After reaching a worrisome high in the Q3 2012, global semiconductor inventories held by chip suppliers fell at a surprisingly fast rate in the Q4, led by dramatic reductions for market leader Intel Corp.
Days of inventory (DOI) for semiconductor suppliers in the fourth quarter declined by 5% compared to the third quarter – higher than the 1.5% initially forecast, according to an IHS iSuppli market research firm. Meanwhile, inventory value in dollar terms fell almost 5% – larger than the originally projected 3%.
“Semiconductor companies reduced their inventories at a faster-than-expected rate in the fourth quarter as they moved to adjust to weakening demand. Many chip suppliers demonstrated great agility in their reactions to the drop in demand. No. 1 semiconductor supplier Intel Corp. was the most aggressive, cutting its stockpiles by more than half a billion dollars – the largest decrease on a dollar basis of any chipmaker,” said Sharon Stiefel, analyst for semiconductor market intelligence at IHS.
Note: memory suppliers are excluded from DOI and inventory value calculations because they report results much later than any other group in the semiconductor supply chain.
Among semiconductor suppliers that reduced their inventory levels between the third and fourth quarters last year, the percentage of decrease ranged from 5% to 25%, resulting in chip stockpile value of $60 million to nearly $600 million being shaved off in the companies affected. And while inventory climbed in some companies during the same period, the spread was smaller, with the value of the increase worth slightly north of $40 million to approximately $250 million.
Intel Leads Inventory Liquidation
The largest decrease in inventory value during the fourth quarter belonged to Intel, down $585 million from the third quarter, representing an 11% reduction. The company made aggressive moves to cut stockpiles. It also halted certain production lines as it is preparing to move-in equipment to produce chips using 14nm process technology later this year.
AMD and STMicroelectronics also experienced large inventory declines of $182 million and $131 million, respectively, or 25% and 9%. In the case of AMD, inventory shrank for its microprocessors as a result of an amended wafer supply agreement with GlobalFoundries for reduced stockpiles. For its part, STMicroelectronics cut utilization rates after exiting its money-losing joint venture with Ericsson.
Two other chip suppliers had notable inventory drawdowns: Texas Instruments, down $91 million or 5%, due to weak end-market demand for its chips; and ON Semiconductor, down $63 million or 10%, as it burned bridge inventory and coped with reduced revenue.
Among inventory gainers, most faulted low seasonality and an uncertain global economy for a rise in chip stockpiles. Companies in this group included MediaTek, up $58 million or 14%; NXP Semiconductors, up $44 million or 7%; and Infineon Technologies, up $43 million or 6%.
Qualcomm Reverses the Trend
The one exception among gainers that could boast of a strong performance that was linked to an increase in chip inventory levels was Qualcomm, up $247 million or 24%. Given the strong market acceptance of its wireless chips in products like the Apple iPhone and iPad as well as numerous smartphones from Samsung, Nokia and others, Qualcomm is ramping up production and inventories in order to meet demand.
Semiconductor suppliers will be positioning their inventories in the first quarter this year to prepare for anticipated demand. Inventories are expected to rise in response to slightly positive global economic indicators as well as favorable semiconductor and end-equipment forecasts—unless major swings occur once more from the larger suppliers that could then end up skewing the industry.