Research warns of supply chain pile up for ECMs

The analyst warns that major contract manufacturers face a challenging supply imbalance characterised by tight inventories of parts and finished products and a glut of raw materials. A study of inventory at five of the larger EMS providers showed that components and raw materials accounted for nearly 70% of total inventories during the first quarter of 2010. In comparison, work-in-process goods made up about 17% of inventories, while finished goods comprised less than 15%. The report reveals that finished goods were at their lowest level since the fourth quarter of 2008 and, iSuppli says the current semiconductor trend—in which inventories are being weighed down by an overwhelmingly large percentage of raw materials - will continue for some time given that more product in kits await to be finished. iSuppli analyst, Thomas Dinges, said: "Judging from various earnings calls as well as numerous conversations taking place in the industry, semiconductor companies are citing extended lead times and parts shortages as a major problem." Analysis of many component samples reveals that lead times have worsened for a range of semiconductor discrete devices, with lead times running as much as 100% longer than for the same period last year. The longest lead times are for rectifiers and small signal discretes, which are five months compared to 10 weeks year on year. "As it is, many supply chain industry contacts do not believe the situation is likely to improve until later in the year - even if demand softens in the near term," added Dinges. "The difficulties, according to iSuppli's semiconductor research, arise from a combination of seasonality factors as well as the slow pace in bringing about increased production capacity. Such shortages - in both parts and raw materials - will only add to the strain of EMS and ODM providers, even if they were to train their efforts at simply maintaining current levels of inventory velocity."