EE Times - August 6, 2007 - (Page 21) Business www.eetimes.com Global insight into the electronics design chain Monday, August 6, 2007 Inventory ills continue By Bolaji Ojo The electronics industry managed to whittle down its excess inventory a bit in the June quarter, but there are already indications from the larger economy that the market might not be able to sustain the trend. In fact, given recent statements by industry executives and some changes in inventory management strategies at leading semiconductor companies, it’s almost certain that third-quarter inventory levels at component suppliers will exceed levels seen in the first half of the year. The ongoing slowdown in the U.S. economy could further complicate the situation. Capital equipment spending by corporations is declining, and consumers, who have held up the economy for the last few years, are beginning to curb their purchases in response to the weak housing market, tighter home refinancing environment and rising interest rates. These might be ideal conditions for gaining control of inventory levels, if it wasn’t the second half of the year, when companies typically record their highest sales. Since economic growth is not forecast to take a downturn, it is difficult for companies to accurately forecast demand for their products, which in turn complicates planning at all levels of the manufacturing process, said industry executives. “Take a look at our balance sheet and you’ll see a little bit of that,” said Kevin March, chief financial officer at Texas Instruments Inc., during a recent conference call to discuss the company’s second-quarter pany to maintain parts at key stages in the production cycle. TI will keep more parts in work-inprogress so it can avoid overstocking of finished goods inventory either at the customer or in-house, March said. This, in turn, will enable TI to hit “any peaks or spikes in demand and prevent us from getting behind on deliveries,” he said. Small victories The electronics industry as a whole did make some headway in the battle to limit inventory growth during the second quarter. Outside of certain segments, like the memory market, inventory declined at OEMs, EMS providers and component suppliers during the period. “Inventory in the electronics supply chain declined in nearly every category in the second quarter, a sign that the recent inventory correction is finally playing out,” said Matthew Sheerin, an analyst at Thomas Weisel partners LLC, in a report. “While still above historical averages in some categories, the results are nevertheless encouraging,” Sheerin said. “Total inventory dollars fell 3 percent from the first quarter, despite normally being up 3 percent in the quarter.” The number of days of inventory outstanding at OEMs, EMS companies, and IT and component distributors as a group fell to 47 in the second quarter, down from 49 in the first quarter, according to an analysis of the latest inventory data by Thomas Weisel. This was still above the five-year historical average of 43 days, however. In the component suppliers segment, a group that includes both semiconductor manufacturers and makers of passives and connectors, the number of days of inventory outstanding dropped even more sharply, to 83 from 89, in the second quarter. The five-year average for the group was 78 days. A separate analysis by Electronic Engineering Times of inventory figures reported by the top semiconductor companies also indicated that suppliers made limited headway in their efforts to bring down inventory levels. Six of the nine companies reviewed cut their inventory levels, while three, including >>22 the No. 1 worldwide chip suppli- Connect the dots By Bolaji Ojo American but only by nomenclature T earnings. “We are hoping to keep our lead times reasonable, but it is obvious our inventories have risen.” March laid out an unusually blunt assessment of TI’s inventory status and strategic response during the presentation. First, he said, TI’s “inventory levels on the average in the future will be higher than they were in the past.” March added that this would be a direct result of steps being taken by the com- he U.S. economy grew at a slower rate in the second quarter. Big deal. If you were wondering why many executives weren’t fazed by that news, consider the following: First, U.S. companies are still hugely profitable. Second, most of their revenue and profits aren’t from sales in the United States. Third, U.S. companies might not be hiring locally, but they sure are setting up branches and hiring by the truckload everywhere else. Lastly, the world’s biggest companies are still headquartered in the United States, but this is as relevant in today’s global market as the fact that many companies are registered for tax purposes in Delaware. Ask electronics executives and they’ll tell you they spend little time worrying about whether this economy grew 3 percent or 3.5 percent last quarter. CEOs present financial results at home but board a plane the next day to assess conditions elsewhere. Sure, U.S. economic numbers do influence the global economy, and they might shave a percentage off corporate earnings, but, increasingly, they are relevant only in Punxsutawney, Pa. August 6, 2007 | Electronic Engineering Times 21 http://www.eetimes.com
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