Chip inventories contract, reversing 7 quarter trend

January 4, 2012 — Chip inventories held by semiconductor suppliers declined in the third quarter of 2011, putting a halt to the steady expansion of the previous seven quarters, as the industry cut production in order to reduce oversupply, shows IHS iSuppli research.

As calculated by days of inventory (DOI), semiconductor stockpiles in the third quarter stood at 81 days, down 2.5% from 83 days in Q2, according to an IHS iSuppli Inventory Insider report.


  Q3 ’09 Q4 ’09 Q1 ’10 Q2 ’10 Q3 ’10 Q4 ’10   Q1 ’11  Q2 ’11 Q3 ’11 Q4 ’11 (est.)
DOI 65 67 69 73 73 77 80 83 81 79.3
Figure. Worldwide days of inventory (DOI) held by semiconductor suppliers. Source: IHS iSuppli Research, January 2012. See Q1’s report. See Q2’s report.

DOI had been increasing since Q3 2009, rising from 65 days. Late 2009 inventories were low due to the production cuts implemented during the recession. DOI crept upwards in efforts to replenish depleted stocks and meet growing demand. Recent weakness identified in the semiconductor market has made inventory levels a concern, notes IHS. Global semiconductor revenue in 2011 rose by 1.9% over 2010, well below the 7% forecast early in the year.

"For the third quarter, semiconductor suppliers began an inventory correction to alleviate an escalating oversupply situation on top of already inflated stockpiles," said Sharon Stiefel, semiconductor analyst at IHS. "With the global economy all but stalled, and in the face of declining orders as well as decreased visibility, many semiconductor manufacturers opted to reduce capacity utilization. And with lead times now declining to normal levels after extended periods of waiting in the past, manufacturers were more confident about trimming bloated inventories this time around without fear of causing too much pain to the supply chain."

Also read: More IC pessimism: Semi inventories "worrisome," says Gartner

Despite the inventory cutback, DOI in the third quarter remained elevated in absolute terms — the highest of the last 10 quarters (back to Q4 2008). The percentage of oversupply during the period rose to 12.1%, exceeding the 11.1% spike in oversupply during Q4 2008. Further inventory trimming is expected in Q4 2011, falling to 79.3 days (2.5% decline).

Inventory levels rose for handset OEMs (holiday season), distributors, and analog companies. Stockpiles fell for fabless semiconductor makers, memory suppliers, foundries (reduced capacity utilization rates), PC OEMs, storage gear companies and electronic manufacturing services providers.

Access the IHS iSuppli report, Inventories in the Semiconductor Supply Chain Finally Begin to Decline in Q3, at

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