No double booking in this semiconductor recovery

EL SEGUNDO, USA: Despite fears that buyers are inflating semiconductor purchases in order to guarantee adequate supplies, there’s no indication that chip purchasers are engaging in double booking, according to iSuppli Corp.

Double booking is a phenomenon wherein buyers order much larger quantities of chips than they need, making the sales totals appear bigger than they really are. This situation can occur when electronics demand rises while inventories are low.

Such circumstances in the past have cased purchasers to double book out of fear that they will be caught with short supplies, artificially boosting sales totals. This can later cause a sales letdown as orders are cancelled or scaled back.

However, this doesn’t appear to be the case in late 2009.

“In their earnings announcements, prominent semiconductor suppliers all reported they saw no signs of the dreaded double-booking phenomenon during the third quarter,” said Carlo Ciriello, analyst, financial services, for iSuppli. “This should give the semiconductor industry confidence that the magnitude of the current recovery accurately reflects real demand levels.”

In the books
Comments on double booking from semiconductor suppliers in third-quarter earnings calls included:

* “…we don't have any evidence of double ordering,” noted Texas Instruments Inc.

* “(We are) following every week the run rate of bookings from major customers—be they distributors or OEMs—and (we) do not see any major discrepancy in the last three months,” said STMicroelectronics.

* “…we have seen no evidence whatsoever of any double ordering,” Intersil observed.

Semiconductors on the rise
The lack of double ordering comes amid other encouraging news for the global semiconductor industry. Global chip revenue amounted to $58.3 billion in the third quarter, up 10.6 percent from $52.8 billion in the second quarter, based on iSuppli’s preliminary forecast.

Furthermore, worldwide semiconductor inventories have been declining. When expressed in terms of revenue, global chip stockpiles fell 2.3 percent in the third quarter compared to the second.

These positive factors point to continued strength in the fourth quarter and a return to annual revenue growth in 2010.

Worldwide semiconductor revenue is set to rise by 3.5 percent sequentially in the fourth quarter. However, on a year-over-year basis, revenue is expected to rise by 10.6 percent in the fourth quarter of 2009. The fourth quarter will mark the first quarter in 2009 that revenue has risen compared to the same period a year earlier.

Global semiconductor revenue is set to rise by 13.8 percent in 2010, following a 16.5 percent contraction in 2009.

Source: iSuppli, USA