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Strategies & Market Trends : Steve's Channelling Thread -- Ignore unavailable to you. Want to Upgrade?

To: Zeev Hed who wrote (2218)	6/8/2000 10:00:00 PM
From: orkrious	Read Replies (1) \| Respond to of 30051

Zeev, have you read anything about rising semiconductor inventories? Do you give it any credence? Should Investors Be Alarmed by Rising Semiconductor Inventories? By Herb Greenberg Senior Columnist 6/7/00 6:29 AM ET thestreet.com Semicircle: Tuesday's Hotline included an item noting that semiconductor inventories have been rising. That sparked questions: Which inventories? When? Over what time? (It was manufacturing inventories over the past three months.) It also prompted a very senior Wall Street tech analyst who agreed to talk only on background (his employer wouldn't be pleased to see his name here) to share his insights. He added up days of inventories at the top seven North American contract manufacturers and calculated that they climbed to 55 days in March of this year from 49 days in December and 43 days in March 1999. Why the rise? Each company, he muses, has a different explanation, but the gist of it is that they've accelerated their purchases to deal with component shortages. In light of dropping PC demand, that explanation doesn't wash with this analyst, who says, "It's surprising people aren't more concerned yet." The reason for rising inventories, the one the bulls are likely to scream to me in emails today (stop, please don't!), is that the contract manufacturers are now all shifting to making cell phones. Whatever. More thestreet.com Chips, chips and nothing but chips (as in semis). Discussions that started in yesterday's Hotline and continued in this morning's HerbonTheStreet focused on how chip inventories have been rising while PC sales have been dropping (while supplies remain tight) and how nobody knows quite what to make of it, but how it must mean something! And it will mean something, agrees Danny Lam of FHI Research, if the inventories continue to rise. ... The secondary effect of too much inventory, adds reader Mike McCord, "could be the fabless semi guys cutting back production which could free up the Taiwanese contract semi guys to switch back and start building DRAMS [dynamic random access memory] and flash. Could cause problems for the expected shortages in the second half in DRAMS." Maybe. Then again, based on the number of emails suggesting the only chips I know about are made by Nestle (NSRGY:Nasdaq ADR - news - boards), maybe not! .. More thestreet.com Take this very thoughtful comment from reader Barry Gilbert, who writes: "You need to ask and understand one additional piece of information, which will materially impact your thoughts and cause some concern. A large portion of the increase is due to the increase in 'hub' inventory. Quite simply, inventory is held at a distribution point but is not owned by the customer until it is pulled. If Lucent (LU:NYSE - news - boards) is not pulling inventory, then SCI Systems (SCI:NYSE - news - boards) has a world of pain... My guess is that, once you unwind and understand the amount not being pulled, you will see a clear slowdown with some major companies. In turn, the greater question, why are they not meeting their purchase forecasts?" I dunno, that's what you're supposed to tell me. Barry adds that he doesn't agree with the argument that contract manufacturers are piling up inventory to meet demand for cell phones. "Hundreds of millions of dollars of (cell-phone) inventory that should have been taken have not. Now you can move to the next derivative: How much of the inventory will end up 'slow-moving' or 'obsolete' and create costs down the road when written off?" Again, Barry, you're supposed to tell me. And who was that masked man, anyway? ... And speaking of cell phones, this just in from my spies at the PaineWebber Growth and Tech conference being held this week in New Yawk: While cell-phone demand continues to soar, there are signs that cell-phone makers are no longer raising their forecasts for demand for this year. (Remember, before you can fall, you have to stop rising. Could that be what's about to happen?) ... But, wait, back on semis, there's more ... this time from reader David Turner: "I thought I'd pass on our experience as a manufacturer of instrumentation that uses semiconductors and electronic components. We have several dozen products (hand-held, lab, and field sizes) and all use common integrated circuit parts that range from simple amplifiers to microprocessors. We have a hundred or so parts we designed into new and recently released (in the last two to four years for us) that are obsolete already. This includes parts in products not even released yet! It's not that we have poor designers, but things change and we need to be able to change with them. I don't know if this is part of the inventory situation, but we're scrambling to get parts even before we release a new product!" ... Excellent info, David, and to bring this full circle, we go back to the question Barry asked: How much of that obsolete inventory will have to be written off down the road, and (this is my question) who will pay the price?