Semiconductor market sunshine

Following four consecutive quarters of reductions, global inventories of chips have declined to appropriate levels, says market researcher iSuppli, clearing the way for stockpile rebuilding and higher sales in the second half of the year.
After declining by 2.2 percent and 6.6 percent in the third and fourth quarters of 2008, inventories at global semiconductor manufacturers plunged by 15.1 percent in the first quarter, followed by a moderate 1.5 percent in the second quarter. 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 Corp. “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.”

This is another positive sign after increasing utilisation levels at foundries such as TSMC.
The semiconductor inventory reduction effort was not limited to chip suppliers, with other segments of the electronics supply chain following suit. These segments include storage product makers, mobile handset OEMs, Electronics Manufacturing Services (EMS) providers and distributors.
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 vigorous 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, still an appropriate level for the demand, iSuppli predicts.

“Despite the more optimistic outlook, corporations remain apprehensive about the second half, consistently noting fragile demand,” Ciriello said. “Market values have declined, and the tradeoff between raising prices and maintaining market share has commanded more management attention than usual. However, anticipating longer-term end-demand has proven difficult,” Ciriello said. “Thus, a self-inflicted oversupply situation with too much inventory build would be akin to applying frost to blossoming green shoots.”