The FT reports on the excess inventory in certain parts of the tech supply chain. Carlo Bozotti, the CEO of STMicroelectronics, summarizes it perfectly, “We saw overbooking by some customers in April, as they tried to protect themselves from shortages of certain components. That led to a correction in June.”
This is exactly what CEA reported immediately following the disasters in March after talking with dozens of OEMs throughout the supply chain.
CEA’s earliest analysis in March suggested the companies around the impacted area were very far up the supply chain and any impact would most prominently be felt in calendar Q3 when the supply chain was drained of inventory and the impact had time to cycle down to companies lower in the supply chain. But as we noted, companies were quick to divert production and tap capacity outside of the impact areas. The economic slowdown also slowed/altered demand within certain markets such that there was no major systemic impact on the tech supply chain. Still, immediately following the disaster there was overbidding. This is common. When supply tightness exists either because of supply disruptions or because of a stronger than expected uptick in demand, companies tend to overbid their real number in hopes they are allocated the amount of supply they really want.
Excess inventory in the supply chain will (naturally) put downward pressures on prices. First because some companies will destock now there is greater certainty and clearity up the supply chain and they know capacity is readily available if they need it. Secondly, because companies are inclined to get agressive with pricing during soft patches. Companies have been hesitant to discount significantly over the last few months even given the economic softness. The lack of visability up the supply chain had left them uncertain they would be able to fulfill orders if implemented pricing promotions would have been successful in driving volume.
