Lead-Times Getting Shorter
Lead-time and supply issues in the semiconductor space have been a thorn in the side of fabless IC chip houses since the pandemic began, and the cause of sales shortfalls and missed performance goals. Foundries, with only limited near-term capacity expansion possibilities, rationed production, causing buyers to double order to gain leverage with silicon suppliers. In many cases foundries are still running at full capacity, but as demand for CE products has dwindled, particularly smartphones, chip suppliers that feed the smartphone supply chain are no longer double ordering, and in some cases are cutting back to work down existing inventory.
Recent comments from a number of network and RF equipment suppliers in Taiwan have indicated that lead times have fallen from a high of 50 weeks to a mere 30 weeks, allowing those that had been limited by foundry supply constraints in the 1st half of the year, to bring their customer fulfillment rates up by 10% or more, even as the silicon market remains tight. While a number of such companies that were supply limited in 1H now expect to see better performance in 2H as lead times decrease and transportation costs come down a bit, with higher fulfillment rates at Unizyx (3704.TT), Sercomm (5388.TT) and Arcadyan (3596.TT) in Taiwan.
However not everyone is a beneficiary, as Qurvo (QRVO) indicated on their quarterly call. The company was forced to pay foundry UMC (UMC) $110m to satisfy what was essentially a take-or-pay contract that was put in place last year to ensure the company had a guaranteed share of UMC’s capacity. As smartphone demand weakened, demand for Qorvo’s Wi-Fi and UWB (Ultra-Wideband) ICs did the same and the company was forced to reduce orders that put it below the contract minimum, triggering the payment. UMC however still seems to be running at full capacity as other customers fill the gap. Those agreements and double ordering that seemed so necessary ( and rightly so) last year and earlier this year are now coming back to bite the buyers while those that had to settle for revenue shortfalls due to supply constraints in the past are now getting close to meeting customer demand. Now we just have to watch foundry results to see if the ‘slowness’ continues to trickle down.
Recent comments from a number of network and RF equipment suppliers in Taiwan have indicated that lead times have fallen from a high of 50 weeks to a mere 30 weeks, allowing those that had been limited by foundry supply constraints in the 1st half of the year, to bring their customer fulfillment rates up by 10% or more, even as the silicon market remains tight. While a number of such companies that were supply limited in 1H now expect to see better performance in 2H as lead times decrease and transportation costs come down a bit, with higher fulfillment rates at Unizyx (3704.TT), Sercomm (5388.TT) and Arcadyan (3596.TT) in Taiwan.
However not everyone is a beneficiary, as Qurvo (QRVO) indicated on their quarterly call. The company was forced to pay foundry UMC (UMC) $110m to satisfy what was essentially a take-or-pay contract that was put in place last year to ensure the company had a guaranteed share of UMC’s capacity. As smartphone demand weakened, demand for Qorvo’s Wi-Fi and UWB (Ultra-Wideband) ICs did the same and the company was forced to reduce orders that put it below the contract minimum, triggering the payment. UMC however still seems to be running at full capacity as other customers fill the gap. Those agreements and double ordering that seemed so necessary ( and rightly so) last year and earlier this year are now coming back to bite the buyers while those that had to settle for revenue shortfalls due to supply constraints in the past are now getting close to meeting customer demand. Now we just have to watch foundry results to see if the ‘slowness’ continues to trickle down.
RSS Feed