Date: 26/05/2011

Elevated semiconductor inventories cushion Japan impact says IHS iSuppli

The impact of Japan's March 11 earthquake and tsunami on semiconductor companies was limited in Q1, due in no small part to an inventory build-up that had been occurring during the previous five quarters. Preliminary indicators reveal that inventory levels have increased yet again in Q1 2011. Data compiled for semiconductor component manufacturers (excluding memory companies), indicate that days of inventory continue to trend upward. It now appears fortuitous that managers utilized available capacity in the seasonally slow quarters of Q4 2010 and Q1 2011 to build additional inventory, resulting in a two- to four-week cushion of raw materials/work-in-process and finished goods. Additionally, since the disaster occurred so late in the March quarter, the number of weeks of direct disruption to the supply chain was limited in its effect.

The June quarter may also experience a more muted effect from the Japan disaster than initially feared. As of publication, many semiconductor manufacturing facilities in Japan which were either initially damaged by the earthquake and tsunami and/or affected by the lack of a steady supply of electricity have returned to normal operation, limiting the negative impact on semiconductor revenues for Q2. In other cases, where the damage was severe, manufacturing was often transferred to other company facilities or outside foundries.

IHS iSuppli research indicates semiconductor supplier inventory levels to trend upwards. However, the inventory increase is expected to be based on higher anticipated demand, rather than stockpiling due to fears of component shortages.

Anecdotal comments reflected that some inflation of inventory was attributable to supply chain worries, but it was not a widespread occurrence among semiconductor manufacturers, and the generally accepted premise is that the disruption from shortages would dissipate over the next few months.


However, there are some specific reports of stockpiling occurring in end products, including those experiencing a slowing in demand, such as displays for TVs, monitors and notebooks. According to the IHS iSuppli displays research in its recent LCD Price Tracker, some name brand electronics companies are building reserves as a buffer for possible supply chain disruptions.

Source: IHS iSuppli.