Electronic Design

Excess Semiconductor Inventories Drop—For the Wrong Reasons

Excess semiconductor inventories in the first quarter of 2008 were expected to be down by 14.6%, to $2.9 billion, from $3.4 billion in the last quarter of 2007, according to iSuppli Corp.’s Semiconductor Inventory Tracker Service. Unfortunately, this is not necessarily good news, iSupply claims.

“The expected drop in surplus stockpiles in the first quarter mainly is due to a pullback in semiconductor production among suppliers,” said Rosemary Farrell, analyst for iSuppli. “In reaction to the lackluster demand late in December, chip suppliers began throttling back on manufacturing. This allowed their customers to draw down their inventories.”

While the semiconductor market is struggling with some particularly sore spots—most notably NAND-type flash memory—mid-quarter updates from chip suppliers indicate broad-based weakness, with most companies likely to miss their first-quarter forecasts. Due to poor visibility of future market conditions, semiconductor suppliers seemed to be taking a wait-and-see approach, keeping production levels low in the first quarter.

Much of the excess inventory is being held by the semiconductor suppliers themselves, rather than by their OEM or contract manufacturing customers, or by electronics distributors. The large quantity of inventory at suppliers was offset by declines elsewhere in the chain, which helped to reduce overall excess inventory in the electronics industry. With inventory levels high at the semiconductor suppliers themselves, and with worries mounting regarding market conditions, stockpiles could begin rising again in the second quarter.

All semiconductor segments experienced weak January sales, particularly the memory markets. In the PC supply chain, the year started out with news of reductions in orders of semiconductors. However, amid the glum January semiconductor sales, news was not all bad from chip customers. iSuppli's channel checks indicate that with the exception of some inventory pockets in Europe, the PC value chain is clear of excess supply and levels now conform with seasonal patterns. OEM demand is tracking to forecasts and, although OEMs are placing orders that are slightly lower than typical, this activity has not led to order cancellations.

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