The quantity of semiconductors sitting around in the supply chain hasn’t been “normal” since 2010, and pushed into the “Severe Excess Zone” in both 2012 and 2016. But, inventory levels are now at a peak not seen since the turn of the century, and the industry is going to have to do something about it.
Fabless semiconductor vendors are sitting on the majority of this inventory: more than half of it in fact. OEMs account for another quarter, as they stockpile supplies against trade disruption, and foundries are also piling up chips (more than 10% of the total). Memory is piling up fastest (up by 13% in the last quarter), though Wireless Communication chips are stacking almost as quickly (10%). Memory prices are in freefall at the moment, so it makes sense to build up an inventory while its cheap to do so, but the rest of the stockpile is starting to look like paranoia.
At Gartner we measure inventory levels to produce an overall inventory metric. As long as that number remains below 1.1 we consider it to be “normal”, and above 1.2 to be “severe excess”. In 2001 that metric hit 1.74, but since then it has bounced around the “normal” level, peaking briefly to 1.57 at the start of 2009 (following the economic crisis of 2008). Right now our metric is at 1.63, and has been climbing steadily since the middle of last year.
These higher-than-normal inventory levels indicate a slowing demand downstream at the OEM end. But at the same time, inventory growth downstream is declining, implying that downstream players are cutting production levels and focusing on clearing excess inventory.
Having semiconductors sitting around doing nothing isn’t good for anyone, and vendors are going to have to cut prices or find new markets to clear the shelves and makes space for more production. It’s going to be at least another three months before downstream inventory returns to normal levels, so we could see the levels rising again before they fall.
My colleague, Anushree Verma, has published a research note looking at the figures in detail and providing some recommended actions for those they impacted.