Chip inventory at semiconductor suppliers hits 'alarmingly high levels,' says analyst

Chip inventory at semiconductor suppliers hits 'alarmingly high levels,' says analyst

Summary: Poor PC sales have hit semiconductor suppliers hard, leaving them with "alarmingly high levels" of chips held in inventory. If things don't pick up in 2013, this will mean significant inventory write-downs throughout the year.

TOPICS: Hardware

A slowdown in PC sales left semiconductor suppliers with "alarmingly high levels" of chips held in inventory during the third quarter of 2012, according to analytics firm IHS.

During the second half of 2011, chip supplies held by semiconductor suppliers had fallen, but since then inventories have steadily risen to 47.5 percent of total revenue in the second quarter before going on to the current peak in the third quarter.

"The uncomfortably high level of inventory among semiconductor manufacturers of nearly all stripes is a result of key demand drivers failing to materialize," said IHS semiconductor market analyst Sharon Stiefel.

"Demand for semiconductor devices has typically come from new products that consumers feel compelled to purchase," continued Stiefel, "but going into the holiday season last year, no such new products marshaled enough impetus to overcome consumer fears about lingering economic woes. Two months prior to Christmas, consumer purchases of electronics had grown by only 0.7 percent, the worst performance since 2008."

Some segments performed better than others. While PCs declined, and ultrathin PCs did not produce the demand for semiconductors originally, feature-rich smartphones and tablets provided the strongest demand in the final quarter of 2012.

It's not clear what 2013 will mean for the semiconductor industry. According to IHS, if global economic forecasts perform according to positive expectations, semiconductor revenue could grow by 4 percent in the second quarter, and by 9 percent come the third quarter. That said, if demand evaporates, IHS said that semiconductor suppliers will find themselves in "a deplorable oversupply situation," which would mean significant inventory write-downs throughout the year.

Topic: Hardware

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  • Planning to get some new hardware

    Looking forward for the prices to fall dramatically
  • why write downs?

    discounts have been arround for ages.
    LlNUX Geek
    • That is really the same thing

      When you discount something, you sell it for less. That means the value of what you have in inventory is less, which means you will probably have to write it down before you get rid of it all.

      It is only a matter of WHEN you do it and WHAT you call it in the financial statements. The end result is the same. Profits will be lower for sure and there may be some red ink also. Some companies may prefer to take the "big bath" in one quarter, just to produce better financials in later quarters.
      • Actually discounts do not always have to mean loss.

        I understand the point about discounts *can* be the same as write downs or loss. However, the difference is that:

        - *if* you make the right thing at the right price (which is hard, bit not impossible to do)
        - *then* you might sell more and maybe even break even, make a profit or increase your installed base, outreach and brand equity so your next product sells

        It is sad that the whole PC ecosystem seems to not be fighting at the marketing level. Where are the ads comparing the downside of the lighter platforms. Granted, those platforms will still keep advancing. I find it unfortunate that they didn't learn that one of Apple's biggest skills is marketing. Some times it isn't tech, it's perceptions of what is important.

        I look at the ChromeBooks and the price point and marketing (big Google displays at Best Buy, etc) and look for similar with other products and Sony seems the only one close. But there the price points and messaging isn't there.
        • I don't see the relevance

          The blog is talking about existing inventories being high. Whether the owner of that inventory sells it by discounting it or writes it down and then sells it makes no difference.

          I am not talking about new product/pricing strategies, nor is the blogger. That may be a discussion for another day.
  • double ultrabook battery life first

    Then expect people to buy new PC's.
  • The article above fails to inform about the type of chips. other than the

    simple statement of "Poor PC sales have hit semiconductor suppliers hard".

    That might be a conclusion without any evidence. IOW, where is the evidence that, the chips in question, are the ones intended for PCs? Chips can be for all kinds of devices, and especially about smartphones and tablets and ultrabooks and laptops and many other devices.

    Could it be that, most of the chips being held in inventories, are of the ARM type, and not the PC/Intel/X86/x64 type? Where is the breakdown? Without the breakdown, how does anyone come to the conclusion that, it was because PC sales were down? It could be because, people weren't buying as many smartphones and tablets as manufacturers expected. If the report above is based on some other report which is not directly linked to for our examination, then, the figures from that report should have been disclosed within the article/report above.
    • Did you completely miss this section of the article?

      "Some segments performed better than others. While PCs declined, and ultrathin PCs did not produce the demand for semiconductors originally, feature-rich smartphones and tablets provided the strongest demand in the final-quarter of 2012."

      That would stand to indicate x86/x64 chips used in PC-type devices faired worst, while the ARM chips used in mobile devices were the most purchased. If PC-type devices failed to sell as expected, that one could infer that there would then be a surplus of x86 chips. That's not to say that ARM chips may not have been up to expectations as well, but based on the above quote, they didn't suffer the ill-demand PCs have.
      • No, I didn't miss that part. Here's the deal...

        PC sales have been declining, but, manufacturers have known that fact for a while, and creating huge inventory loads for products which are in decline or holding steady, would not make any sense for any business. On the other side, with ARM and other chips, the expectations have been that, the products that use those chips have been on the increase, therefore, the demand for more inventory. However, even that area hasn't exactly been burning rubber.

        The report might be assuming too much, simply because, PCs haven't been selling like hotcakes. While smartphone have been doing great, and tablets aren't doing too shabby, but tablets haven't really been doing that much better than PCs. IN fact, PCs still outsell tablets by a lot.

        My point is that, there is no real breakdown in the types of inventories, and who is holding them. The report is very general and the conclusions made in the article might not be warranted.
  • Old technology

    A large part of the problem is that of obsolescence. Win8 is really meant to work on 4th generation processors. When I bought the Surface RT I knew that it would have a short lifespan but would still be viable. I decided to buy it on day one because it not only started the learning curve but provided space in which to decide which Win8 Pro form factor I would buy when it came out on Haswell. The RT has become that inseparable electronic assistant I've always visualized and I am determined that the Pro will be my "everything".