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'Sharp' chip inventory correction looms on horizon, warns investment banker

Daniel Nenni

Admin
Staff member
Double ordering, overheating of semiconductor sector, inflation, growing stockpiles = trouble ahead

The chip industry is on course for an inventory correction in the second half of 2022 or early 2023 with steep inflation, signs of end-user demand slowing, and companies building stockpiles among the causes.

This is according to a report from analysts at Jefferies Group, which advises investors on where to place their bets. And seemingly the smart money isn't currently on all suppliers in the semiconductor sector.

Infineon and STMicroelectronics, for example, were de-rated by the Group in February to an "underperform recommendation." It said today this was in the expectation that the share price of those companies wobbles before calendar year-end "as they price-in likely earnings cuts in 2023 from an inventory correction."

"This cautious view has been further reinforced," Jefferies added, by "rising inventories in the supply chain in Q1, decelerating demand in multiple segments, continuing order strength at chip vendors despite slowing demand and factory lockdown [and] a weakening macroeconomic backdrop."

PC and smartphone shipments so far in 2022 are more modest than during any quarter in the prior 24 months, when consumers rushed to buy new devices to manage through lockdown. IDC said last month global sales in calendar Q1 were down 5.1 percent year-on-year to 80.5 million units, albeit against a very strong comparison period.

The picture of global phone sales wasn't any better: shipments dropped 11 per cent to 311.2 million units in Q1, Canalys estimated.

As if to sum up the situation, China-based Semiconductor Manufacturing International Corporation said recently that demand for computers and handsets had dropped "like a rock."

Stocks of PCs are continuing to build, despite the slowdown of shipments into the channel. The average number of days of inventory in December at Dell, HP, Acer, Asustek and Lenovo was 52.7, it went up to 62.1 in March and is on track to rise to more than 70 days in Q4 – more than 20 percent higher than a peak in 2016 that precipitated a market downturn.

In the automotive industry – where global car sales declined year-on-year in Q1 – days of inventory was 52 days in Q1 and is expected to be more than 60 days in Q4, over 50 percent higher than the pre-2021 average. This sector, as we've noted on occasion, has suffered more than most due to its inflexible supply chain. Manufacturers cancelled chip orders early in the pandemic and found themselves at the back of the queue when they re-ordered.


Also read:
Semiconductor Crash Update
 

Arthur Hanson

Well-known member
Automation and the application of AI and machine learning being applied to everything, including the displacement and disruption in education by subscription models and platforms that keep knowledge and skill sets up to date in real time will become major demand drivers if not held back by entrenched special interests. Both these factors will speed up progress and the demand for semis in all phases of these changes. Extensive networks and ecosystems built around 5G will also be drivers. If one relies on rapidly going obsolete metrics, you will get obsolete results. Any thoughts or comments on this are solicited and appreciated.
 
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KenKorn

New member
The devil is clearly in the details… however the industry is no longer all about laptops and phones… growth drivers may be elsewhere at this time. As Hanson points out, AI workloads are increasingly driving demand at the most advanced nodes in enterprise and the cloud while handsets appear to have gained a lot around 5G and are now slowing down, furthered by Covid shutdowns in China. With the IoV, electrification and Autonomous driving automotive Semi content is growing very rapidly, and surely offsets any slowdown in laptops. We are also beginning to see a lot of traction around AI at the edge which will greatly increase the amount of compute and memory in places which have been served by much lower end devices.

No doubt rising interest rates and a recession will slow growth down to some extent. Covid in China will run its course, however they choose to get through it and recessions end. While its possible that the industry is headed towards some overcapacity in some areas, it will be a welcome change from the last 24 months of shortages and our expectations are that it would be likely to be short lasting.
 

Paul2

Active member
Automation and the application of AI and machine learning being applied to everything, including the displacement and disruption in education by subscription models and platforms that keep knowledge and skill sets up to date in real time will become major demand drivers if not held back by entrenched special interests. Both these factors will speed up progress and the demand for semis in all phases of these changes. Extensive networks and ecosystems built around 5G will also be drivers. If one relies on rapidly going obsolete metrics, you will get obsolete results. Any thoughts or comments on this are solicited and appreciated.

AI and machine learning are not disrupting anything. It's $18 STM32s disrupting everything
 
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