Global Sources
EE Times-Asia
Stay in touch with EE Times Asia
EE Times-Asia > Manufacturing/Packaging

iSuppli warns of inventory surplus in chip market

Posted: 19 Dec 2008 ?? ?Print Version ?Bookmark and Share

Keywords:inventory surplus? chip industry? semiconductor market?

iSuppli Corp. warned the semiconductor market of a flood of excess inventory that could further depress sales in 2009 as equipment manufacturers across the high-tech industry severely slash component demand amid a downturn in end demand.

Total industry chip inventory in the current quarter could rocket up to $10.2 billion, up 168 percent from $3.8 billion in Q3 and more than quadruple the 2007 year-end level of $2.3 billion, the market research firm said.

Such a dramatic increase in inventory could add to the pressures facing the semiconductor industry where many companies have had to ratchet down sales forecast as the weakening global economy force consumers and corporate IT equipment buyers to either delay or cancel purchases.

"The near-tripling of excess semiconductor inventory throughout the electronics supply chain in the fourth quarter will significantly extend the time necessary for the semiconductor industry and contract manufacturer to benefit from any recovery in demand," iSuppli said in a statement. "It also will wipe out several additional percentage points of growth from the semiconductor industry in 2009."

Already, research firms have sharply scaled back their sales forecast for the semiconductor industry with the latest data showing negative growth and perhaps the sharpest sales decline in the market history. Gartner Inc., for instance, is predicting semiconductor sales in 2009 will drop a steep 16.3 percent, to $219.2 billion from an estimated $261.9 billion in 2008.

Missed forecasts
While chipmakers have traditionally had some level of success rebalancing their product portfolio and readjusting their cost structure through layoffs and plant closures, they have also faced greater difficulties matching component supply with actual demand due to inaccurate forecasts from researchers and especially OEM customers.

The erratic swings in supply and demand have in the past severely hurt component manufacturers as they are forced to either lower prices when faced with excessive supplies or struggle to clinch sales when production lag OEM requirements. This situation has fueled the industry's notorious sales upturn and downturns.

The current market weakness is not being driven by component and forecast mismanagement, however. Instead, demand has fallen off due to weakness in the general economy, which the electronics market has become even more dependent upon as IT equipment use spread across various industry segments.

Gauging actual demand in this context will become even more problematic for semiconductor companies in future and this is already evident in the projected component overage, according to Derek Lidow, chairman and CEO of iSuppli.

"Semiconductor demand has fallen in the fourth quarter, and it declined much faster than expected at the end of the third quarter, as shown by a rash of lowered guidance announcements," Lidow said in the statement.

"This means that initial fourth-quarter production schedules were set too high. Production schedules have been ratcheted down during the quarter in what are mainly reactive moves, resulting in excess inventory buildup," he said.

Ripple effect
It is expected that the inventory management problem would ripple through the entire electronic industry supply chain with component distributors, contract manufacturers, OEMs and suppliers warily eyeing each other's forecast and producing only enough to match determinable demand.

In such a cautious environment, the industry would most likely again miss the next market upturn and probably run into another of its infamous component shortage crisis that could drive up prices even if modestly in the short term.

That's a problem many in the industry would gladly welcome now considering the current outlook, which indicates demand may not pick up strongly until late in 2009 and perhaps not until 2010.

Meanwhile, the industry would have to work through a boatload of inventories, which may have to be sold at a loss in an industry where rapid technology changes can quickly make today's products unusable in tomorrow's products.

Those forecast figures might have to be modified as a result, according to iSuppli, which said the excess supplies in the market could put a 2 percent drag on semiconductor growth.

"Putting the $10.4 billion into perspective, at the beginning of the bust, iSuppli measured $13.4 billion in excess inventory, which took two years to work down to manageable levels," the research firm said.

- Bolaji Ojo
EE Times

Article Comments - iSuppli warns of inventory surplus i...
*? You can enter [0] more charecters.
*Verify code:


Visit Asia Webinars to learn about the latest in technology and get practical design tips.

Back to Top