SAN FRANCISCO (Reuters) - Texas Instruments (TXN.O) is expecting the chip industry to see a “sharp snap-back” in demand once a major inventory correction is over, Chief Executive Richard Templeton said.
Chip companies including TI and rival Broadcom Corp BRCM.O have suffered in recent quarters from a slowdown as manufacturers across the board reduced their chip inventories due to concerns that economic weakness could hurt demand.
Speaking at a Goldman Sachs conference, Templeton said it was not yet clear if the decline in inventories had ended in the fourth quarter, but he said that if it had not happened then, he would expect a bottom this quarter.
Templeton said the drop in chip unit shipments that began in July last year was one of the worst in the past decade. Only in 2001, after the dot-com stock bubble burst, and in 2009, following the U.S. financial crisis, were inventory corrections more drastic, he said.
“You watch those unit shipments drop and then you watch those unit shipments go skyrocketing up, literally in the next two quarters, because our supply chain always overreacts,” he said.
“Everybody is going to realize they overcompensated, their inventories are lean, they don’t have enough product, and it’ll go back and do a pretty sharp snap-back.”
Investors have been buying up chip stocks on expectations that manufacturers of smartpones, cars and network equipment are about to ratchet up their orders for semiconductors.
The Philadelphia semiconductor index has gained 16 percent so far in 2012, outperforming the Dow Jones industrial average’s 5 percent increase.
At the same event, Broadcom Chief Executive Scott McGregor said that not all of the inventory correction were related to economic concerns as some phone makers were running inventories deliberately low, partly due to shifts in market share.
While smartphones employing Google’s Android platform are more widely used than Apple’s (AAPL.O) iPhone, the market is fragmented, with Samsung leading the way and companies including HTC (2498.TW) struggling to captivate consumers.
Texas Instruments had said customers in a broad array of sectors were started to replenish depleted inventories when it reported higher-than-expected fourth-quarter chip sales last month.
Broadcom also posted stronger-than-expected quarterly earnings in January, and it set a target for this quarter that was slightly higher than Wall Street had expected.
Reporting By Noel Randewich; Writing by Edwin Chan and Sinead Carew; Editing by Lisa Von Ahn, Tim Dobbyn and Steve Orlofsky