Taking a close look at Citigroup Global Markets' recent briefing, Electronics Supply Chain Inventory Update (10 August 2009), the Supply Chain for the semiconductor industry is healthy, overall. According to the briefing, days of inventory (DOI) averaged across the entire supply chain sub-segments are now down to the healthy low 40s (now at 43 days y/y which is good for this period based on long-term trends). "Storage, Semis, and Servers/Enterprise post[ed] the most robust improvements y/y." (Citigroup 8-10-09, EMS Industry Brief, p.1)
Not all sub-segments were improving; DOI "for passive companies declined [...] to 93, [they] remain above [...] a five-year historical average of 84 days" (ibid, p.1) along with negative trends for "Telecom Equipment and Semi-Cap Equipment." (ibid, p.2)
Citigroup recommends closely monitoring three "critical factors": (1) Demand Seasonality - currently forecasts are strong and expecting growth "driven largely by Telecom Equipment, PCs and Semi-Cap equipment" (ibid, p.3); (2) Utilization Rates - with more normal patterns emerging and close watch on utilization upstream, "supply chain companies [look] to be able to better manage utilization rates and cost structures" (ibid, p.3); and (3) Pricing Pressure - this area is becoming 'more severe' and therefore Citigroup cautions, "we are concerned that pricing pressure could actually become more acute in the near term as suppliers compete for orders and market share in order to push up utilization rates and incremental margins." (ibid, p.3)
In short, with a good back-to-school season forecasted coupled with inventory de-stocking completed, chip sales should remain positive across the aggregated electronics supply chain.
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