Date: 13/10/2010

iSuppli: 10.6% of quarterly growth of semiconductor inventory in 3rd Q 2010

Market researcher iSuppli Corp has estimated that the semiconductor Days Of Inventory (DOI) for chip suppliers have climbed to 75.9 days in the third quarter of 2010. The DOI in the third quarter also was 4.8% higher than the seasonally adjusted average for the period. It is also reported that the semiconductor inventory in the third quarter is estimated to amount to $34.3 billion, up 10.6 percent from the second quarter.

Isuppli states despite the growth in the past four quarters, the inventory is not increasing at a uniform rate throughout the supply chain. As per the report, fabless companies are report stronger inventory growth rates than the 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, says I suppli.

"By most estimates, the increase in day of inventory is thought to be in line with projected revenues for the coming quarter, posing no overt danger toward overinflating the current supply chain," said Sharon Stiefel, a researcher for semiconductor inventory and manufacturing for iSuppli. "Likewise, inventory dollars, also on the upswing, will remain generally appropriate when measured against DOI. Nonetheless, softness in demand is being noted in some sectors, raising flags about potential trouble down the road."

Whether that softness is an isolated event or portends a broader slowdown remains to be seen, 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," she added.

"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. "Adding to the general anxiety are fears of global demand weakening in the face of continued economic uncertainty. As inventories continue to build through the end of the year, the potential exists for oversupply to steal back into the supply chain. The result is that the industry will need to keep a watchful eye to adjust manufacturing at the first sign of softness in demand."