Inventory days lean, component makers well positioned to benefit, analyst reports
Electronics supply chain analysis from Longbow Research has found that inventories increased sequentially following June earnings, but that inventory levels are pointed toward historically lower points. Combined, that places component manufacturers in a positive sell-in position, according to the Ohio-based research company.
“The analysis adds credence to our belief that inventory levels at most points in the supply chain are lean,” Shawn Harrison, a Longbow senior research analyst, said in a research note.
Longbow’s analysis of inventory levels across the electronics supply chain in
aggregate showed inventories increased by 0.6% sequentially in Q2 to an estimated $76.6 billion following the quarter’s earnings.
“Inventory days for our supply chain basket of approximately 130 companies declined for the most recent quarter to 44.1 days, from 45 days last quarter and 45.2 days following Q2. On a trailing 12-month basis, inventory days declined to 43.8 days, which compares to 44 days exiting Q1 and 45.4 days following Q2 2007,” Harrison said.
Longbow reported that inventory days remain toward historically lower levels, particularly for manufacturers of passive components and semiconductors, or what the company calls in the “upstream” portion of the electronics supply chain. Inventory days at upstream suppliers remain near low points in Longbow’s eight-year analysis and represent 80.2 days of sales for passive component manufacturers and 95.6 days for semiconductor manufacturers. On a trailing 12-month basis, inventories represent 81.1 days for passive component manufacturers and 94.1 days for semiconductor manufacturers, the company said.
Downstream in the electronics supply chain at distributors, OEMs, and EMS providers, Longbow estimated Q2 inventory days on an aggregate basis were 37, versus 37.6 days in Q1 and 37.3 days in Q2 2007. On a trailing 12-month basis, Q2 inventory days were 36.8, versus 36.8 days in Q1 and 37.5 days in Q2 2007, the company reported.
Longbow further reported that trends in most market segments were positive with the exception of the semiconductor test and equipment market, currently suffering from inventory builds amid a substantial slowing in end demand.
Longbow pointed to predictions for September quarter sales made during June quarter earnings and reminded that the several of the given outlooks were weaker than expected. As such, Longbow said, September quarter analyst forecasts reflect an expectation for a 0.2% sequential sales decline, which is below the average of 2.1% growth during the past five years. Longbow further noted that its initial September quarter discussions with component distributors reflect similar low-single-digit sequential growth forecasts.
“Our analysis of inventory dynamics suggests inventory levels are within an acceptable range and should not negatively affect demand trends at component manufacturers or distribution in coming quarters,” the analyst continued. “… While our monthly surveys do not indicate 2H [second-half] demand will improve substantially, when growth does begin to again ramp, component manufacturers are well positioned to benefit from increased product sell-in with lead times short and inventories generally lean at distribution, EMS providers, and at the OEM level.”