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Semiconductor Inventory Levels Rise

Semiconductor suppliers have begun cutting chip inventories after stockpiles swelled to levels not seen since the downturn in early 2008, according to researcher IHS.

Global semiconductor inventories at suppliers stand at 83.4 days of inventory (DOI). The last record high for chip stockpiles was 83.1 DOI, which occurred in the first quarter 2008.

This year, second-quarter inventory DOI increased 3.5 days from the previous mark of 79.9 days in the first quarter. It was the first time in 12 consecutive quarters that DOI has topped the 80-day mark. The inventory level in the second quarter was 11 percent above the historical seasonal average usually recorded for the period.

This is close to the 11.1 percent oversupply seen in the first quarter of 2008, right at the start of a two-year downturn in the semiconductor industry.

Sharon Stiefel, semiconductor analyst at IHS, said the semiconductor industry is “wading into potentially troubling territory, reminiscent of the dark days leading into the recession.”

She added that an inventory correction will occur during the next few quarters and will not be completed until mid-2012. In fact, it has already started. DOI is preliminarily estimated to have declined by more than 2 percent in the third quarter to 81.3 days, according to IHS. Semiconductor suppliers are adjusting inventory levels to reflect the ongoing reduction in demand, Stiefel noted.

However, while there is an abundance of inventory, there should be sequential revenue growth of 4.8 percent in the third quarter compared to the second quarter despite the weak economy, IHS reported.

Chip demand from data processing and wireless communication OEMs will be strong and should help offset declines in other end markets. However, global semiconductor revenue for the year is forecast to grow only 2.9 percent growth in 2011, according to IHS. Earlier the researcher had forecast 4.6 percent growth for the industry, but the forecast was revised because of weak economic conditions.