Semiconductor Industry Sees Inventory Normalization, Prices Rise 14% Year-Over-Year

UBS has released a new report indicating that the semiconductor industry is moving towards inventory normalization. The report, based on data from over 100 global distributors, shows that the industry is gradually achieving a supply-demand balance, particularly in the Microcontroller Unit (MCU) segment. This segment has seen a steady decrease in inventory levels, which has helped to alleviate market concerns about supply shortages.

Despite potential slowdowns due to trade tensions and tariff risks, the overall trend suggests a more balanced market. UBS has identified Texas Instruments (TXN.US), Renesas Electronics (RNECY.US), and Infineon Technologies (IFNNY.US) as top picks in the semiconductor sector. These companies are expected to benefit from the improving market conditions and the normalization of inventory levels.

In July, global semiconductor inventory levels remained stable, with the exception of capacitors and sensors, which saw a 6% increase. Other categories either maintained or slightly reduced their inventory levels. Notably, MCU inventory has been decreasing since February, with a 1% reduction in July, although this is a slower pace compared to the previous month's 5% decline. This trend indicates a continued effort to reduce excess inventory.

Pricing trends also show a positive outlook. The average price for all categories increased by 1% month-over-month and 14% year-over-year. This increase is primarily due to adjustments in product mix. Specifically, transistor prices rose by 1% month-over-month and 18% year-over-year, driven mainly by bipolar transistors. Capacitors, diodes, and sensors also saw price increases of 2-3% month-over-month, while other categories remained stable or increased by 1%.

In the MCU segment, standardized unit inventory has been decreasing for three consecutive months, with a 1% reduction in July. Prices remained stable month-over-month but increased by 1% year-over-year. Despite current inventory levels being higher than in January 2023, UBS emphasizes that the segment was in a severe shortage state at the beginning of the year.

For transistors, inventory decreased by 2% month-over-month, with prices increasing by 1% (compared to a 2% increase the previous month) and a year-over-year increase of 18%. Passive components, such as multilayer ceramic capacitors (MLCCs), saw a 2% increase in inventory at the end of June and a further 5% increase in July. Capacitor prices rose by 36% year-over-year and 3% month-over-month, with inventory decreasing by 12% year-over-year.

Sensors experienced an 18% year-over-year price increase and a 2% month-over-month increase, primarily driven by magnetic sensors. Inventory for sensors increased by 31% year-over-year and 6% month-over-month, showing significant fluctuations in recent months.

At the company level, the weighted average pricing in July increased by 3% year-over-year, consistent with the 3% increase in May. Overall inventory levels remained stable, with the reduction in MCU inventory slowing down. This trend was previously driven by Microchip Technology (MCHP.US) and STMicroelectronics (STM.US), but Infineon's MCU inventory share increased from an average of 2.6% to 4%, indicating a buildup of inventory.