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Inventory? What inventory?

02 March 2009 | By Mark Osborne | Editor's Blog

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The semiconductor industry got caught with its trousers down over excessive IC inventories when the dot com boom, bust in 2001. The double and triple ordering that took place fooled the industry into thinking business was booming and new capacity kicked in to meet the ‘demand.’ When the dust settled, the industry took more than a year to get inventory levels down, which delayed the eventual recovery.

This time round, the industry seems hell-bent on not making the same mistakes again as many companies have cut production drastically in a bid to keep inventory levels down.

One of the problems with this strategy is that demand has declined quicker than anyone expected and with the typical quarter or so to see the impact of production cuts it becomes inevitable that inventories will rise for a period of time.

A week ago, Gartner highlighted in its weekly newsletter to customers that inventory levels were rising rapidly, warning that its Dataquest Semiconductor Inventory Index (DASI) rose to its highest level in seven years in the fourth quarter of 2008.

Gartner analyst, Gerald Van Hoy noted the following;

“We expect the DASI to remain in the ‘severe excess inventory’ condition for at least the first half of 2009. On the positive side, because inventory levels in dollar terms are declining, and we expect this decline to continue, we believe the DASI will return to normal conditions quickly when a turnaround in demand is seen.”

So why did the SIA mention in news concerning the January IC sales that inventory was ‘very low’?

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