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Semi market showing shift

Posted: 14 Oct 2010 ?? ?Print Version ?Bookmark and Share

Keywords:semiconductor? inventory? manufacturing? market report?

Semiconductor inventory levels may have crossed into oversupply territory, according to iSuppli Corp., citing softness in some end markets in Q3 2010. This marks a turnaround from the lean inventories and part shortage seen for most of the year.

The market watcher estimates that days of inventory among chip suppliers climbed to 75.9 days in Q3 2010, up from 74.4 days in Q2 10 and about 5 percent higher than the seasonally adjusted average for the period. The value of semiconductor inventories climbed to $34.3 billion in Q3 2010 up 10.6 percent from Q2 2010 and higher than it has been since it peaked at $35.8 billion in Q2 08, iSuppli said.

Semiconductor inventory levels may have crossed into oversupply territory, according to iSuppli

The increase in supply, however, is in line with projected revenues for the coming quarter and do not pose any overt danger to overinflating the supply chain, said Sharon Stiefel, a researcher for semiconductor inventory and manufacturing at iSuppli. Still, softness in demand noted in some sectors is causing concern about trouble down the road.

It remains to be seen if the softness is an isolated event or a sign of a broader slowdown, but it is commonly believed that the industry will need to moderate inventories at the appropriate time in its growth curve in order to capture current revenue opportunities while they still exist, Stiefel said.

"Should demand decline at a rate faster than initially forecasted--an entirely reasonable assumption given the slower-than-expected pace of economic recovery around the world--semiconductor inventory may go into an oversupply situation," Stiefel said.

According to iSuppli chip inventory is not increasing at a uniform rate throughout the supply chain despite the overall expansion during the past four quarters. It noted that fabless companies report stronger inventory growth rates than other segments of the semiconductor industry, such as foundries. With companies operating more efficiently, enjoying record profits and setting higher safety stock targets, elevated inventory levels may qualify as the new normal, the firm said.

But it warns that a gathering storm of conflicting market factors may compel chipmakers to take extra caution.

"With inventories predicted to grow in the third and fourth quarters, manufacturers likely will seek to balance the current situation of long lead times and capacity constraints against concerns regarding of softening demand through the end of 2010, especially in particular sectors like PCs," Stiefel said.

She noted fears of global demand weakening in the face of continued economic uncertainty. The industry will "need to keep a watchful eye to adjust manufacturing at the first sign of softness in demand," she said.

The semiconductor market is still expected to achieve about 30 percent growth compared to the recession level of 2009.

- Dylan McGrath
EE Times

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