In a press release yesterday, the Semiconductor Industry Association said:
According to iSuppli, an independent market analysis firm, excess semiconductor inventories are increasing, reflecting expectations of growing demand in the second half of the year.
An increase in inventory may be justified if sales are expected to grow at the same pace or greater. This could be due to seasonal factors, a new product launch, or merely wishful thinking on the part of the company building the inventory. I’m continuing my series on semiconductor inventory trends with a look at the sequential change in inventory between the last reported quarter and the previously reported quarter, and comparing that figure to the change in expected sales between the current quarter and the next quarter. I used Zacks Research Wizard to collect the data.
The metrics I used are imperfect at best, as the change in inventory in any two quarters will not necessarily correspond exactly to the expected sales growth over the subsequent two quarters. However, it should be useful as an indication of whether sales levels generally are expected to grow sufficiently to absorb the inventory.
Of 47 companies that passed the screen, I found that 20 of them have inventory growth within five percentage points of expected sales growth, which seems reasonable. I also found that there were more companies that have expected sales growth greater than past inventory growth than there were the opposite, but I would caution that semiconductor sales estimates have been coming down recently and the current data may be too optimistic.
The five companies for which inventory either declined or grew at a slower rate than expected sales growth by the widest margin were Silicon Labs SLAB, Silicon Image (SIMG), MEMC Electronic Materials (WFR), Applied Micro Circuits (AMCC) and Stats Chipp (STTS). In the case of Silcon Labs the change may be due in large part to the recent sale of its handset chip division, which accounted for half the company’s sales.
The five companies that had the largest increase in inventory, relative to expected sales growth, were Actions (ACTS), Cypress (CY), Monolithic Power (MPWR), Atheros (ATHR) and Linear Technology (LLTC).
Disclosure: Author has a short position in SMH put options at time of publication.
