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Excess Chip Inventories Wane
April 4, 2007 |Estimated reading time: 1 minute
EL SEGUNDO, Calif. A larger drop in surplus component inventories occured in Q'04 2006, and the trend continued into Q'01 2007, reports iSuppli. Two factors contribute to this decline in surplus inventories: previous production cuts by chip manufacturers and a modest increase in orders, from February onward, for components. Strong end-market demand and new product introductions (NPIs) in the second half of 2007 will prevent a repeat of the stock build-up in the supply chain.
Excess semiconductor inventories in the global supply chain dropped to $2.5 billion in Q'01, a 10.7% decrease from the previous quarter, according to iSuppli's semiconductor-industry tracker service. This reduction represents a 40.5% decrease from peak surplus numbers of Q'03 2006. Scaled-back production from chip houses was the primary cause, explained Rosemary Farrell, inventory analyst at iSuppli. Semiconductor suppliers carry the bulk of the chip excess in the supply chain, Farrell added.
Some elevated inventories at EMS providers and OEMs delayed product shipments in the first quarter, as distributors and OEMs attempted to balance inventory levels. Chip orders sank in January, then began to climb in February indicating that EMS providers, suppliers, and other members of the supply chain had reduced excess stock. Overall lead times for semiconductor orders remained stable throughout Q'01, contributing to a conservative ordering environment.
Semiconductor suppliers will ramp production in Q'02 2007, iSuppli predicts, based on expectations of increased demand from OEMs and EMS providers in the second and third quarters. The large quantity of semiconductors entering the supply chain will depend on strong end-market sales to circumvent inventory problems seen in the second half of 2006.