Semiconductor inventory falls in Q1 as outlook for electronics rises

EL SEGUNDO, USA: Total inventory held by semiconductor suppliers declined significantly in the first quarter as excess stockpiles created during the global economic malaise of 2012 were cleared away, done in anticipation of a resurgence in consumer demand for electronic products expected by the second half of 2013.

Semiconductor makers' inventory in the dfirst quarter declined to $37.6 billion, down 4.6 percent from $38.4 billion in the fourth quarter of 2012, according to a Supply Chain Inventory Brief from information and analytics provider IHS. The figure presents the IHS estimate of inventory held by semiconductor suppliers in terms of revenue.

The decline in inventory paralleled the contraction in semiconductor revenues, which fell 5.1 percent sequentially, following the normal seasonal demand pattern.

"While overall chip revenue declined in the first quarter, falling inventories among chip suppliers-combined with expanding stockpiles at distributors, contract manufacturers and original equipment manufacturers (OEM)-indicate that consumer demand for electronics rose during the period," said Sharon Stiefel, analyst for semiconductor market intelligence for IHS.

"This contributed to a decline in chip inventories. At the same time, semiconductor companies maintained tight control over their manufacturing capacity, contributing to the decline in inventory," added Stiefel.

Signs of strength from PC and cellphone OEMs

Throughout the electronics supply chain, the largest increases in inventory were posted by cellphone and PC OEMs. Cellphone makers expanded their inventories-including finished smartphones-by 7.2 percent during the quarter. For their part, PC OEMs expanded their stockpiles of items including notebook and desktop computers by 6 percent.

The increase in OEM, contract manufacturing and distributor inventories during the first three months of the year contrasted sharply with the fourth quarter of 2012 when these segments trimmed their stockpiles.

"The rise in inventories among the various segments of the supply chain indicates the electronics industry is preparing for an increase in demand during the second half of 2013," Stiefel said.

It's the economy

Overall global economic indicators point to growth during the coming quarters, mainly in the developing nations. This is incentivizing semiconductor companies and their customers to load factories in the second quarter to keep up with the demand for second-half shipments.

Semiconductor inventory levels are expected to rise in the second quarter in response to the positive order rates from electronics equipment manufacturers, whereas stockpiles for consumers of semiconductors likely will remain fairly flat.