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Electronics Production | September 19, 2006

iSuppli: Inventory levels too high at EMS firms

According to iSuppli the inventory at EMS providers rose 18,6% during the second quarter. The high inventory levels could affect the figures in the bottom line, says iSuppli.
iSuppli warns for having too high levels of inventory in the companies. According to iSuppli the EMS companies are having levels of inventory that outpaced sales by 8.6 points during the second quarter and that inventory days at EMS providers are 3.3 days higher than what would be optimal.

At a $10 billion-plus company the cost of excess inventory can mean millions to the bottom line. Take Solectron, for example. As of May 31, the Tier 1 EMS firm was sitting on $1.48 billion worth of inventory. Should an extra 0.2% to 0.5% of it be determined to be excess and obsolete, the company's gross profit would have dropped by $3 million, its operating income by $7.4 million. Simclar, a $60-million EMS company, wrote down $1.86 million in parts due to obsolescence during its March quarter - nearly 10% of its total inventory valuation of $18.4 million. The company's net income that period? $720,000.

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