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As OEMs Trim, Supply Chains Tighten and Suppliers Wane


While the market indicators are pointing towards the bottoming being reached and recovery on the horizon, the news of companies facing tough times is still par for the course.  According to last week's report by SEMI, the April Book-to-Bill ratio is up to 0.65, holding the nice upward trajectory since January's historic low of 0.47.  However, looking at the numbers, while the three-month moving average (3 MMA) for worldwide semiconductor bookings is up slightly to US $253 million, 3 MMA billings is significantly down by 11% month-over-month to US $389.9 million.

What does this mean?  As we've discussed here, as long as bookings (and billings) numbers remain low, we do not have the foundation for a healthy supply chain, to echo Stanley T. Myers, president and CEO of SEMI.

The result?  Yes, right back where we started: unhealthy supply chains tend to mean tightening supply chains.  The most recent proof of this cause-effect is Sony's announcement last week of halving their supply chain by 2011 in order "to save at least 500 billion yen ($5.28 billion) in purchasing costs this fiscal year," according to The Wall Street Journal.  Sony's website doesn't provide any details, other than what we knew in February about the new Manufacturing/Logistics/Procurement team.   

In the face of declining revenues, many large OEMs have been rethinking their supply chain strategies to trim costs, including the practices of leaner chains and outsourcing.  We are now also seeing 'insourcing' back in vogue.  Along with these OEM supply chain strategies have come the consolidations we've seen and tracked by monitoring a set of indicators for quite a while now here and here, especially.

The fallout for the semiconductor supply chain?  As OEMs like Sony, Hitachi and Toshiba continue to follow tight supply chain strategies, more mid- to small-sized companies will disappear due to insolvency or consolidation and the sourcing of products will, therefore, also tighten significantly.

Lisa Ann Cairns, Ph.D.
Written on Tuesday, 26 May 2009 00:00 by Lisa Ann Cairns, Ph.D.

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