Tracking semiconductor and electronics inventories underscores the momentum behind forecasts for resurgent sales in the second half of 2013 (2H13). Across a number of sectors we're seeing inventory movement that indicates positive 2H13 catalysts.
Fresh starts and demand situations
The fruits of 4Q12 inventory draw-downs have provided healthy supply chain situations presently. We are seeing restocking of new components along with rising prices for some components that are in shorter supply, such as select types of memory and panels. Analysts are confirming these market views, such as iSuppli's recent report, which noted that OEMs kept inventories in check while demand for consumer electronics rose. According to iSuppli, this helped to clear out remaining inventories while preparing for additional demand increases:
Overall global economic indicators point to growth during the coming quarters, mainly in the developing nations. This is incentivizing semiconductor companies and their customers to load factories in the second quarter to keep up with the demand for second-half shipments.
Semiconductor inventory levels are expected to rise in the second quarter in response to the positive order rates from electronics equipment manufacturers, whereas stockpiles for consumers of semiconductors likely will remain fairly flat.
Among the most recent reports of production ramps is Toshiba's announcement to expand NAND memory capacity, according to Reuters:
With Toshiba's existing chip facilities now running at full capacity, the company may spend some of a 38 percent hike in its capex budget this year on extending a factory, the company's incoming president, Hisao Tanaka, said in a recent interview.
DRAM has experienced a balancing of demand-supply, as characterized by iSuppli. In response to falling PC sales, DRAM manufacturers have reduced wafer output to keep pricing in check and attempt to avert the volatile swings of the past years.
While PCs are declining in total unit volume, the rise in smartphone and tablet sales is bringing along a new increase in mobile DRAM (mDRAM) demand as these devices become more multifunctional in response to consumer feature requirements. As financial analysts from Credit Suisse and Citi Research have reiterated, further adding to the momentum for increased mDRAM demand (and price stabilization) is the reduction of feature phone demand in favor of the lower-priced smartphones, which contain more mDRAM, now more widely available across the global markets.
Panels – tablets driving demand
The burgeoning, global demand for smartphones and tablets of various ranges is also pulling up the otherwise weakened panel sector. After the dampening from post-LCD TV refresh cycles and reduced demand from hotels and consumers alike, coupled with the end of subsidies in Asia for more energy efficient TVs in order to clear out CRTs, the panel sector has seen some lackluster quarters.
As iSuppli reported recently, LCD TV sales continue to fall and manufacturers continue to scale back production without much demand for TV-size panels on the horizon. However, smaller panel manufacturers (9" or smaller) are seeing increased demand for those end-products, as DisplaySearch reported:
In 2013, it is smaller tablet PCs that are expected to make up over 60% of shipments. The two leading screen sizes in the small size ([less than] 9 inch) tablet PC category are 7 inch and 7.9 inch with 35% and 15% share in Q1'13 respectively. While tablet PCs with 7 inch displays appear to be heading for the low end of the market (less than $200), Apple’s iPad mini with its 7.9-inch display has captured a significant share of the market, despite its starting price of $329. Brands are hoping to expand this "middle class," gaining some share and slightly better margins than 7-inch tablet PCs.
Not only are volume increases due to range-expansions for smartphone and tablets giving panel manufacturers a critical boost, the continued advances in the high-range mobile devices are pushing demand for leading edge panels with retina displays and high resolutions, as reported by DisplaySearch. With smartphones overtaking feature phones and expanded competition for tablets coupled with the price range expansion for both types of mobile devices, there are many positive indicators that panel manufacturers of smaller sized panels will experience growth in 2013.
Supply chain balances
Although reports are entering the news that tablet OEMs are reducing forecasts for 2H13, as noted by DisplaySearch, "[t]ablet PCs are starting to overlap with larger smart phones, as well as with ultra-slim notebook PCs." However, as we can see from the above smaller tablet forecasts, it is the larger tablet sizes that appear more in line for possible unit volume reductions while smaller panels are seeing newly expanding ranges.
Some manufacturers and OEMs, are experiencing the positive aspects of the new component balances from expanding market demands. One such example is Samsung, as Credit Suisse reiterated in their June 6, 2013 Equity Research, Samsung Electronics: Tweaking up earnings on better DRAM, "secular growth in global mobile products, including smartphones and tablet PCs, and an even higher penetration of low-end smartphones in China are beneficial to ensure Samsung's component businesses remain healthy." Credit Suisse importantly notes that it is the wide-scale device and range adoption across the global marketplace that is driving higher unit volume demand, which, in turn, is offsetting any single device sector demand changes and, thereby, is enabling growth not only for memory but also for panels.
In short, the ongoing story is the widening opportunities for growth along the semiconductor and electronics supply chain due to the continued and expanding, global demand for a wider range of smartphone and tablet PCs.