Semiconductor inventory rises creates industry panic

10 10 2011

According to leading market analyst IHs iSuppli, component inventories held by semiconductor suppliers during the second quarter of this year increased to levels not seen since the start of the last downturn in 2008.

At the end of June this year, official semiconductor stockpiles with suppliers stood at 83.4 days of inventory (DOI).

This exceeds the previous record of 83.1 DOI from the first quarter of 2008.

IHS iSuppli claims the news is “raising concerns over the near-term outlook for the chip market.”

The level is 11% higher than the historical average which is usually recorded for this period. The last major oversupply, seen in the first quarter of 2008, signalled the beginning of a 2 year downturn in the semiconductor industry.

Sharon Stiefel, semiconductor analyst at IHS, voiced her fears over what this could mean for the entire semiconductor industry.

“For the semiconductor industry, wading into such troubling territory – reminiscent of the dark days leading into the recession – could herald the beginning of a critical inventory adjustment period.

“The correction is likely to take place during the next few quarters and will not be completed until mid-2012. As such, it will involve suppliers making a prolonged reduction in their inventory levels to avoid dangerous oversupply situations.”

Excessive inventory has opposite effect

The news comes just months after excessive inventory actually played a big part in serving as a real boost for the global semiconductor industry in the first quarter of this year.

The level of inventory helped to alleviate the damage done by the Japanese earthquake which hit the country, and the electronics industry, so hard in February of this year.

The shortage of basic components such as semiconductors was not nearly as bad as it could have been.

The statistics show that the days of inventory (DOI) among chip suppliers stood at an estimated 80.3 days at the end of the first quarter in 2011. This was up by 1.1% from the 79.4 days in the final quarter of 2010, and it was also an increase of 9.1 days from the same period in 2010.

In total, this represented a 2 year high and just goes to show that excessive inventory is not always a negative thing necessarily.

For additional information on semiconductors, visit www.challengercomponents.com

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