Asia Semiconductor Sector: Leaner supply chain sets-up the Asian upstream for a rebound

Asia Semiconductor Sector: Leaner supply chain sets-up the Asian upstream for a rebound

● 4Q11 inventory analysis. We publish this daily alongside our global
semiconductor team’s inventory update on 107 companies in our
global sample (see the full survey in Pitzer: 4Q11 Inventory Analysis).
The key takeaway is total tech and semiconductor dropped more than
seasonal in 4Q11 and sets up a lean supply chain into 2012.
● Tech inventory drops in 4Q11. Total tech inventory dropped 5 days to 44
days, below the normal two-day drop and 2005-10 average of 47 days.
Inventory dropped notably at the communications and computing OEMs.
● Semiconductor and fabless inventory declines. Semiconductor
inventory decreased two days to 80 days, with fabless and IDM
customers of the Asian upstream dropping even further. Fabless
inventory dropped four days to 51 days and fabless+IDM inventory
dropped six days to 76 days.
● Inventory and supply keep us positive on upstream. The supply chain
cuts to inventory through 2H11 is helping utilisation for the upstream
manufacturers bottom in 1Q12. We maintain our positive views on ASE
and SPIL trading at 1.7x P/B, below mid-cycle 2.0-2.2x P/B.

Technology inventory gets leaner exiting 4Q11
We publish our 4Q11 inventory analysis consisting of 107 companies
across the technology sector. Total tech inventory declined 5.3 days
to 43.9 days, below the 2005-11 average of 48 days. Inventory came
down notably across computing and communications OEMs in the
quarter.

Semiconductor inventory down, with fabless the leanest
Semiconductor inventory also fell 2 days to 80 days, but is notably
leaner among fabless and IDM companies outsourcing to the Asian
foundry and back-end test and packaging companies. Fabless
inventory dollars dropped 4% and days fell by four days to 51 days.
Combined fabless and IDMs also depleted inventory well, with
inventory dollar down 6% and inventory days dropping six days to 75,
better than total semi days down 2.

Inventory reduction better than seasonal
The tech chain inventory reduction was more than normal in 4Q11,
implying underlying semiconductor builds have gotten cut below
consumption and also signalling demand in 4Q11 did not decelerate as
much as feared. Inventory fell by five days for overall tech to 44 days
versus seasonal average two-day depletion and inventory dropped for
semiconductors by two days versus normal 0.5 day reduction.

Source: Company data
Leaner supply chain keeps us positive on upstream tech
The supply chain cuts to inventory through 2H11 and more
conservative tone on capacity additions the past 2 quarters for the
foundry and back-end is helping utilization bottom in 1Q12. We
maintain our relative preference among the outsourced manufacturers
for ASE and SPIL, which trade at 1.7x P/B, below mid-cycle 2-2.2x
P/B and should see reaccelerating growth from March.

4Q11 supply chain inventory declines

Inventory exits 4Q11 lean for overall tech

Fabless and IDM inventory leaner than overall semis

Inventory depletes more than normal in 4Q11

Technology inventory days approaching new lows