Semiconductor industry faces a mixed ride

The semiconductor industry is in for a roller coaster experience.

Today, IHS iSuppli released figures claiming that despite a worrying 3.4 percent rise and all time 11 year high in the fourth quarter of 2011, the average days of inventory (DOI) held by chip suppliers were expected to decline in this quarter.

It said the 0.5 percent decline gave a glimmer of hope that market conditions are finally improving. 

Despite slow demand and continued excess production in the industry, the analyst company claimed that the average global semiconductor stockpiles held by chip suppliers rose to 84.1 DOI in the fourth quarter. This was up from 81.3 in the third quarter.

However, it pointed out that demand was predicted to rise in the first quarter, drawing down stockpiles to 83.7 DOI.

Global semiconductor revenue declined by 2.8 percent compared to the fourth quarter of 2010 as customer orders declined. And it was also a sorry state of affairs for semiconductor suppliers, which struggled to balance their factory utilisation levels against the drop in demand. The company said that in turn this lead to a rise in semiconductor inventories, which in the fourth quarter of 2011 were at their highest level since the first quarter of 2001.

The problem with excess inventory, the research company said, was that it can represent a challenge for the semiconductor industry, particularly in times of declining demand, causing prices to decline and result in factories reducing their manufacturing.

However, it’s not all gloom and doom with the report suggesting there are signs that conditions in the semiconductor market are improving. This was due to semiconductor suppliers “projecting a resumption of demand in the first quarter. 

It added that book-to-bill ratios were “reaching parity”, and global macroeconomic indicators pointed to a healthier outlook.

“These factors are raising optimism among semiconductor suppliers that better days are ahead for the industry,” the report added.

However, it’s not all fun and games over in Taiwan.

A report by the government’s statistics bureau found that the annual production value of Taiwan’s semiconductor industry fell 11.3 percent to $52.4 billion (NT$1.55 trillion) last year because of faltering global demand.

It found that integrated circuit (IC) manufacturing and design accounted for 75 percent of the nation’s overall semiconductor industry output but IC manufacturing  fell by 11.8 percent, while IC design also suffered a loss of 15.2 percent.

The production value of the flat-panel display industry also declined in 2011, falling 15.6 percent from 2010.