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Press release, August 3; Esther Lam, DigiTimes.com [Friday 4 August 2006]
Excess
stockpiles of PC microprocessors and core logic chipsets caused surplus
semiconductor inventories in the global electronics supply chain to
rise more than expected in the second quarter, according to research
firm iSuppli. However, iSuppli is not raising any alarm bells at this
time because the inventory rise in 2004 was a widespread phenomenon,
while the current run-up in stockpiles mainly is limited to Intel,
noted the firm. "Excess inventories have exceeded the
worrying levels seen during the last semiconductor supply snafu in mid
2004. However, with most of the excess inventory restricted to
PC-related chips, and mainly to a single supplier—Intel—the surplus
stockpiles are not a major concern for the global electronics
industry," said Rosemary Farrell , an iSuppli analyst. Excess
semiconductor stockpiles in the global electronics supply chain rose to
US$2 billion in the second quarter, up 77.6% from US$1.1 billion in the
first quarter. iSuppli had predicted a more moderate rise to US$1.3
billion. 
Source: iSuppli, compiled by DigiTimes.com, August 2006 Inventory inside At
US$2 billion, excess stockpiles are at their highest level since they
swelled to US$1.6 billion in the third quarter of 2004. This increase
caused iSuppli to issue a yellow alert in 2004. Intel's
excess inventories of these parts carried over from the first quarter.
However, the problem worsened in the second quarter when Intel
instituted price cuts to clear out lingering inventory in advance of
its new product launches. This triggered a price war with rival AMD. "With
more reductions expected from Intel and AMD, customers have been
placing smaller, more-frequent orders than normal in order to delay
volume buys until they can get the best pricing,' Farrell said.
"Because of this, inventory will remain in Intel and AMD's hands for a
longer period than usual." For Intel, this means
additional weight is being added to its already-bloated stockpiles.
Inventory is expected to begin to decline in the third quarter as sales
of its new microprocessors and chipsets take off. However, the
company's surplus will linger into 2007, iSuppli predicts. Intel's
inventory problem was the major factor driving up semiconductor
stockpiles among chip suppliers. Semiconductor suppliers as a group
were holding approximately eight days of excess stock in the second
quarter, up from 6.8 days in the first quarter, a large portion of
which was composed of microprocessors and chipsets. Slim stockpiles elsewhere Elsewhere
in the semiconductor segment, some suppliers suffered exactly the
opposite problem from Intel: inventory tightness. A few power MOSFETS
were placed on allocation in May. Furthermore, there was tightness in
standard-logic and analog supply, although that was relegated to
certain package types. Supply constraints in the back end have eased
since the beginning of the year, but are persisting, said iSuppli. The
mix of shortages in the second quarter was not sufficient to offset the
excess inventory. Although semiconductor inventories rose at EMS
providers and distributors in the first and second quarters, these
increases came on top of below-normal levels. The additions at
distributors are mostly in line with third-quarter expectations. Unlike
2004, there were no major order cancellations in June this year. This
indicates that there is less likelihood of a second-half market
downturn and that could lead to a further dramatic rise in excess
inventories. Inventory angst Although
the increases in stockpiles are explainable, it does not mean the
supply chain does not have some anxiety. The June quarter closes just
before true visibility to end demand for the rest of the year
materializes, particularly for the PC segment. And the second half of
2006 is expected to underperform compared to the normal seasonal
pattern. Although most suppliers' forecasts for the
year rely on normal second-half trends, any shortfall could cause chip
inventories to build higher. But so far, expectations are cautiously
positive, said iSuppli.
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