Citi Research came out this week, 14 August 2012, with their Electronics Supply Chain Inventory Update, showing inventory stabilization both at holding points, now having moved upstream from OEM to Hub points, as well as in comparison to 2H12 demand:"[…] we believe inventories at Hub are well balanced compared to customer demand outlooks. With low lead times, distributors brought down inventory in the June quarter and we expect inventory levels to stabilize and track end demand through the remainder of 2012." (ibid., p.3)
Should the inventory situation as presented by Citi be correct, then this well-managed inventory situation will be critical in light that Citi also forecasts reduced demand in 3Q12, despite this being the traditionally higher demand quarter. For the recently ending June quarter, Citi's research show that Days of Inventory (DoI) increased only marginally to 42 days, only "slightly above 5-year and 10-year averages […]" but remaining flat for the upcoming September quarter sales outlook (ibid., p.8). With the continued negative pressure and confidence weakness due to the macro-economic situation and the upcoming elections in the US, the 'wait-and-see' approach we have often discussed will likely persist through 3Q12. What this means is that, according to Citi Research, while the forecast is for a no-growth quarter, at least it is not expected to be a decline.
Although demand is forecasted to be below expected seasonal levels, utilization and capacity have tracked lower as well. As a result, supply may not be as much of an overall challenge, though lead-times pose a different challenge that will affect pricing, according to the Citi report (ibid., p.5).
On a more positive note, there has been some retraction in the tech supply chain overall, but this has lead to the emergence of a more "efficient supply chain," as the Citi report summarizes (ibid., p.7).
Finally, although the present market conditions are challenging traditional growth upticks, the increased efficiency of the tech supply chain means it is well-poised to handle the potential no-growth situation. Importantly, semiconductor inventory levels are in check and as Citi offers, "we believe the sector is well-positioned to benefit should macro fears subside and demand begin to accelerate." (ibid., p.11)