Electronics inventory Olympics review

According to investment bank JPMorgan, the electronics technology supply chain exited 2007 with healthy inventory levels but took a step backward in Q1 as some excess inventory developed. However, what's encouraging is that supply chain inventories are heading in the right direction again and are better than historical trends almost across the board. Where was inventory worse you ask? Electronics manufacturing services (EMS) and telecommunication OEMs saw inventories track slightly worse than historical trends after posting the best inventory metrics in Q1.Semiconductor capital equipment OEMs stuck out for poor inventory management led by Applied Materials which is just ramping its long-lead time solar business. In the spirit of the Olympics below are the best Q2 inventory performances. Gold medal Networking OEMs. With only 32 days of inventory, this segment reached a new 10 year trough led principally by Cisco Systems which set an individual 10 year record-low for inventory days at 30. In comparison, at the peak of the last technology recession Cisco's inventory days hit 90. Silver medal Distributors. In this case, both component and computer distributors were able to reverse course from their Q1 builds and show healthy quarter-on-quarter inventory day reductions. Bronze medal Retailers. At first glance their 21 day quarter-on-quarter build could be alarming, but history says its almost three days below normal trend, it's inline with the 69 days from a year ago, and the lowest June level since 2000. How about EMS? Inventories for EMS providers is up marginally, but still healthy. EMS inventory days rose less than one-half day to 49 days, worse than the historical 1.4 day decline for a June quarter, but barely up 1% quarter-on-quarter. The 49 days for a June quarter are the lowest since 2005 when EMS inventories troughed for a June quarter at 40 days. Despite EMS inventories being approximately two days worse than historical trend, many in industry still feel they can move back to the 40-45 day range as we head into 2009. OEM inventories JPMorgan believes OEM inventories appear well-managed heading into the second-half of 2008, except for semiconductor capital equipment. Like EMS provider, OEM companies also built a small amount of inventory with a 1.5 day quarter-on-quarter increase, slightly ahead of the 1.6 day historical average. Inventory days of 61 are down about one day year-on-year and not too far off the June quarter trough of 59 days last reached in 2006. The bottom line is that OEM inventory appears to be in good shape heading into the second-half of 2008 and remains well below levels of the last technology recession in June 2001 of 78 days. Semiconductor capital equipment OEMs have very elevated inventory levels that are up 36 days year-on-year driven primarily by Applied Materials. Semiconductors, components, distribution, and retail Semiconductors, components, distribution, and retail each do a nice about-face. After a lackluster Q1 inventory showing, JPMorgan believes the semiconductors, components, distribution, and retail sub-segments all showed better-than-historical-inventory-performance by an average of two days. Meanwhile components companies and distributors as well as computer distributors all showed absolute inventory day declines of approximately four days on average. Semiconductor inventory days remained flat, despite rising approximately two days historically in the June quarter. Overall, the investment bank says it's encouraging to see healthy signs at the front-end of the supply chain entering the second half of the year. Source: JPMorgan VentureOutsource.com, August 2008