William Trent1

Semis With Highest, Lowest Production To Sales Ratio

Ralph - I am comparing the amounts produced to the amounts sold to customers. If more is produced than is sold inventories will rise. If less is produced than is sold, inventories will fall. Too much inventory can be bad for future margins in one of at least two ways: 1) lower production, which due to operating leverage would mean each unit would have a higher cost; 2) obsolescence, which could lead to write-offs. Underproduction can mean lost sales.

Frank - You got two of the three potential reasons, with the other being a temporary shortfall (perhaps due to high seasonal demand or other factors.) In the case of MEMC, the prolonged underproduction is due to limited supplies of the raw material polysilicon. I would classify this as a production problem, but since it applies to all manufacturers it is not an MEMC problem. In fact, it is helping their margins since they are one of the few available sources.

Andrew - per my comment to Ralph, over/underproduction at fabless companies can impact margin through obsolescence or by missing out on sales if the inventory is not available. I think it is still worth looking at the trends for each company, although further analysis would require separating the companies into fab/fabless as well as other segments such as analog or memory.