Semiconductor inventories had grown to an uncomfortable level in the third quarter of 2012, but that's all been erased after Intel and other chip makers made a drastic cut in production in the fourth quarter, defying seasonal patterns.
The usual trend for semiconductors is a slow Q1, even slower Q2, acceleration in Q3 for back to school and a serious uptick in production and sales in Q4 for Christmas. But in the case of 2012, inventory was built for three quarters and then plunged in Q4, according to supply chain market research firm IHS.
Days of Inventory (DOI) for semiconductor suppliers in the fourth quarter declined by 5 percent sequentially from the third quarter, much higher than the 1.5 percent initially forecast. The dollar value of inventory fell almost 5 percent, larger than the originally projected 3 percent.
Inventory is a very sensitive issue for tech firms, who remember vividly the collapse of 2001 when massive inventories were built, and the combination of the Dot Com bubble bursting along with 9/11 ground buying to a complete halt. Companies wrote down massive amounts of inventory and swore they'd never get caught sitting on excess inventory again.
Intel, for example, cut its stockpiles by more than $500 million in one quarter, according to Sharon Stiefel, analyst for semiconductor market intelligence at HIS. Other companies reduced their inventories from between 5 percent to 25 percent, resulting in chip stockpile value of $60 million to nearly $600 million being shaved off in the companies affected.
The one exception to the move down was Qualcomm, which raised inventories 24 percent, or $247 million. Its Snapdragon processor is used in so many phones and tablets, and with the trend toward smartphones and tablets going against PCs, it countered the tide.
So what happened to demand? Thank Windows 8 for stinking up everything. "Windows 8 isn't getting the demand they thought it would get to increase [chip] demand. Once they could see that, they turned around and started to pull back on inventory," said Stiefel.
This has thrown off seasonal patterns, because there was no big buildup in Q3 or Q4. So Q1 may not be as seasonally affected as other years considering other factors were in the mix, said Stiefel. She did not think the upcoming release of Haswell, Intel's next generation CPU architecture, played a role, since it will not ship until summer.
In addition to Windows 8, tablets are also a factor impacting CPU sales, but not in a significant way. Tablet sales take away people buying low-end laptops, but that has no effect on people buying high-end or business computers. "As long as there's been people putting off making those upgrades at the corporate level, there could be some pent up demand there," said Stiefel.
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