain.
The rest of the companies covered effectively straddle the breadth of the semiconductor chain, including those engaged in the wireless, automotive, data processing and industrial segments.
Intel leads inventory liquidation
The largest decrease in inventory value during the fourth quarter belonged to Intel, down $585 million from the third quarter, representing an 11 percent reduction. The company made aggressive moves to cut stockpiles. It also reduced production as it migrated to a new process technology: 14nm lithography.
AMD and STMicroelectronics also experienced large inventory declines of $182 million and $131 million, respectively, or 25 percent and 9 percent. In the case of AMD, inventory shrank for its microprocessors as a result of an amended wafer supply agreement with GlobalFoundries for reduced stockpiles. For its part, STMicroelectronics cut utilisation rates after exiting its money-losing joint venture with Ericsson.
Two other chip suppliers had notable inventory cut backs; Texas Instruments, down $91 million or 5 percent, due to weak end-market demand for its chips; and ON Semiconductor, down $63 million or 10 percent, as it burned bridge inventory and coped with reduced revenue.
Among inventory gainers, most faulted low seasonality and an uncertain global economy for a rise in chip stockpiles. Companies in this group included MediaTek, up $58 million or 14 percent; NXP Semiconductors, up $44 million or 7 percent; and Infineon Technologies, up $43 million or 6 percent.
Qualcomm changes the game
The one exception among gainers that could boast of a strong performance that was linked to an increase in chip inventory levels was Qualcomm, up $247 million or 24 percent. Given the strong market acceptance of its wireless chips in products like the Apple iPhone and iPad, Qualcomm is ramping up production and inventories in order to meet demand.
Semiconductor suppliers will be positioning their inventories in the first quarter this year to prepare for anticipated demand. Inventories are expected to rise in response to slightly positive global economic indicators as well as favourable semiconductor and end-equipment forecasts - unless major swings occur once more from the larger suppliers that could then end up skewing the industry.
