Semicon firms watch for double ordering: distributor bookings eyed for evidence

Electronic News, July 27, 1992 by Richard McCausland

Distributor Bookings Eyed for Evidence

NEW YORK -- Semiconductor suppliers are closely monitoring distributor bookings for evidence of double ordering.

"A lot of us have product families on allocation. When that happens, there's no question some customers are going to book double orders," said Brian Hilton, vice president in charge of Motorola's worldwide distribution program.

"Is there double ordering going on? I certainly think there's some," said Chuck Bartlett, vice president in charge of North American distribution for National Semiconductor. "I would doubt that demand for surface mount logic has increased as substantially as orders would dictate."

"Absolutely there's double ordering," said Dave Esto, marketing vice president for distributor Anthem Electronics. "Anyone who believes all the bookings they're seeing in today's market are real is naive.

"I've heard of customers admitting doing whatever they have to do to get product, and if they have to place a double order, then they will," he said. However, "The suppliers are doing a good job of developing allocation programs and of establishing ordering moratoriums on distribution," according to Mr. Esto.

With lead times steadily stretching out on a widening array of circuits--general-purpose logic, linear, video RAMs, low-density EpROMs, some application-specific standard products--semiconductor vendors have been compelled in many instances to allocate parts. "The last time I talked to one of our distributors, there were at least 2,000 items on allocation," said Dennis Reker, distribution sales director for Intel. "Virtually every manufacturer is on allocation with something."

He speculated "Certainly the computer industry is doing very well and that might be the catalyst that's heating things."

Double ordering takes two forms. A customer, in need of 1,000 parts, might instead place an order with the factory or through distribution for 2,000 pieces on the assumption he won't get everything he requested, or he might place 1,000-piece orders with two different sources. The result is to mask true components demand, which can result in too much capacity being brought on and huge inventory overhangs.

Taking a cautious tack, "We are watching (end-user) inventories very closely. We are monitoring that every month, as well as distributor resales," said Mr. Hilton. Thus far, the market "hasn't overheated yet," he observed. "Inventories are growing, but at a relatively controlled level. We'll have to wait and see what happens."

Distribution's current strength was underscored earlier this month in the second-quarter financial statement of Texas Instruments. Chairman Jerry Junkins commented "We continue to see strength in the U.S. semiconductor market. U.S. distributor resales during the first half of this year were the strongest since the first half of 1984."

Although the boom in the first half of 1984 gave way to a debacle in the second half when components vendors, distributors and equipment manufacturers all found themselves glutted with inventory--largely the result of double and even triple ordering--the situation is quite different this time around, according to industry officials. For one thing, whereas the '84 upsurge was very heavily PC-driven, the latest pickup is much broader-based. "It seems to cross all segments of the business," said Mr. Hilton. "The only segment that is not in a growth mode is military."

Other factors are fueling this growth as well. "We've certainly initiated programs to encourage our customers in distribution," noted Mr. Bartlett. In addition, "Some of (the growth) is the result of more customers using contract manufacturers, who in turn are using distribution to meet their needs. That has certainly been a trend." Normally direct factory customers are also turning to distributors to fill gaps in their tightly reined-in inventories.

Referring to the TI distribution results, Intel's Mr. Reker observed "We're seeing the same strength; it's the best half ever--forget '84."

In terms of absolute dollars, "Q1 and Q2 were all-time records. We're certainly hoping the growth will last, and it looks like it will last through Q3." But Mr. Reker cautioned "It's anybody's guess after Q4 what will happen, but this year could be extremely strong."

Distribution revenues currently represent about 25 to 30 percent of over-all sales, he estimated. Moreover, the strength at the distributor level is "across-the-board; it's all product lines."

He attributed much of the strenth to a re-invigorated computer industry. In particular, "With the low-end PCs, the price point has gotten so low that the market has opened up. Look in the newspapers now; you can get a PC for under a thousand bucks. I think that's the key to whether we are going to stay in this mold for awhile or not."

National's Mr. Bartlett noted "We had the strongest June we've seen on record." Also, "Our book-to-bill ratio is up over May, which is the first time we've seen that in several years." Finally, "Our first half was stronger than any of the preceding three halves, and that was despite our breaking relations with Arrow."