Rumblings emerging from this year’s Electronic Components Industry Association Executive Conference suggest that the semiconductor market is continuing to deteriorate at an alarming rate.
Initial forecasts of 4.5% growth given earlier in the year have had to be downgraded significantly. The reasons for this pessimistic attitude are numerous and compelling.
One of the key factors is the state of the Japanese economy. Despite recovering remarkably well since the disaster which befell the Asian country earlier this year, foreign businesses are having a difficult time investing in the semiconductor market within the country.
It is also worth noting that U.S. consumers and companies, a vital driving force in the semiconductor market, are showing no signs of significant spending due to the uncertain state of the country’s economy.
Rising inflation and the turmoil created as a result of the recent European debt crisis have also been put forward as viable reasons for the slowdown in the semiconductor market generally.
The result is that growth expectations have been downgraded to a projected 2.9% for 2011. As for next year, those within the industry can only hope that the market stabilises before picking up to boost the electronic components industry generally.
Excessive inventory issues
These recent developments follow news that increasing semiconductor inventory levels are also a major problem for the industry.
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.
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.”
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