Intel leads IC market inventory drop

The rise in the global semiconductor inventories in the third quarter of 2012 was worrisome and the fourth quarter inventory fall is worrying the market even more.

The surprisingly fast rate that the inventories fell was led by the dramatic reductions of market leader Intel Corp.

Days of Inventory (DOI) for semiconductor suppliers in the fourth quarter declined by 5 percent compared to the third quarter. This is higher than the 1.5 percent initial 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," said 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."

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 Rs.322.58 crore ($60 million) to nearly Rs.3,225.81 crore ($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 Rs.215.05 crore ($40 million) to approximately Rs.1,344.09 crore ($250 million).

Quarterly change in inventory levels of semiconductor suppliers (Inventory in millions of U.S. dollars)
Source: IHS iSuppli Research, March 2013

In the table and numbers cited in this release, 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 is the biggest loser, Qualcomm the last man standing 
The largest decrease in inventory value during the fourth quarter belonged to Intel, down Rs.3,145.16 crore ($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: 14-nanometer lithography.

AMD and STMicroelectronics also experienced large inventory declines of Rs.978.49 crore ($182 million) and Rs.704.30 crore ($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 utilization rates after exiting its money-losing joint venture with Ericsson.

Two other chip suppliers had notable inventory drawdowns: Texas Instruments, down Rs.489.25 crore ($91 million) or 5 percent, due to weak end-market demand for its chips; and ON Semiconductor, down Rs.338.71 crore ($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 Rs.311.83 crore ($58 million) or 14 percent; NXP Semiconductors, up Rs.236.56 crore ($44 million) or 7 percent; and Infineon Technologies, up Rs.231.18 crore ($43 million) or 6 percent.

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 Rs.1,327.96 crore ($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 favorable semiconductor and end-equipment forecasts—unless major swings occur once more from the larger suppliers that could then end up skewing the industry.