Rising chip inventory spurs oversupply fears

Semiconductor Days Of Inventory (DOI) for chip suppliers are estimated to have climbed to 75.9 days in the 3Q/2010, up 1.5 days from the second-quarter. DOI in the 3Q/2010 also was 4.8% higher than the seasonally adjusted average for the period. Mirroring the rise in DOI, the total dollar value of semiconductor inventory held in by chip suppliers continued to grow as well. Inventory in the 3Q/2010 was estimated to amount to USD 34.3 billion, up 10.6% from the 2Q/2010. The value of inventory was not been this high since the 2Q/2008, when semiconductor suppliers’ stockpiles peaked at USD 35.4 billion, the market researcher continued. The potential for oversupply represents a complete turnaround from the lean stockpiles during recent months. However, inventory is not increasing at a uniform rate throughout the supply chain, despite the overall expansion during the past four quarters. For instance, fabless companies report stronger inventory growth rates than other segments of the semiconductor industry, such as foundries. And with companies operating more efficiently, enjoying record profits and setting higher safety stock targets, elevated inventory levels may well qualify as the new normal. Still, a gathering storm of conflicting market factors may compel manufacturers to take extra caution. To this end, managers will need to protect assets, maintain lean operations and reduce inventories—all in the name of preventing inventories from expanding by the end of the fourth quarter. Such actions, taken quickly to balance production with the new lower level of demand, may then prevent an inventory bubble from occurring, iSuppli concludes.