Demand for memory chips stifled due to semiconductor shortage and low inventory

Dive brief:

  • Micron’s inventory is at “its lowest level in many years” as it encounters shortages of integrated circuit components, limiting its ability to meet full demand, CEO Sanjay Mehrotra said on the call. to the company’s fourth quarter results.
  • The computer memory chipmaker’s inventory days were 94 for the quarter – “definitely below optimal” from 100 to 105 days, CFO Dave Zinsner said. Micron is particularly lean in finished goods inventories, with the value of this category at its lowest level since 2013.
  • Micron’s PC customers face their own inventory issues as they face shortages of other components, slowing the short-term demand that the COVID-19 pandemic has accelerated. PC makers have cut back on memory and storage purchases to wait for semiconductors to finish building their computers, Mehrotra said.

Micron Inventory Levels Fall Below Optimal Range

Inventory days and optimal range (100 to 105 days) since fiscal 2019

Dive overview:

The challenges that Micron customers face in obtaining other components slow down the short-term need for memory chips.

In September, manufacturers of computer and electronics products saw their inventories increase as parts shortage problems continued, according to the Institute for Supply Management. Manufacturers kept products in progress, awaiting the arrival of shortage components, such as semiconductors, as backorders increased. Automakers, home appliance makers, consumer electronics companies and other industries producing goods containing chips have slowed production due to the shortage.

“While I expect shortages to bottom out in the second half of the year, it will be another 1 to 2 years before the industry is able to fully catch up with demand,” said Intel CEO Pat Gelsinger, on the chipmaker’s second quarter earnings call.

But with unmet end-consumer demand for PCs continuing to persist, Mehrotra said current supply chain constraints are only “pushing” purchases of its products and demand will return to normal in a few months. month.

“Everything is really motivated by work from home, learn at home,” Mehrotra said. “This acceleration in demand that took place during the pandemic will also continue to support a healthy environment for PCs in calendar year 22.”

Another memory chip maker SK Hynix has also encountered inventory issues amid the COVID-19 pandemic. She realized that using her production capacity wouldn’t be enough, so she dug deeper into her inventory to keep up, Park Myoung-Soo, DRAM Marketing Manager for SK Hynix, said at the meeting. ‘call for the company’s second quarter results. The downward trend in inventories in the industry “will likely continue through the end of this year and also into next year,” Park added.

Micron’s chip supply will need to grow enough to both meet short-term ordering needs and replenish its inventory shortfall before a rebound in demand from PC makers anticipated by company executives.

Micron never wants inventory below 95 days, according to Zinsner, and inventory levels “will likely increase by a few days” in the next quarter, but still below the ideal 100-day figure. Micron’s inventory days were well over 100 before fiscal 2021.

Mehrotra said the memory chip industry as a whole has reduced inventory in recent years, but Micron’s supply is now too small. This is in part due to problems with the supply of enough controllers and analog integrated circuits, which will limit the company’s large deliveries to customers in the first quarter, Mehrotra said.

“As we’ve talked about before, finished product inventories are really where we’re particularly lean,” Zinsner said. “And we need to make some progress in that space to get ourselves in a better position. But overall I would say the second half of the year we’re probably going to be in the optimal range.”

This story first appeared in our weekly newsletter, Supply Chain Dive: Operations. Register here.

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