Asian Semiconductors – Does Elevated Inventory Mean a Slowdown?
Semiconductor inventory was up two days QoQ to 86 in 4Q21. These levels are above the 81-day 4Q average since 2019 and the 69-day median in the past decade.
Global fabless inventory was up nine days QoQ to 92, currently at the upper half of its 67- to 99-day range, primarily due to aggressive wafer procurement, amid still high foundry utilization. IDM inventory ex-Intel was also up seven days QoQ to 105 exiting 4Q21 but at the lower half of its 90-130 day 10-year range. This profile is consistent with observations of easing display, mobile, and consumer demand but still tight analog IC (Integrated Circuit) supply.
The sector remains under pressure from factors such as excess inventory, inflation from rising commodity prices, and rolling Covid-19 lockdowns in China. These factors have impacted demand, and together with more supply ramps by 2023, may be triggering a slowdown of the inventory build. We view a soft landing and under-utilization in the first half of 2023 could return the sector to mild price erosion as supply gets less tight.
The sector correction is already in-line with moderate prior cycle adjustments. With the risk of cuts to come, companies with better pricing from tech leadership or product cycles may offset some of the cyclical risk from an inventory correction. Market conditions traditionally stay choppiest after passing trend unit growth until the industry corrects but might set-up better opportunities for cycle-to-cycle growth.