In the interest of digging deeper into the semiconductor oversupply issues, this post continues a series of data gathering on important ratios for companies in the industry. Hopefully the process will provide insight toward the companies better (or worse) positioned to take advantage of the next upturn or weather the downturn.
Earlier I used Zacks Research Wizard to get the recent Cost of Goods Sold [COGS] and Inventory levels for semiconductor industry participants over the last several quarters. I made some modest limitations on the share volume and market cap, but still ended up with more than 50 names. I used trailing twelve month COGS and the average of the last five quarters (for a beginning, ending and average) of inventory to calculate days sales in inventory [DSI].
Higher inventory levels relative to sales indicates a greater likelihood that the company will need to reduce prices, reduce production or take a write-off, all of which would reduce gross profit margin. In this post I compare the current DSI to the DSI in the same quarter one year ago. This should mitigate any seasonal effects, such as ramping inventory ahead of holiday sales, that might distort sequential comparisons.
he companies with the biggest increase in DSI may have the most trouble in the event of an industry downdraft. Even if semiconductor sales remain strong they will need demand to catch up with their current capacity and may not see as much benefit as other manufacturers. The five companies with the largest year/year DSI increase are Silicon Labs (NASDAQ:SLAB), Applied Micro (NASDAQ:AMCC), Zoran (NASDAQ:ZRAN), Monolithic Power (NASDAQ:MPWR) and Triquint (TQNT).
The companies with the greatest reduction in DSI, by contrast, may be poised for margin expansion as they replenish inventory levels and ramp up production to meet demand. The five companies with the biggest decrease in DSI are Large Cap Watch List member MEMC Electronics (WFR), Advanced Micro Devices (NASDAQ:AMD), Atheros (NASDAQ:ATHR), Conexant (NASDAQ:CNXT-RETIRED) and Intersil (NASDAQ:ISIL).
The complete list follows.
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