What Chip Shortage: Inventory At Leading Chipmakers Hits Record $65 Billion

Something odd emerged as automaker after automaker - most notably Toyota last week - announced they would throttle auto production in coming months due to a historic chip shortage: according to calculations from Financial Times parent, Nikkei, total inventory at the world's nine leading chipmakers hit a record high of $64.7 billion as of the end of June as "companies quickly moved to ramp up production to alleviate a protracted shortage that has disrupted supply chains in the auto industry and beyond."

When demand for chips used in high-performance computers and automobiles outpaced projections due to the coronavirus pandemic which forced many chipmakers to suspend production in Southeast Asia, Taiwan Semiconductor - the world's largest chipmaker - optimized production lines in January-June, expanding production of automotive chips during the period by 30% from a year earlier.

Others followed, and according to Nikkei, total inventory at TSMC, Intel, Samsung Electronics, Micron Technology, SK Hynix, Western Digital, Texas Instruments, Infineon Technologies, and STMicroelectronics are now at historic highs, as chipmakers expand their stockpile of raw materials to drive production. The share of raw materials in total inventory has steadily been increasing since March 2019 at the seven companies that provide comparable data and topped 24% as of the end of March.

At the same time, finished chips are flying off the shelves: while turnover usually falls when total inventory increases, due to the backlog of persistent demand, sales have been growing faster than inventory, and the April-June quarter saw a turnover rate of 7.8, the highest in 18 months.

Still, as the Japanese publication notes, there is concern that growing inventories are not necessarily an accurate reflection of actual chip demand. For example, many automakers are now shifting away from the just-in-time strategy -- or holding as little parts inventory for as short a time as possible -- to holding spare inventory in case of supply chain disruptions.

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