IC inventory correction ends, says iSuppli

El Segundo, Calif. — After four consecutive quarters of reductions, global semiconductor inventories have declined to appropriate levels, clearing the way for stockpile rebuilding and higher sales in the second half of the year, according to iSuppli Corp.

After declining by 2.2 percent and 6.6 percent in the third and fourth quarters of 2008, respectively, inventories at global semiconductor manufacturers plunged by 15.1 percent in the first quarter, followed by a moderate 1.5 percent drop in the second quarter, according to iSuppli’s latest report, A Three-Quarter Forecast of Inventories in the Electronics Supply Chain.

At the end of the second quarter, iSuppli preliminarily estimates that inventories fell to $24.9 billion, down from the recent peak of $32.6 billion in the second quarter of 2008.

“Falling demand in the first half of 2009 prompted a swift inventory correction among chip suppliers,” said Carlo Ciriello, financial analyst for iSuppli, in a statement. “Companies dialed down utilization levels and cleared swaths of inventory by reducing average selling prices (ASPs) in anticipation of continued depressed demand. Furthermore, semiconductor suppliers cut costs in an effort at right-sizing to better reflect the economics of smaller end markets.”


iSuppli said the semiconductor inventory reduction effort was not limited to chip suppliers, with other segments including storage product makers, mobile handset OEMs, electronics manufacturing services (EMS) providers and distributors of the electronics supply chain following suit.

iSuppli forecasts that second-half inventories will increase modestly in unison with sequential revenue increases for the global semiconductor industry. After an 18.8 percent decline in the first quarter of 2009 and a 7.1 sequential increase in the second quarter, global semiconductor revenue will rise in the second half, in line with financial guidance from Intel Corp. and other chipmakers.

Global semiconductor revenue will increase by a 10.4 percent in the third quarter and by 4.9 percent in the fourth, iSuppli predicts. Semiconductor inventories will rise by 5.5 percent in the third quarter and by 1 percent in the fourth to end the year at $26.5 billion, which is still an appropriate level for the demand, reports iSuppli.

However, iSuppli said no company is stepping to the plate to aggressively build inventories in anticipation of a future demand snap-back. The market researcher said expectations of sequential revenue increases in the third and fourth quarter, as well as anticipatory inventory builds ahead of the holiday season, will improve utilization rates and boost gross margins in the near term.