Wireless semiconductor inventory tends to rise

According to IHS iSuppli's inventory briefing, manufacturers are preparing for the upcoming peak demand season, leading to semiconductor inventories rising at the beginning of the year, even in the strong wireless semiconductor industry, pushing stocks closer to the peak of the Great Depression four years ago.

For the small but influential wireless vendors in this report, the inventory/sales ratio rose to 48.1% in the first quarter, which was significantly higher than the 44.0% in the fourth quarter of 2011. This ratio is important and reflects the relationship between vendor sales and inventory at any point in time. This ratio is lower, indicating that the resource is used more efficiently, while a higher one indicates that the use of funds by inventory may cause cash flow problems.

Indeed, the rise in wireless semiconductor inventories/sales ratios is not yet overly worrying because this trend is consistent with the overall semiconductor industry and is in line with the forecast for demand growth. In the first quarter, the overall semiconductor industry’s inventory/sales ratio reached 48.2%, almost the same as the wireless sector, as shown in the figure.

However, the weak recovery of the global economy and rising inventories sent warning messages to chip manufacturers, reminding them to continue to strictly control semiconductor inventory and capacity utilization in the next few quarters. The wireless sector with strong performance should also be cautious. The wireless industry is recognized as the main engine for the growth of the semiconductor industry this year. It is expected that the growth rate of operating revenue can reach double digits, while the growth rate of other chip areas is expected to be less than 5%. The inventory-to-sales ratio of the wireless and semiconductor semiconductor industry is very close to what was achieved during the 2008 recession, when inventory-to-sales ratios were often above 45%, and even nearly 60%.

The companies represented in this report represent eight wireless semiconductor companies worldwide. They are distributed all over the world and are the targets of tracking by IHS iSuppli. These manufacturers accounted for half of the semiconductor wireless semiconductor operating revenue in the first quarter, and the share of total chip operating revenue was only slightly lower than 25%.

These wireless vendors include Qualcomm, Broadcom and Texas Instruments, French-Italian company STMicroelectronics, and Taiwanese manufacturer MediaTek. The wireless semiconductor manufacturer with the highest inventory-to-sales ratio in the first quarter was TriQuint Semiconductor Inc., USA, which was 78.2%.

Wireless semiconductor inventories of these manufacturers rose by an average of 3.5% from the fourth quarter of 2011, while the overall semiconductor industry increased by 1.7%. During the same period, wireless semiconductor operating revenue decreased by 4.4% from the previous quarter, and overall chip operating revenue decreased by 3.3%.

The rise in the overall level of wireless semiconductor inventory may also indicate hope. It suggests that wireless semiconductor vendors may be more likely to meet demand in the next few quarters relative to other chip areas. In particular, wireless semiconductors continue to be used in popular consumer products such as smartphones and tablets.

But even for industries such as wireless, where strong demand is expected, the alarm is obvious: it is necessary to maintain a proper balance between inventory and production capacity to avoid an excessive inventory of inventory at the end of 2012.

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