Chip inventories slump

Although the semiconductor market is hurting and it is not expected to rebound until the latter half of the year, IHS iSuppli is reporting an unexpected decline in inventory, led by Intel. Inventory reached record highs late last year, so the turnaround is a surprise.

Inventory value fell almost five percent, while days of inventory (DOI) also declined five percent compared to Q3, much higher than the 1.5 percent initially forecast by IHS.

“Semiconductor companies reduced their inventories at a faster-than-expected rate in the fourth quarter as they moved to adjust to weakening demand,”  Sharon Stiefel, analyst for semiconductor market intelligence at IHS, said. “Many chip suppliers demonstrated great agility in their reactions to the drop in demand. No. 1 semiconductor supplier Intel Corp. was the most aggressive, cutting its stockpiles by more than half a billion dollars—the largest decrease on a dollar basis of any chipmaker.”

In other words the steep decline in inventory is not a reflection of recovering demand, it just means that chipmakers are getting better at dealing with low demand and moving to cut their inventory a bit more aggressively than in the past.

Although Intel managed to shave off $585 million in inventory value, representing an 11 percent cut, AMD managed to do away with $182 million, cutting its inventory by 25 percent. STMicroelectronics slashed its inventory by $131 million, or nine percent. Some companies bucked the trend, like Qualcomm, which saw its inventory increase to $247 million, or by 24 percent.

Analysts believe Qualcomm is ramping up production and intentionally increasing inventories to meet demand for upcoming phones and tablets. It is more than likely that AMD did the exact opposite, as it is gearing up to transition to a new generation of mid-range and low-end APUs over the next couple of months.