The chip industry is abuzz about inventory these days.
As Broadcom Corp. showed investors two weeks ago, business in the semiconductor industry isn’t as copasetic as previously thought.
Irvine-based Broadcom posted $49 million in net income for the third quarter, reversing a $6.3 million loss a year earlier. That was the good news.
“We expect to see a further slowdown in orders in the near term due to continuing customer inventory issues,” interim Chief Executive Alan “Lanny” Ross said in a statement (Broadcom named a new chief executive last week,see page 8).
A big problem: slower sales of supporting chips for Intel Corp.’s 64-bit server chips.
It’s not just Broadcom.
Global chip inventory rose to $1.1 billion in the third quarter, up $311 million, or 38%, from the second quarter, according to a report by El Segundo-based market researcher iSuppli Corp.
“Inventories remain low by historical standards,” iSuppli said. But “the bloated stockpiles dragged on many semiconductor suppliers’ third-quarter results.”
So how long will the glut last?
“Chipmakers have expressed confidence that the excess inventories will be eaten up by the end of 2004, or by early in the first quarter of 2005,” iSuppli’s report said. “However, iSuppli continues to believe that the excess inventories should be a cause for concern for the semiconductor industry and we are maintaining our ‘yellow alert’ for chip stockpiles.”
The inventory buildup is a dramatic turn for chipmakers, which had seen stockpiles bottom out at the end of 2003.
By the first quarter of this year, inventories had increased but still were
stable. So chipmakers upped production in anticipation of more demand, iSuppli said.
“This optimism, combined with concerns regarding lead times and prices, led direct customers and distributors to place larger chip orders in anticipation of continued bookings and sales,” according to the report. “When demand began to soften in the middle of the second quarter, suppliers reacted quickly to rein in production and inventories. Unfortunately, the third quarter did not deliver the dazzling results needed to consume the excess inventory built up in the second quarter, creating an even more lackluster picture.”
A slowdown in chips could be especially noteworthy for Newport Beach-based Jazz Semiconductor Inc., which is prepping for an initial public offering this fall.
Three of Jazz’s customers,Conexant Systems Inc., Mindspeed Technologies Inc. and RF Micro Devices Inc.,recently have warned of slower sales and crimped profits or losses.
That could cast a shadow over Jazz as it meets with Wall Street investors and analysts in the run-up to its offering.
The outlook:
“After enjoying sequential growth of 5.8% and 1.8% in the third and fourth quarters, semiconductor sales increases will stall in the first quarter of 2005, rising by a scant 0.02%,” iSuppli said. “Growth will pick up throughout 2005, following normal seasonal patterns. However, for the entire year, semiconductor sales will rise just 9.6%, far less than the 25.4% growth anticipated for 2004.”
Patently Disappointing
The race is on for Newport Beach-based Acacia Research Corp., which buys technology patents and makes money on licensing fees.
It’s been almost a year since Acacia’s patent for the V-chip for TV sets expired. So now the company is relying on its other major patent, one for sending video content over cable TV lines and the Internet.
So far, the media transmission patent has been a weak contributor to sales,only accounting for $740,000 in the third quarter.
Since Acacia makes a big deal out of the dozens of licensing deals it’s signed, the revenue number seems pretty small. In the last quarter alone, Acacia said it inked 41 new licensing deals.
Since the digital media transmission patents expire in 2011, Acacia needs to get moving to make the most out of them.
Just wait, said Rob Stewart, head of investor relations for Acacia.
“We’re just getting started,” he said.
So far, the company has focused mainly on Internet companies that use the digital media transmission technology.
The company is targeting satellite and cable providers, too.
Plus, the company isn’t sweating the 2011 expiration.
If Acacia wins potential suits against companies that refuse to pay, the company said it could collect back license fees to the point where they first contacted the companies regarding the fees.
Overall, Acacia’s third-quarter sales were $2.9 million, up from $367,000 in the same period a year ago. The company’s sales can swing wildly, depending on settlements and licensing deals.
