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Chip Inventory Levels at Suppliers and OEMs Rise

Semiconductor suppliers are increasing inventory levels in anticipation of an increase in chip demand from OEMs and electronics manufacturing services customers, according to researcher IHS.

Semiconductor stockpiles held by chip suppliers increased in the first quarter of 2012, driven by the expectation that semiconductor buyers will be ordering more parts, IHS noted.

Total semiconductor inventory, as a percentage of suppliers’ revenue, amounted to 50 percent in the first quarter, up from 47.8 percent in the fourth quarter last year and from 46.1 percent in the third. The reason for the increase in inventory in the first quarter 2012 is different than why inventory rose in the third and fourth quarters of 2012.

“In the fourth quarter, inventory rose among suppliers because of uncertain macroeconomic conditions such as the sovereign debt crisis in Europe, leading to an overall decline in the worldwide demand for semiconductors,” said Sharon Stiefel, semiconductor inventory analyst at IHS. While chip stockpiles increased in the fourth quarter for semiconductor suppliers, semiconductor inventories fell among customers, indicating a lack of demand.

However, higher inventory levels among semiconductor suppliers in the first quarter of 2012 is an indication that suppliers expect stronger demand, Stiefel said. She added that first quarter inventory levels increased at both semiconductor suppliers and OEM and EMS customers. This indicates that suppliers and customers "believe that the environment in the electronics market has turned positive,” said Stiefel.

In the first quarter of 2012, suppliers saw order bookings fill up, allowing them to gain greater visibility into the supply chain. Book-to-bill ratios are close to reaching parity, which would mean there is a balance between supply and demand for semiconductors.

Despite improving market conditions, there is one issue for suppliers, according to IHS. Suppliers often add too much capacity when demand starts to pick up. The surge in capacity is often followed by softening of demand and excess inventory.