Michael Burry warns of ‘suspicious revenue recognition’ after Nvidia earnings
Investing.com - Inventories at European chipmakers exposed to the automotive and industrial sectors have begun to decline, but are likely to dent profit margins until the end of next year, according to analysts at JPMorgan Chase.
In a note, the analysts including Sandeep Deshpande and Craig McDowell flagged that car and industrial companies’ inventory days -- a gauge of the average number of days these businesses take to sell stockpiled items -- fell to 166 days in the third quarter, down from 179 days in the prior three-month period.
This remains about 46 days above the level which many firms have indicated is the "new normal," the analysts said, adding that this underlines the "importance of monitoring" inventories at semiconductor groups.
"Many companies missed margin guidance because high inventories meant that they are seeing lower utilization rates than previously modeled in future quarters," they wrote. "The high inventory in this end market means that inventory and thus margins are unlikely to be ‘normal’ till end [20]26."
Elevated inventory, they added, is also creating a "buyers market" highlighted by short lead times -- the total time it takes from the moment a purchase order is placed with a supplier until the stock is received and available for use or sale.
Meanwhile, average selling prices for memory chips are "soaring," surging by 47% versus a year earlier in September, according to WSTS data cited by the JPMorgan analysts. Inventories of memory processors are also 118 days below a peak reached during the COVID-19 pandemic, a trend that the analysts predicted should translate into "strong" orders for semiconductor gear.
ASML was as a potential beneficiary in this operating environment, with the JPMorgan analysts giving the Dutch memory chip supplier an "overweight" rating.
On the other hand, more automotive- or industrial-exposed chip firms like Infineon and STMicro are dependent on what has been "elusive" demand in these sectors, the analysts argued.