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Overinventory is the next challenge in the supply chain
Overinventory is the next challenge in the supply chain
Author：netwing Time：2023-05-29 Browse：
Experts report that semiconductor production has increased during the pandemic, but the readjustment and redistribution of basic products have caused chaos in the supply chain. Due to the exponential growth in demand for mobile computing devices, original equipment manufacturers (OEMs) have increased their forecasts and are now facing a large amount of inventory.
Now, due to millions of unsold products, original equipment manufacturers are canceling parts orders and delaying the launch of new products until they can clear some of their large inventory.
According to Apple's financial report, the company's inventory for the quarter ended December 31, 2022 was $6.82 billion, an increase of 16.07% from the previous year. In the past few months, Apple's performance has significantly improved. Other companies are facing serious inventory problems:
HP's inventory for 2022 was $5.161 billion, an increase of 14.41% from 2021.
Intel's inventory has risen to $13.224 billion, an increase of 22.72% from 2021.
AMD's inventory for 2022 was $3.771 billion, an increase of 92.89%.
Nvidia's inventory as of January 31, 2023 was $5.159 billion, up 98.04% in 12 months
NXP Semiconductor's inventory in 2022 was $1.782 billion, an increase of 49.87% compared to 2021.
Intel's excess inventory is a factor contributing to the erosion of gross profit margins
According to Intel's latest annual report, a large amount of inventory is one of the main culprits leading to a significant decrease in gross profit margin compared to the previous year.
"Both original equipment manufacturers and external electronics manufacturers are suffering from high inventory, which threatens their competitiveness," said Kearney, a global management consulting firm. "The macroeconomic disruption has brought a fundamentally different environment to the technology supply chain, with an average increase of approximately 27% in total inventory levels from 2019 to 2022."
The inventory of distributors is also increasing, but reports from Airui Electronics and Anfuli indicate that component manufacturers are not supplying to channels. Anfuli CEO Phil Gallagher told analysts during a recent earnings conference call that original equipment manufacturers and other end customers are pushing orders. But neither of these two distributors saw any cancellation of orders.
Gallagher said that the channel is experiencing a possible inventory correction that could last for several quarters. During the peak period of semiconductor shortage, customers placed many orders in advance, but demand, especially in the consumer sector, has declined.
The inventory level of the supply chain jumped between 2019 and 2022, with an average of 27%.
economic factors
The Covid-19 pandemic has caused a complete transformation in the manufacturing of electronic products and components, including semiconductors.
Last month, Samsung Electronics reported a 95% decline in first quarter profits as demand remained sluggish amidst inflation and rising interest rates. The company mentioned that the decrease in demand for memory chips was the main reason for the poor performance in the quarter.
Due to the global economic slowdown reducing demand for chips, the company's semiconductor division suffered billions of dollars in losses in the first three months of this year. The report states that "the recovery of demand may be limited by conservative investments, mainly from large-scale investments and ongoing inventory adjustments by customers.".
Due to inventory remaining at record levels, low demand for memory chips may continue in the second quarter, putting additional pressure on pricing. "The demand for memory has sharply decreased... due to the slowdown in macroeconomic conditions and customer purchasing sentiment, as many customers continue to adjust inventory for financial purposes," Samsung said.
SK Hynix, the second largest memory manufacturer, also reported a new high in quarterly operating losses due to weakened demand for chips.
Last month, Micron Technology lowered its demand forecast for 2023. Micron stated that it needs to help address the losses caused by high inventory levels. It is expected that losses will decrease in the coming quarters.
TSMC also warned that the recovery in the consumer market is weaker than expected and is reducing demand for its high-end chips. "The inventory adjustment period in the first half of 2023 is longer than our previous expectations and may continue into the third quarter of this year," said CC Wei, CEO of TSMC.
The recovery will begin in the second half of the year
"The memory market, which is still in difficult conditions, seems to be bottoming out and rebounding," SK Hynix's CFO Kim Woo hyun told The Wall Street Journal. "We expect some improvement in the first half of the year," he added during the company's earnings conference call.
"Our customer inventory is getting better and better, and we expect the supply and demand balance in the industry to gradually improve," said Sanjay Mehrotra, CEO of Micron, during a conference call.
Last month, Daniel Araujo, Vice President of Samsung's Mobile Business, stated that he expects to see signs of global economic recovery and easing inflation in the second half of this year. He predicts that as people's consumption increases again, the smartphone market will grow.
Excluding the memory market, semiconductor prices have remained strong. In the past, prices have decreased due to the company selling excess components to the public market. However, two dealers reported that end customers are holding onto their inventory and are concerned about another chip shortage.
Market rebound expected in 2024
Many people who purchased new smartphones, tablets, and laptops during the Covid-19 pandemic are now waiting for next year to consider updating their devices.
Meanwhile, most manufacturers are delaying the launch of new models to reduce current inventory. Given the economic environment and the need for longer recovery of consumer confidence, some analysts believe that a market rebound is expected in 2024.
But it can be certain that 2023 may be a challenging year for the supply chain of high-end chips, memory, and other consumer electronics components.
The article is translated from EPSNews, a sisters magazine of International Electronic Commerce. The original link is: Excess Inventory is Supply Chain's Next Challenge
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