Interesting article by Herb Greenberg on chips.
Is the Semi Slump Worse Than It Appears?
By Herb Greenberg
Senior Columnist
6/19/01 11:08 AM ET
subscribers only
thestreet.com
Chip chatter: Don't overlook the importance of Solectron's (SLR:NYSE - news - commentary) dismal fiscal third-quarter revenue performance and fiscal fourth-quarter warning, especially as it applies to the chip industry. While all eyes have been on Oracle, Solectron, a contract manufacturer that's a large buyer of chips used in communications products, gave the heads-up that sales this quarter would be roughly 25% lighter than analysts had expected. Pay special attention to inventory. As I noted on the Columnist Conversation late yesterday, while the dollar amount of inventory was down, inventory turns slowed. What's worse, on its conference call, the company said: "We still took components this quarter that we did not need but that we were obligated to take under long-term agreements we signed when the market was overheated. We no longer have these commitments going forward."
So, on one hand, inventory remains a problem; on the other, so does demand.
And get this: Inventories at the leading communications-chip companies, including Broadcom (BRCM:Nasdaq - news - commentary), Altera (ALTR:Nasdaq - news - commentary) and Xilinx (XLNX:Nasdaq - news - commentary), have been rising sharply since year-end. Altera's inventory, as of last quarter, zoomed to nearly 300 days. That's almost a year! Who does Altera buy from? Taiwan Semi (TSM:NYSE - news - commentary). Who does Broadcom buy from? Chartered (CHRT:Nasdaq - news - commentary) (which has been the focus of previous items here and here ). As contract manufacturers cut back their purchases, the chipmakers (and other component makers) will continue to cut purchases from their suppliers, which in the case of the chipmakers are the foundries, which have already been warning of trouble. It's clear, based on recent stock activity, that investors don't realize how bad the trouble still may be, and that rather than being over, the inventory correction has really just begun. |
