Analog Semiconductors to See Big Decline in Days of Inventory for Q3

September 29, 2011 
In the biggest decline since 2009, inventory stockpiles among analog semiconductor suppliers are pro­jected to drop by a large 4.4 days in the third quarter, the result of manufacturers slashing production capacity in light of anticipated weak demand for the rest of the year, according to an IHS iSuppli Inven­tory Insider report from information and analysis provider IHS.

With supply chain visibility clouding because of global economic uncertainties, analog inventory levels in the third quarter as measured by Days of Inventory (DOI) will stand at 92.5 days, down from 96.9 days in the second quarter. Though DOI has seesawed unevenly during the last several quarters, a drop of such size has not occurred since 2009, when DOI fell 4.9 days in the second quarter that year, as shown in Figure 4.

The lower DOI refl ects IHS projections that analog suppliers will monitor inventories more closely in the second half of 2011, reducing run rates to coincide with a softer demand environment. Unlike 2010, however, when long lead times prevailed and customers endured extended waiting periods to obtain product because of insufficient inventory in the channel, the reduced inventory levels this time are not expected to cause pain.

This is because analog inventories have climbed steadily in the last eight quarters, with stockpiles now at a level not seen since prior to the downturn. With inventory replenishment completed, lead times have sufficiently declined to acceptable wait times for customers to prevent a painful repeat of the past. And in contrast to a year ago when suppliers were caught unprepared, manufacturing capacity today has become much more flexible and readily available, allowing suppliers to ramp up production quickly in case demand returns sooner than expected.

Analog semiconductor products are used in a variety of end markets, predominantly in consumer electronics and wireless applications. Even though consumer products—and by extension, the analog space—are sure to be impacted by the shaky global economy and current financial turmoil in Europe, a vigorous wireless market will offset some of the potential decline expected by the industry. Strong revenues from the popular Android and Apple operating system platforms also will help counteract the losses being experienced by handset manufacturers like Nokia Corp. and Research In Motion Ltd. on their own product lines, insulating the analog space from even steeper declines, IHS believes. 

Overall analog inventory value, already at pre-recession levels, will amount to an estimated $6.2 bil­lion in the third quarter, up from $6.0 billion in the previous quarter. The analog companies tracked in the space include Intersil Corp., Linear Technologies Inc., Maxim Integrated Products, National Semiconduc­tor, RF Micro Devices, Silicon Laboratories Inc. and Skyworks Solutions Inc.

For manufacturers, the lower DOI in the third quarter suggests they are being more cautious while heading into the remainder of the year. Nonetheless, with previous supply chain constraints resulting from the Japan quake disaster in March largely resolved and general production capacity now being avail­able, suppliers are expected to be well-prepared, matching demand nimbly as it rises or falls in the months ahead.

Learn More >  IHS iSuppli Semiconductor Value Chain

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