Semiconductor inventories climb 9% year on year

Analysis of 35 semiconductor component manufacturers revealed that by the middle of Q2 total inventory had climbed to $9.6billion – up 9% from $8.9bn in Q1. This is faster than the seasonal average of 3.2%. Similarly, iSuppli says that average days of inventory (DOI) grew, increasing about four days during the period up to 73.2 days – up 6% from 69.3 days. This rate is slower than the historical DOI seasonal increase of 9.6%, or six days. iSuppli analyst, Sharon Stiefel, said: "All told, the numbers underline a common theme for the semiconductor industry in the second quarter of record revenues, profits and gross margins. Such indicators, along with positive revenue guidance for the third quarter, are providing managers with the confidence needed to increase inventories for the second half of the year." Across the semiconductor market, iSuppli reports positive results with favourable average selling prices (ASP). Given the quick rise in demand, however, Stiefel believes that semiconductor suppliers are finding it difficult to restock to pre-recessionary levels. "Products being shipped are intended to meet current orders," she said, "and not meant for placement into inventory." As a result, iSuppli reports that the current backlog is driving many semiconductor suppliers to increase capacity, albeit conservatively. Steifel added: "Instead of committing to long term capital investments for new facilities, suppliers often are investing cautiously in equipment to relieve constriction points in production. The exceptions to the rule are the large corporations - entities such as Intel and Samsung Electronics - with enough cash to invest, the economic downturn notwithstanding." According to iSuppli, the increase in inventory reflects a justifiable build and with the market now less volatile. The firm suggests that semiconductor companies gradually will be returning to more normal operating conditions and inventory levels over the next few quarters.