Several local OEMs in China reportedly have started building chip stock and replenishing inventories recently as they prepare for possible labor shortages around mid-2012 following the Lunar New Year holiday.
Scaling up chip procurement is considered as a risky decision, as the short-term outlook on consumer spending remains gloomy, Taiwan-based IC design firms have commented. If losing the bet, another wave of inventory adjustments will be triggered to further impact company performance in the first quarter of 2012, the firms pointed out.
However, engaging in inventory building under the current unfavorable market climate is also understandable in view of fewer working days in the first two months of 2012, the firms said. The long Lunar New Year holiday will reduce the number of working days in January next year.
In contrast, demand from the Europe and US markets remains sluggish, and is expected to stay weak through the first quarter of 2012 as the period is the traditional low season, the firms indicated.
Industry observers expect revenues at Taiwan's IC design companies to drop up to 10% sequentially in the current fourth quarter, with some managing flat growth thanks to their heavier emphasis on the China market. Revenues for the first quarter of 2012 are all likely to see larger declines sequentially, the observers said.