Q2 Semiconductor Inventory Continues to Increase Inventory or Become a New Formula

According to IHS iSuppli's research, semiconductor suppliers’ semiconductor inventory levels are expected to increase for the seventh consecutive month in the second quarter as the industry rebuilds inventory and prepares for expected growth in demand.

Excluding the volatile memory sector, the overall inventory level of all semiconductor suppliers in the second quarter is expected to increase to 81.5 days, a 1.5% increase from the 80.3 days in the first quarter. This will be a continuous increase in inventory in each quarter since the fourth quarter of 2009.

First- and second-quarter inventory growth was due to semiconductor suppliers re-stocking products that were in short supply during the tight production period in 2010. Suppliers are also preparing for the increase in demand expected later this year. In the first quarter, demand was off-season, and it was a good time for semiconductor component suppliers to replenish inventory at this time.

Inventory rises in an all-round way Inventory in the entire electronics supply chain, including semiconductor suppliers, distributors, contract manufacturers, and OEMs, has risen in the first quarter in addition to computer makers. Inventories of computer OEMs fell by more than 8%, probably because they sent most of their products to retail channels after the sales season in the fourth quarter of 2010 in order to restock. In contrast, memory and analog device vendors have the highest growth rates in internal inventories, growing by nearly 15%. The increase in inventories for fabless companies and distributors is small.



Macroeconomic factors affect the overall growth of the electronics industry. The overall trend of these factors is good, but the US housing market is weak and gasoline and food prices are rising. Semiconductor inventory is expected to continue to rise in 2011. Demand for popular consumer products such as smartphones and tablets, as well as perennial demand such as PCs, will boost semiconductor inventories.

Impact of Japan's earthquake IHS iSuppli's research shows that due to the fact that inventory has been established in the previous two quarters, the impact of the March earthquake in Japan on the overall electronic supply chain inventory will not be too great. In fact, due to the fact that there are just a few stocks in hand, the factory repairs the damaged damage in time, and restarts production, and the manufacturer promptly transfers the production operations from Japan to other regions, the possible widespread impact of the earthquake is contained.

A still worrying aspect may be bare wafer supply, as Japan accounts for about 60% of global semiconductor wafer supply. However, Taiwan Semiconductor Manufacturing Co., the leading semiconductor foundry company, announced that the earthquake will not cause any adverse impact on it. This is a positive sign. IHS iSuppli will continue to pay close attention to areas that may be impacted.

At the same time, manufacturers may increase orders in order to prevent future supply chain disruptions. Maintaining higher stocks in the future may become a new practice. This is an appropriate practice that can mitigate the adverse effects of natural disasters and political turmoil.

Sharon Stiefel, semiconductor information analyst at IHS.