Report: Rising semiconductor inventory may signal demand recovery

Outlook calls for higher demand among chip buyers in the second quarter, following a slowdown at the end of 2011

A new report from industry analyst firm IHS indicates growing demand across the semiconductor market. During the first quarter of 2012, both suppliers and customers reported rising semiconductor inventory levels, “indicating that both the supply and demand sides of the business believe that the environment in the electronics market has turned positive.”

On the supplier side, the increase marks the second straight quarter of inventory growth. Total semiconductor inventory as a percentage of suppliers’ revenue amounted to 50% in the first quarter, up from 48% in the fourth quarter of 2011 and 46% in the third quarter.

“In the fourth quarter, inventory rose among suppliers because of uncertain macroeconomic conditions such as the sovereign debt crisis in Europe, leading to an overall decline in the worldwide demand for semiconductors,” said Sharon Stiefel, semiconductor inventory analyst at IHS. “And while inventory rose during the fourth quarter for semiconductor suppliers, chip stockpiles fell at the same time among customers, indicating a paucity in demand. In contrast, the higher inventory numbers among semiconductor suppliers for the first quarter of 2012 represent a signal of better things to come.”

Inventory trends among distributors, EMS providers, OEMs and others in the final quarter of last year reveal broad-based decrease in stockpiles among major semiconductor purchasers, the report also noted. For instance, customer inventory held by electronics distributors fell to 37% of revenue in the fourth quarter—down from 42% in the third quarter—with similar decreases occurring among the other customer groups.

“In the first quarter of 2012, however, suppliers saw order bookings fill up, allowing them to gain greater visibility into the supply chain. Book-to-bill ratios are also close to reaching parity, indicating more balanced supply-and demand dynamics. Such developments, combined with anticipated higher demand for the second quarter, led to a rise in inventory as a percentage of supplier revenue during the first quarter, giving the market fresh reason to cheer,” according to the report.

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