Analysts Warn Over Chip Inventory
By Harry Yeates -- Electronics Weekly, 8/3/2004
Two research firms have warned over swelling chip inventories and the potential impact on prices in the second half of the year.
However, TSMC, the world's largest foundry, said last week that the situation is not uniform through the industry and market demand is healthy.
Market watcher iSuppli said surplus chip inventories in the semiconductor supply chain at the end of Q2 amounted to $827 million, up by $12 million on Q1. The firm said chip customers began canceling orders in June, but that suppliers only marginally decreased utilization. As a result, chip prices should reduce during Q3 as suppliers sell off their stockpiles.
Merrill Lynch also issued a note in which it said it expects semiconductor companies to have overestimated demand for Q3.
However, during an earnings call last week with analysts, Rick Tsai, president and COO of TSMC, said that inventory growth is affecting only certain sectors.
"I think the inventory situation varies from company to company. DVDs have higher inventory build up, and some communications companies still have inventory," Tsai said. "I think at the system level inventory seems to be under good control, that's why we believe the end market demand is healthy. We do have an inventory situation somewhere and that needs to be consumed in the next few months."
In its note, iSuppli said that elsewhere in the supply chain -- distributors, contract manufacturers, retailers -- inventories were 41 percent lower in Q2 than a year ago, and it saw no reason to modify its prediction for 24 percent growth in worldwide semiconductor revenues during 2004.
The firm also said a widely reported build up of stocks in distribution channels during Q2 was a correction to very low levels reached in Q1. This backs up comments made last month by Michael Marks, CEO of contract manufacturer Flextronics, that the behavior was "a normal part of an industry recovery." |
