Further rise in tech supply chain inventory moving the industry closer to cyclical adjustments
Semiconductor inventory was up to 95 days in 1Q22, above the 85-day 1Q average since 2019 and the 77-day median of the past decade. Global fabless inventory is up to 102 days now, above the high end of its 67- to 99-day range owing mainly to aggressive wafer procurement and slower consumer demand. IDM inventory ex-Intel was also up in the upper half of its 90- to 130-day 10-year range, but restocking continues for broad-based demand. The profile is consistent with our observations on easing display, mobile, and consumer component tightness, but still-tight analog IC supply.
Higher inventory is being caused by the following:
1. Slower consumer tech end-market demand owing to inflationary pressures, regional issues (E. Europe / China lockdowns), and some shift from goods to services
2. Downstream production/logistics affected and leading to more in-transit inventory and mismatch of products not completing full kit for final assembly
3. Inflation of semiconductor pricing vs. units and COGs purchased 1-2 quarters earlier.
We expect inventory may peak exiting 2Q22 (traditionally also closer to a stock trough for semiconductor companies) as fab utilization has stayed full, China bottlenecks persist, and the supply chain pre-builds for seasonal ramps in 2H22. We view combination of building inventory and some softening of consumer demand could trigger inventory adjustments and seasonal drops in utilization by late 2022 for the first time in three years.
We note that many of the Asian semiconductor stocks are down 40% in line with post-crisis and correcting ahead of an inventory peak although still have an overhang for the group with risk of order cuts to the chip companies still to come.