The disruptions from the Thailand flooding certainly put some components and parts in a shortage situation (particularly for the HDD and optic sectors), and these problems continue to linger, as apparent from both market availability and in the 4Q11 earnings reports being released now. From these reports, we are learning that more manufacturers are expecting to come back on line during 1Q12, many looking at February as the point at which partial production will resume, minimally.
Meanwhile, there are other inventory problems from 2011 such as the inventory creep that began after 3Q09, when days of inventory (DOI) stood at a healthy 65 days, but semiconductor stock piles were at 81 days as of 3Q11, based on this recent report from iSuppli. As iSuppli notes, this is a 2.5% decrease from 2Q11, which is very positive, and iSuppli offers that they expect the data to show an additional 2.5% decrease in 4Q11. These are positive signs because correction is necessary to improve the health of the overall semiconductor supply chain, and the fact that companies are making active supply decisions lends some weight to outlooks that are showing 2012 to offer more stability, if not new growth for the semiconductor and electronics industry.
However, 1Q12 will, necessarily, be a time of inventory correction and strategic decision-making. There are exciting new devices hot off of CES to capture the interest of consumers and enterprises alike; macro-economic indicators are looking more stable; and the US economy is even showing some (potential) signs of strengthening. That being said, there are still a number of analysts, such as Sharon Stiefel, semiconductor analyst at IHS, who still caution here on visibility and demand predictions.
There is more to the inventory correction situation though, and it comes down to specific semiconductor component sectors which were variably affected by the supply chain disruptions during a time of creeping inventory numbers due to volatile (and weak) demand. As iSuppli captures very well here and cited below, some sectors, such as discretes, must make good strategic decisions around production and inventory management during 1Q12 in the face of significant revenue declines, DOI levels, and the continued uneasiness of the macro-economic situation:
"The beating taken by consumer semiconductors because of the Thailand calamity means consumer semiconductor revenues are expected to decline by a sharp 19 percent in the fourth quarter from the earlier quarter.
Given the necessity to balance creeping oversupply with the need to prevent the channel from drying up completely, discrete semiconductor manufacturers must tread carefully at the onset of 2012, especially in the volatile industrial and automotive segments where demand suffered most in the last days of 2011, IHS believes. To be sure, manufacturers in these segments will be expected to remain conservative in their semiconductor production for the first quarter of 2012 until their order books solidify and normal production levels return to affected Thailand operations."
Supply chain inventory management is certainly a critical reminder from 2011, having partners with breadth and depth of industry knowledge, experience, and solutions will be critical not just during 1Q12, but throughout 2012, in order to regain positive momentum in our industry.