In Q1, Excessive Inventory Mitigated Japan Disaster In The Global Semiconductor Sector

Usually the problem is having excessive inventory especially in this era  of Just In Time which was popularized by the Japanese. Yet, that excessive inventory was the key fact that saved the semiconductor industry from the supply shock after the Japan disaster  in the last few months, IHS iSuppli research indicates. The key point is that days of inventory stood at 80.3 in Q1 of 2011 and that was able to keep the world semi moving without undue disruption from the aftermath of the earth quake.

 

“Efforts by suppliers to build inventory during the seasonally slow period from the fourth quarter of 2010 through the first quarter of 2011 proved to be fortuitous,” said Sharon Stiefel, analyst for semiconductor market intelligence at IHS. “These efforts resulted in a two- to-four-week cushion of raw materials, work-in-process goods and finished products, which came in handy when chip supplies were disrupted by the Japan disaster. While a large inventory overhang can be a negative development for the semiconductor industry—fueling excess supply, dampening pricing and reducing profits—it turned out to be a positive factor during the first quarter as the overall industry contended with supply shortages.”

 

And because the Japan disaster occurred so late in the first quarter, with the quake hitting on March 11, the number of weeks of direct disruption to the supply chain was limited during the first quarter, Stiefel added.

 

The report continues:


The second quarter may also experience a more muted effect from the Japan disaster than previously thought. Many semiconductor manufacturing facilities initially damaged or affected by lack of steady electricity supply have returned to normal operations, narrowing the negative impact on semiconductor revenue during the second quarter. And in cases where damage was severe, manufacturing has been transferred to other company facilities or to outside foundries.

 

Notice that the Days of inventory (DOI) among chip suppliers—excluding memory companies—was 80.3 days in the plot at the end of Q1, about 1.1% up from Q4 of 2010 which was 79.4%. This inventory which was close to record high was enough to mitigate the supply chain disruption from Japan disaster.

 

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