IC inventories remain lean, says iSuppli

El Segundo, Calif. — Despite a recent financial report warning of bloated semiconductor inventories in the distribution channel, stockpiles among electronics distributors and in nearly all other segments of the chip supply chain remain lean, according to iSuppli Corp.

“Concerns have been raised that a semiconductor inventory bubble appeared among distributors starting in the third quarter of 2009 that potentially could impact the expected recovery of the chip industry in 2010,” said Carlo Ciriello, an analyst with iSuppli, in a statement.

“However, iSuppli sees no evidence to support the claim that semiconductor inventories at distributors were higher in the third quarter of 2009 than they were at the onset of the downturn in the third quarter of 2008. In fact, iSuppli’s research indicates that inventory levels among these companies are well below the historical average.”


Distributors controlled 36.9 days of inventory (DOI) at the end of the third quarter of 2009, down 15 percent from 43.4 DOI for the same time in 2008, according to iSuppli. In dollar terms, distributors held $4.8 billion worth of semiconductor inventory at the end of the third quarter of 2009, down 22 percent from $6.1 billion for the third quarter of 2008.

These reductions meant distributor DOI at the end of the third quarter were 17 percent less than the trailing three-year average, says iSuppli.

iSuppli currently forecasts a small rise in inventory dollars in the fourth quarter, and DOI at distributors should continue to decline. iSuppli’s expects the DOI will be 18.7 percent less than the three-year historical average at the end of the fourth quarter 2009.

iSuppli also said the decline in distributor semiconductor inventories matches stockpile reductions among chip suppliers. DOI at semiconductor makers declined to 66.4 at the end of the third quarter of 2009, down 11 percent from 74.6 for the same time in 2008.

“Semiconductor suppliers have been maintaining tight control over inventories,” Ciriello stated. “Suppliers prefer just-in-time fulfillment to capital-constraining shelf stocking. This has resulted in lower inventories throughout the electronics supply chain, including at distributors.”

In addition, iSuppli’s report, Full Shelves in 2010? finds that semiconductor DOI in the fourth quarter were also at lower than historical levels for makers of PCs, storage devices like hard disk drives (HDDs) and cell phones. This means that any increase in demand for these end products is likely to translate directly into rising semiconductor sales, according to the market researcher.

Supporting iSuppli’s forecast, Intel Corp. in its fourth-quarter financial call last week stated that distributor inventories were down compared to the third quarter, reports iSuppli. Intel also noted that its own inventories are at healthy levels and are at an appropriate size relative to demand, according to the market researcher.

In addition to recovering demand, lean inventory levels will be key to driving the semiconductor market’s return to growth in 2010 after a decline of 12.4 percent in 2009, says iSuppli. The market researcher expects worldwide semiconductor revenue to reach 15.4 percent in 2010.

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