EL SEGUNDO, CA — Global inventories held by semiconductor suppliers surged to their highest level in two-and-a-half years during the fourth quarter of 2010, a development that could spell trouble if chip industry growth loses steam this year, new IHS iSuppli research indicates.
Semiconductor suppliers had 83.6 days of inventory (DOI) at the end of the fourth quarter of 2010, up 5.5 days, or 7 percent, from 78.1 days in the previous quarter. Inventory was at its highest level since the second quarter of 2008—right before the onset of the last semiconductor downturn—when DOI reached 84 days.
Inventory levels arguably now are high by any standard, illustrating the difficulty of controlling chip stockpiles despite the arduous efforts of semiconductor suppliers to keep them in check. The sharp increase during the fourth quarter of semiconductor inventory defied expectations of a decline for the period, but the inflated level of inventory could become a concern if semiconductor industry growth falls short of expectations in 2011.
The rise in inventory came as a surprise, given that IHS iSuppli forecasts had predicted stockpiles would decrease by 2.5 DOI in the fourth quarter. Actual results, however, indicate a swing of eight DOI compared to expectations. With the current IHS iSuppli global semiconductor forecast calling for revenue growth of 5.6 percent in 2011—following in the wake of a 31.8 percent increase in 2010—the inventory level at present still should be manageable, assuming that the forecast holds.
However, if growth is lower, the high inventories could cause oversupply in the market, causing chip prices to decline faster than normal. This could amplify the size and duration of a downturn or slowdown in the semiconductor market.